The Union Budget 2025-26 introduced significant changes to the income tax structure that take effect from April 1, 2026. With the new financial year approaching, here’s everything salaried individuals need to know to optimize their tax planning.
New Tax Regime (Default) — FY2026-27
The new regime is now the default unless you explicitly opt for the old regime:
- Up to Rs 4,00,000: Nil
- Rs 4,00,001 – Rs 8,00,000: 5%
- Rs 8,00,001 – Rs 12,00,000: 10%
- Rs 12,00,001 – Rs 16,00,000: 15%
- Rs 16,00,001 – Rs 20,00,000: 20%
- Rs 20,00,001 – Rs 24,00,000: 25%
- Above Rs 24,00,000: 30%
Standard Deduction: Increased to Rs 75,000 (from Rs 50,000)
Tax Rebate: No tax payable up to Rs 12,00,000 income (effectively zero tax for income up to Rs 12.75 lakh including standard deduction)
When to Choose Old Regime
The old regime (with deductions) is better ONLY if your total deductions exceed approximately Rs 4.25 lakh. Calculate:
- Section 80C: Rs 1.5 lakh (ELSS, PPF, EPF, life insurance)
- Section 80D: Rs 25,000-75,000 (health insurance)
- Section 80CCD(1B): Rs 50,000 (NPS)
- HRA Exemption: Varies (typically Rs 1-3 lakh for metro employees)
- Home Loan Interest: Up to Rs 2 lakh (Section 24b)
If the total exceeds Rs 4.25 lakh, old regime likely saves more. Use the income tax calculator on the IT department website for exact comparison.
Key TDS Changes from April 2026
- TDS on FD interest: Threshold increased to Rs 50,000 (from Rs 40,000) for non-senior citizens
- TDS on dividends: Threshold increased to Rs 10,000 (from Rs 5,000)
- TDS on rent: Threshold increased to Rs 6,00,000 annually (from Rs 2,40,000)
Action Items for April
- Inform your employer about your regime choice (new vs old) via Form 12BAA
- Submit investment proofs for FY2025-26 to avoid higher TDS in March salary
- Start ELSS SIPs if opting for old regime (3-year lock-in, start early)
- Open NPS account if not already done (extra Rs 50,000 deduction under 80CCD(1B))
- Review health insurance adequacy — premiums up to Rs 75,000 deductible for senior citizen parents