Switching tax regimes? Key things salaried employees must know before choosing between old and new

A salaried employee has the option to choose between the old and the new income tax regimes while filing their returns, though the latter one continues to remain the default option. In the Union Budget 2026, Finance Minister Nirmala Sitharaman did not announce any changes to the existing income slab rates under either new or old tax regime.

The notified provisions under the Income Tax Act, 2025, and the Income-tax Rules, 2026, have retained the current tax slab structure effective from April 1. Meanwhile, the new tax regime continues to remain the default option for taxpayers under the revised framework.

What changed under the new rules?

The Central Board of Direct Taxes (CBDT) notified the Income-Tax Rules, 2026, on March 20, 2026, as part of the implementation of the Income Tax Act, 2025. According to a gazette notification, "These rules may be called the Income-tax Rules, 2026. They shall come into force on April 1, 2026."

While the updated framework simplified several provisions under the income tax law, it did not introduce any changes to the existing income tax slab rates under either of the tax regime.

Among the key changes, the new law replaced the separate concepts of ‘previous year’ and ‘assessment year’ with a unified ‘tax year’ system. Several tax forms were also renumbered and simplified, including the replacement of Form 16 (TDS certificate) with Form 130. The updated framework also tightened disclosure requirements for foreign assets and certain deductions.

Tax slabs in new income regime vs old tax regime

Under the old tax regime, annual income up to ₹2.5 lakh remains exempt from tax. Income between ₹2.5 lakh and ₹5 lakh is taxed at 5%, while income from ₹5 lakh to ₹10 lakh attracts 20% tax. Earnings above ₹10 lakh continue to be taxed at 30%. Under the old tax regime, salaried individuals are eligible for a standard deduction of ₹50,000

Under the new tax regime, income up to ₹4 lakh remains tax-free. Earnings between ₹4 lakh and ₹8 lakh attract 5% tax, while higher income brackets are taxed progressively from 10% to 30%. Under the new tax regime, salaried individuals are eligible for a standard deduction of ₹75,000.

What taxpayers should know before opting for a tax regime

Although, the new tax regime offers lower tax rates and a simplified tax structure, it also comes with fewer deductions and exemptions compared to the old tax regime. Under the new regime, most common tax benefits such as house rent allowance (HRA), deductions under Section 80C, Section 80D, home loan interest benefits and several other allowances are not available.

However salaried taxpayers can claim a higher standard deduction of ₹75,000, compared to ₹50,000 under the old regime. Additionally, no income tax is applicable on annual income up to ₹12 lakh, making it attractive for taxpayers whose income lies within that threshold.

Under the new tax regime, salaried individuals earning up to ₹12.75 lakh annually may effectively pay zero income tax after factoring in the standard deduction. Similarly, certain non-salaried taxpayers with income up to ₹12 lakh may also have no tax liability subject to applicable conditions.

The old tax regime, on the other hand, continues to benefit taxpayers who make tax-saving investments or claim multiple exemptions. Individuals investing in provident fund schemes, ELSS, life insurance, NPS, or paying home loan EMIs and health insurance premiums may find the old regime more beneficial.

Meanwhile, the new regime is generally considered more suitable for taxpayers with limited deductions, as it offers lower tax rates. Because of these provisions in each tax regime, taxpayers should properly evaluate their salary structures, exemptions, deductions, and long-term investments before deciding which regime suits them better.