Deductions in New Tax Regime under Union Budget 2026

Union Budget 2026 Highlights

• New Income Tax Act, 2025: A new Income Tax Act has been introduced, effective 1 April 2026, to simplify laws and reduce disputes under a trust-based system.
• Extended ITR timelines:
• ITR-1 / ITR-2 by 31 July
• Other non-audit returns by 31 August
• ITR revision allowed until 31 March of next year with a small fee.
• No Closure of Old Regime: The old tax regime has not been discontinued. Taxpayers can still choose between the old vs. new tax regimes.
• Union Budget 2026 introduced a scheme to issue automated nil-deduction TDS certificates to eligible small taxpayers.
• No changes were made to slabs or exemption limits of the new and old tax regimes in Budget 2026.

What is the New Tax Regime for the Financial Year 2025-26 (AY 2026-27)?

The Union Government introduced a New Tax Regime under Section 115BAC in the Budget 2020 with concessional tax slab rates.

• The CBDT has stated that the old regime will continue, and there is no plan to phase it out even though most taxpayers now choose the new regime.
• The Union Budget 2025, presented in the Parliament Session on 01 February 2025, brought significant changes to the tax slabs under the new tax regime for the Financial Year (FY) 2025-26 and Assessment Year (AY) 2026-27.
• These slabs continue for FY 2026-27 (AY 2027-28) as per the latest Union Budget 2026.

New Income Tax Slabs for FY 2025-26 and FY 2026-27 (New Tax Regime)

Income up to ₹4 lakh is tax-free, and the highest marginal rate is 30% on income exceeding ₹24 lakh

Standard Deduction and Default Regime

• The new tax regime is the default regime for tax withholding and calculation.
• Taxpayers who prefer to avail exemptions and deductions of the old regime must explicitly opt for it.
• Salaried individuals and pensioners can claim a standard deduction of ₹75,000 under the new regime.
• Because of this and the higher rebate limit (next section), salaried taxpayers with gross income up to ₹12.75 lakh pay no income tax.

Comparison with Previous Years (New Tax Regime)

1. Increase in Tax Rebate Limits in Budget 2026

   • Under Budget 2025, the rebate limit under Section 87A of the Income Tax Act, 1961, was increased from ₹7 lakh to ₹12 lakh, with a maximum rebate of ₹60,000. This effectively means zero tax for resident individuals earning up to ₹12 lakh before standard deduction.
   • Budget 2026 did not change this rebate - rules remain the same for FY 2026-27.
   • Important clarification: Section 87A rebate does not apply to income taxed at special rates (like short-term capital gains under Section 111A or long-term capital gains).

   Tax Rebate Limit Under Old Tax Regime for FY 2024-25	Tax Rebate Limit in New Tax Regime for FY 2024-25	Tax Rebate Limit in New Tax Regime for FY 2025-26 and FY 2026-27
   ₹5 lakhs	₹7 lakhs	₹12 lakhs (with ₹60,000 rebate)

2. High Basic Tax Exemption Limit in New Regime for 2026

   • The basic tax exemption limit of ₹2.5 lakhs under the old tax regime increased to ₹3 lakhs under the new tax regime in Budget 2024 and further increased to ₹4 lakhs in Union Budget 2025.
   • No new changes are introduced in this limit for old and new tax regimes for FY 2026-27 as per the Union Budget 2026.

   Age Categories	Basic Tax Exemption Limit u/ Old Tax Regime for FY 2025-26	Basic Tax Exemption Limit u/ New Tax Regime for FY 2024-25	Basic Tax Exemption Limit u/ New Tax Regime for FY 2025-26
   < 60 Years	₹2.5 lakhs	₹3 lakhs	₹4 lakhs
   60 to <80 Years	₹3 lakhs
   80 Years & Above	₹5 lakhs

3. Section 80TTB Standard Deductions - in New Tax Regime 2026

   • Union Budget 2026 Update: There are no changes in the standard deduction amount in Budget 2026, as salaried individuals remain eligible to claim the benefit of standard deductions of Rs. 75,000. This change was announced in the Union Budget of July 2024 for the new tax regime.
   • Union Budget 2025 Update: Family pensioners can claim the standard deductions of Rs. 25,000 under the new tax regime from ₹15,000 in 2023.
   • Union Budget 2023 Update: The standard deduction of ₹50,000 was provided to low-income taxpayers. You can avail of this benefit as a Section 80TTB deduction under the Income Tax Act, 1961.

4. Surcharge on High-Income Individuals in Budget 2026

   • Individuals earning Rs. 50 lakhs & above fall in the high-income category. The government of India levies a surcharge on high-income earners.
   • Budget 2025 already rationalised the surcharge, and Budget 2026 kept it unchanged:

   Income Slabs	Surcharge Rates in Old Tax Regime	Surcharge Rates in New Tax Regime (in % p.a.)
   Rs. 50 lakhs	NIL	NIL
   Rs. 50 lakhs- Rs. 1 crores	10%	10%
   Rs. 1 crores- Rs. 2 crores	15%	15%
   Rs. 2 crores- Rs. 5 crores	25%	25%
   Rs. 5 crores & above	37%	25%

5. New Tax Regime is the Default Option in 2026

   The new tax regime is the default choice for an income tax deduction by an employer and the Income Tax Department.

   Note: You have to specifically opt (with your employer or IT department) to calculate your TDS and other personal taxes as per the new tax regime.

Meaning of Exemptions and Deductions in New Tax Regime

Let us understand the key terms from the list mentioned below:

1. Deductions in New Tax Regime

   • Refers to the expenses or investments made by the taxpayer that can be subtracted from their gross total income to arrive at the taxable income.
   • Deductions can help lower the tax liability of an individual or a company.

2. Exemptions in New Tax Regime

   • Refers to the income or investments made by the taxpayer that are not included in the calculation of their taxable income.

Exemptions and Deductions Not Available Under New Tax Regime in 2026

From the table below, let us learn the key exemptions and deductions in the new tax regime that are not claimable by individuals:

*These non-claimable deductions remain the same in 2025 and 2026 - no additional deductions were added in Budget 2026.

Deductions & Exemptions in New Tax Regime (FY 2025-26 to FY 2026-27)

There are certain deductions and exemptions in the new tax regime, which are as follows:

Deductions on Business Income Not Provided Under New Tax Regime in 2026

Let us have a look at the various exemptions and deductions in the new tax regime not available to businesses:

Comparison of Deductions under Old Regime vs. New Regime for FY 2025-26

The table below shows a comparative analysis of the available deductions under the old vs. new tax regime:

Salary Wise Calculation and Savings Under New Tax Regime in 2026

*Rebate under Section 87A applies, so no tax is payable up to ₹12 lakh under the new regime.

No major tax is payable under the new regime up to ₹12 lakh (after standard deduction), thanks to the higher rebate under 87A of the Income Tax Act.

Salary Wise Calculation and Savings Under New Tax Regime

*Rebate under Section 87A applies, so no tax is payable up to ₹12 lakh under the new regime.

No major tax is payable under the new regime up to ₹12 lakh (after standard deduction), thanks to the higher rebate under 87A of the Income Tax Act.

Which Tax Regime Is Better - New Tax Regime vs Old Regime?

• Choose the Old Regime if you have large deductions/exemptions (HRA, 80C, 80D, home loan interest, etc.) that significantly lower your net taxable income.
• Choose the New Regime if:
• You want simplicity (no documentation).
• Your total deductions are small (typically under ₹2–3 lakh/yr).
• Your gross salary is up to ₹12.75 lakh (as income up to ₹12.75 lakh is tax-free for salaried individuals with the standard deduction).

Quick Summary Table:

Use an official online income tax calculatorto compare both regimes based on your deductions and income before filing

Wrapping It Up

The new tax regime introduced in Budget 2025 and continued in Budget 2026 gives many taxpayers meaningful relief, especially middle- and upper-middle-income individuals. With wider slabs, higher rebate limits, and a standard deduction of ₹75,000, taxpayers earning up to ₹12.75 lakh can often pay zero income tax after rebate and deductions. However, the regime excludes many traditional deductions, so taxpayers with large investments or expenses may still benefit from the old regime.