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Act 2025 Explained

New Tax Regime Is the Default

Section 202 of the Income Tax Act 2025 makes the new tax regime the default for every taxpayer. Here is what that means, who can opt out, and what the 2026-27 slabs look like.

Introduction

The Income Tax Act 2025 changed how the new tax regime works. From tax year 2026-27 onwards, the new regime is the default — meaning the tax department will calculate your tax under the new regime unless you actively choose the old one. The change is in Section 202 of the new Act.

The new regime uses lower slab rates but fewer deductions. The old regime uses higher slab rates but allows more deductions such as HRA, Section 80C, 80D, and home loan interest. The right choice depends on your total deductions.

Key facts

Default for every taxpayer

Section 202 of the Income Tax Act 2025 makes the new regime the default for all taxpayers — individuals, HUFs, firms, and companies alike.

Opt-out still available

Taxpayers who prefer the old regime can opt out. The choice is made at the time of filing your ITR and can be changed in subsequent years.

Simpler deductions under the new regime

The new regime allows fewer deductions than the old regime but uses lower slab rates to compensate. The standard deduction of ₹75,000 for salaried individuals is built into the slab structure.

New regime slabs for tax year 2026-27

Up to ₹4 lakh: nil · ₹4–8 lakh: 5% · ₹8–12 lakh: 10% · ₹12–16 lakh: 15% · ₹16–20 lakh: 20% · ₹20–24 lakh: 25% · Above ₹24 lakh: 30%. Rates verified 2026-10-07 against the Income Tax Department tax-rates page.

How to choose the old regime instead

The old regime is still available. You can choose it when you file your ITR using Form 10-IE. If you prefer the old regime for a given year, file Form 10-IE before the ITR filing deadline and your return will be processed under the old slabs.

Use the Income Tax Department's official comparison tool at incometax.gov.in to see which regime gives you a lower tax bill for your specific deductions and income.

Frequently asked questions

What does 'new regime is the default' mean for me?
It means the Income Tax Department will process your return under the new regime unless you actively choose the old regime when filing. If you do nothing, you are on the new regime for tax year 2026-27.

Can I switch back to the old regime after choosing the new one?
Yes. You can opt out of the new regime and choose the old regime when you file your ITR for any subsequent year. There is no lock-in period preventing switches between regimes.

Is the new regime better for everyone?
Not necessarily. If you have large housing loan interest, HRA claims, or other old-regime deductions worth more than the tax you save under the new regime's lower slabs, the old regime may work out cheaper. Use a tax calculator to compare both before filing.

Where can I read the official explanation of the new regime?
The Income Tax Department's new-act guidance page at incometax.gov.in explains the new regime in plain English. Your filing utility (or a tax professional) will also show both regime calculations side by side.

Sources

Last reviewed by FinWiz24 Research Desk.