What is the New Tax Regime?

Last Updated On -02 Sep 2025

Taxpayers in India now have the choice of either the Old Tax Regime or the New Tax Regime. The new system was introduced in the Union Budget 2020 to make the process of taxation more straightforward by providing reduced tax rates and eliminating the majority of exemptions and deductions. The new tax regime has become the default option since April 2023 (FY 2023-24), and in the income tax system of India, it has become an important part. What then is the new tax regime, and how does it work? Let's explore in detail.

What is the Meaning of the New Tax Regime?

The New Tax Regime is a new system of income taxation that offers concessional rates of tax but does not permit the majority of exemptions and deductions found in the old regime. It is based on the notion that tax compliance is easier to achieve because individuals have less paperwork, and the system does not rely heavily on investments to achieve tax savings.

Though taxpayers still have the option of using old and new regimes, salaried people will be required to explain to their employer their choice at the beginning of the financial year. There is no default provision that the employer will deduct TDS according to the new regime.

Tax Slabs under the New Tax Regime (Assessment Year 2024-25)

The new tax regime is a move towards a simplified and concessional taxation regime in India. Although it is beneficial to those who are interested in simple compliance, it can still be more beneficial to individuals with higher eligible deductions to continue to utilize the old regime. The wise thing to do is to compare the two regimes annually and then pay the taxes.

The new regime income tax slabs are as follows:

Up to ₹3,00,000 - No tax (amount of basic exemption limit)
₹3,00,001 to ₹6,00,000 - 5%
₹6,00,001 to ₹9,00,000 - 10%
₹9,00,001 to ₹12,00,000 - 15%
₹12,00,001 to ₹15,00,000 - 20%
Above ₹15,00,000 - 30%

There is also a rebate under Section 87A, which permits taxpayers with a taxable income within ₹7,00,000 to essentially pay no tax under the new regime.

There is a cess (4%) and surcharge (as applicable) charged on the total tax payable.

Key Features of the New Tax Regime

Lower Tax Rates: The idea is to lower the total taxation across middle-income groups.
Default Regime: Since the new regime takes effect in FY 2023-24, the default regime applies unless taxpayers have chosen otherwise.
Small Deductions: There are no available popular exemptions such as HRA, LTA, 80C, 80D, etc. But, salaried persons are allowed to deduct ₹50,000.
Simple Compliance: No need for detailed investment planning or submission of proofs.
Flexibility to Change: Salaried taxpayers may change regime annually, but business/professional taxpayers cannot.

Key Advantages & Disadvantages of the New Tax Regime

Initially, make a comparison of the amount of tax you are likely to pay under the two regimes before deciding to use the new tax regime. Even when you are already investing in schemes such as PPF, ELSS, or taking a home loan, the old regime might still be more advantageous. Make the right decision with online tax calculators.

Advantages of the New Tax Regimes:

Lower tax rates for individuals with limited deductions.
Simple structure with reduced dependency on tax-saving investments.
Appropriate for young workers or those who do not want to commit their funds to investments with a long-term lock-in.
Less documentation is required to file taxes.

Disadvantages of the New Tax Regime:

Fewer exemptions and deductions than under the old regime.
Not useful to those who invest heavily in insurance, PPF, NPS, et cetera.
May does not encourage saving over the long run because tax-saving investments are not subsidized.

For Example,

Assume that a wage earner receives ₹10,00,000 on an annual basis.

They may save a lot of taxable income in the form of deductions (such as ₹1.5 lakh under 80C, ₹50,000 under 80D, etc.) under the Old Regime.
They do not qualify to take those deductions under the New Regime. Nonetheless, their tax payable can still be less, provided they do not invest heavily because of the lower slab rates.

This demonstrates that the new tax regime favors those who like lower rates without having to use various deductions.

Did you know?

When the new tax regime was launched in Budget 2020, only approximately 5-10% of taxpayers chose it at the very beginning. Yet it gained acceptance among more people, especially young salaried professionals, since the government declared it the default regime in 2023.

Frequently Asked Questions (FAQs)

Who will want the new tax regime?

The new tax regime should be selected by those who make fewer deductions and highly value liquidity at the expense of long-term tax-saving investments.

Will I be able to deduct some things under the new regime?

The majority of deductions (such as 80C, 80D, HRA, LTA) are not permissible. But a standard deduction of ₹50,000 on salaried persons, employer contribution towards NPS, and some others are allowed.

Does the new tax regime apply to everyone?

No, it is not yet over, taxpayers still have a choice of old regime or new regime. However as of FY 2023-24, the default choice will be new regime due to the choice of the taxpayer not to switch.