Income Tax Made Easy
Old Regime vs New Regime
FY 2025–26 | AY 2026–27 | Individual Below 60 Years | Section 115BAC
Understanding Each Head of Income
Income Tax Act classifies all income into heads. Each head has its own deduction rules.
HEAD A — Salary Income (₹15,00,000)
Old Regime: Standard Deduction = ₹50,000 → Net Salary = ₹14,50,000
New Regime: Standard Deduction = ₹75,000 → Net Salary = ₹14,25,000
⚡ Key Point: Budget 2024 increased standard deduction to ₹75,000 — but ONLY for New Regime. Old Regime continues with ₹50,000.
HEAD B — House Property Income (Rent ₹4,50,000/year)
Step 1: 30% Standard Deduction u/s 24(a) — allowed in BOTH regimes (no receipts needed!)
₹4,50,000 − 30% (₹1,35,000) = ₹3,15,000
Step 2 — Home Loan Interest u/s 24(b): Rahul pays ₹2,00,000 interest on a home loan (let-out property).
Old Regime ✅ Allowed: ₹3,15,000 − ₹2,00,000 = Net HP = ₹1,15,000
New Regime ❌ Not Allowed: Net HP = ₹3,15,000 (higher by ₹2,00,000)
HEAD C — Capital Gains (Taxed at FLAT RATES — NOT added to normal slab!)
STCG ₹80,000 — Equity shares held < 12 months → Taxed at flat 15% u/s 111A (same in both regimes)
LTCG ₹2,20,000 — Equity shares held > 12 months:
First ₹1,25,000 is EXEMPT u/s 112A → Taxable LTCG = ₹2,20,000 − ₹1,25,000 = ₹95,000
Tax on ₹95,000 @ flat 12.5% = ₹11,875 (same in both regimes)
HEAD D — Other Sources (Interest Income)
Savings Bank Interest ₹18,000 — Fully taxable. Old Regime: Deduction u/s 80TTA up to ₹10,000 allowed.
FD Interest ₹55,000 — Fully taxable in BOTH regimes. No deduction available.
Total Other Sources = ₹18,000 + ₹55,000 = ₹73,000
Old Tax Regime — Complete Step-by-Step Calculation
Rahul claims all eligible deductions to reduce his taxable income as much as possible.
Section 80C
PPF ₹60,000 + ELSS Fund ₹50,000 + LIC Premium ₹40,000. Max limit ₹1,50,000.
Section 80D
Self & Family Health Insurance ₹25,000 + Parents (Senior Citizens) ₹10,000.
Section 80E
Education loan interest for child’s higher education. No upper limit! Full interest deductible.
Section 24(b) — Home Loan
Interest on home loan for let-out property. Deducted under House Property head above.
Section 80TTA
Savings interest exempt up to ₹10,000. Rahul earned ₹18,000 → only ₹10,000 deductible.
| Income Slab | Amount in this Slab | Tax Rate | Tax Payable |
|---|---|---|---|
| ₹0 – ₹2,50,000 Basic Exemption No tax on this portion |
₹2,50,000 | 0% | ₹0 |
| ₹2,50,001 – ₹5,00,000 Slab 1 5,00,000 − 2,50,000 = 2,50,000 × 5% |
₹2,50,000 | 5% | ₹12,500 |
| ₹5,00,001 – ₹10,00,000 Slab 2 10,00,000 − 5,00,000 = 5,00,000 × 20% |
₹5,00,000 | 20% | ₹1,00,000 |
| ₹10,00,001 – ₹13,81,000 Slab 3 13,81,000 − 10,00,000 = 3,81,000 × 30% |
₹3,81,000 | 30% | ₹1,14,300 |
| Total Slab Tax on Normal Income | ₹2,26,800 | ||
Visual: How much tax comes from each slab? (Old Regime)
| A. Tax on Normal Slab Income | |
| Slab tax computed above | ₹2,26,800 |
| B. Tax on Capital Gains (flat rates) | |
| STCG u/s 111A → ₹80,000 × 15% | ₹12,000 |
| LTCG u/s 112A → ₹95,000 × 12.5% ₹1,25,000 Exempt | ₹11,875 |
| Total Tax Before Cess | ₹2,50,675 |
| C. Surcharge & Cess | |
| Surcharge (Income below ₹50L → NIL) | ₹0 |
| Health & Education Cess @ 4% on ₹2,50,675 | ₹10,027 |
| 🔴 TOTAL TAX PAYABLE — OLD REGIME | ₹2,60,702 |
New Tax Regime — Complete Step-by-Step Calculation
Default regime from FY 2023-24. Fewer deductions but lower slab rates and higher basic exemption.
What IS still allowed in New Regime?
- Standard Deduction from Salary — ₹75,000 (Budget 2024 enhancement)
- 30% Standard Deduction on Rent u/s 24(a) — ALLOWED
- LTCG exemption u/s 112A — ₹1,25,000 still exempt
What is NOT allowed in New Regime?
- Home Loan Interest u/s 24(b) — NOT deductible (₹2,00,000 added back to income)
- Section 80C, 80D, 80E, 80TTA — ALL NIL (₹2,57,000 deductions gone)
- HRA Exemption & LTA — NOT allowed
| Income Slab | Amount in this Slab | Tax Rate | Tax Payable |
|---|---|---|---|
| ₹0 – ₹4,00,000 Basic Exemption No tax on this portion |
₹4,00,000 | 0% | ₹0 |
| ₹4,00,001 – ₹8,00,000 Slab 1 8,00,000 − 4,00,000 = 4,00,000 × 5% |
₹4,00,000 | 5% | ₹20,000 |
| ₹8,00,001 – ₹12,00,000 Slab 2 12,00,000 − 8,00,000 = 4,00,000 × 10% |
₹4,00,000 | 10% | ₹40,000 |
| ₹12,00,001 – ₹16,00,000 Slab 3 16,00,000 − 12,00,000 = 4,00,000 × 15% |
₹4,00,000 | 15% | ₹60,000 |
| ₹16,00,001 – ₹18,13,000 Slab 4 18,13,000 − 16,00,000 = 2,13,000 × 20% |
₹2,13,000 | 20% | ₹42,600 |
| Total Slab Tax on Normal Income | ₹1,62,600 | ||
Visual: How much tax comes from each slab? (New Regime)
| A. Tax on Normal Slab Income | |
| Slab tax computed above | ₹1,62,600 |
| B. Tax on Capital Gains (flat rates) | |
| STCG u/s 111A → ₹80,000 × 15% | ₹12,000 |
| LTCG u/s 112A → ₹95,000 × 12.5% ₹1,25,000 Exempt | ₹11,875 |
| Total Tax Before Cess | ₹1,86,475 |
| C. Surcharge & Cess | |
| Surcharge (Income below ₹50L → NIL) | ₹0 |
| Health & Education Cess @ 4% on ₹1,86,475 | ₹7,459 |
| 🟢 TOTAL TAX PAYABLE — NEW REGIME | ₹1,93,934 |
Side-by-Side Comparison — Old vs New Regime
Every single line item compared so you can see exactly where the difference comes from.
| Particulars | 🔴 Old Regime | 🟢 New Regime | Difference / Remark |
|---|---|---|---|
| Gross Salary | ₹15,00,000 | ₹15,00,000 | Same |
| Standard Deduction | ₹50,000 | ₹75,000 | New gets ₹25k extra |
| Net Salary | ₹14,50,000 | ₹14,25,000 | — |
| Gross Rent Received | ₹4,50,000 | ₹4,50,000 | Same |
| Less: 30% Deduction u/s 24(a) | ₹1,35,000 | ₹1,35,000 | Same (both regimes) |
| Less: Home Loan Interest u/s 24(b) | ₹2,00,000 ✅ | NIL ❌ | Old saves ₹2,00,000 |
| Net House Property | ₹1,15,000 | ₹3,15,000 | New higher by ₹2L |
| Other Sources (Interest) | ₹73,000 | ₹73,000 | Same |
| Gross Total Income (GTI) | ₹16,38,000 | ₹18,13,000 | New higher by ₹1,75,000 |
| Chapter VI-A Deductions (80C+80D+80E+80TTA) | ₹2,57,000 ✅ | NIL ❌ | Old saves ₹2,57,000 |
| Normal Taxable Income | ₹13,81,000 | ₹18,13,000 | New higher by ₹4,32,000 |
| Slab Tax on Normal Income | ₹2,26,800 | ₹1,62,600 | New LOWER by ₹64,200 ✅ |
| STCG Tax (₹80k @ 15%) | ₹12,000 | ₹12,000 | Same |
| LTCG Tax (₹95k @ 12.5%) | ₹11,875 | ₹11,875 | Same |
| Total Before Cess | ₹2,50,675 | ₹1,86,475 | New lower by ₹64,200 |
| Cess @ 4% | ₹10,027 | ₹7,459 | New lower by ₹2,568 |
| 🏆 TOTAL TAX PAYABLE | ₹2,60,702 | ₹1,93,934 | 💰 Save ₹66,768 |
New Regime is Better for Rahul — He Saves ₹66,768!
Although Rahul’s taxable income is ₹4,32,000 higher under New Regime (because Home Loan Interest + Chapter VI-A deductions are not allowed), the lower slab rates (max 20% up to ₹18L vs 30% in Old Regime) generate ₹64,200 savings in slab tax + ₹2,568 savings in cess. New Regime wins clearly at Rahul’s income level.
Key Concepts Every Student Must Know 📚
These concepts are frequently tested in exams and professional practice.
🔢 Effective Tax Rate vs Slab Rate
Your highest slab rate is NOT your effective rate. You only pay 30% on the portion in that slab.
Formula: Total Tax ÷ Total Income × 100
Old Regime: ₹2,60,702 ÷ ₹16,38,000 = 15.91%
New Regime: ₹1,93,934 ÷ ₹18,13,000 = 10.70%
Rahul’s highest slab is 30% (Old) / 20% (New), but effective rate is much lower!
📈 Why Capital Gains are Taxed Separately
STCG (u/s 111A) and LTCG (u/s 112A) have special fixed rates under the law — they are NOT added to normal income for slab calculation.
• STCG → Flat 15% (even if your slab rate is 30%)
• LTCG → Flat 12.5% after ₹1,25,000 exemption
This is beneficial for Rahul — instead of paying 30% slab rate, LTCG is taxed at only 12.5%!
⚖️ Standard Deduction — Old vs New (Exam Trap!)
This is a very common mistake in exams. Always remember:
- Old Regime: Standard Deduction = ₹50,000
- New Regime: Standard Deduction = ₹75,000
The ₹75,000 limit was introduced in Budget 2024 for New Regime only. Old Regime still uses ₹50,000. Difference = ₹25,000.
🏠 Section 24(a) — 30% Flat Deduction on Rent
When you earn rent, law allows 30% flat deduction for repairs & maintenance — NO BILLS REQUIRED!
₹4,50,000 × 30% = ₹1,35,000 deduction
This is allowed in BOTH regimes. It’s a deemed deduction — you get it even if you spent nothing on repairs.
📝 Section 80E — Unlimited Education Loan
The only deduction with absolutely NO upper limit!
Rahul claims ₹62,000 interest on his child’s education loan.
Tax saved @ 30% slab = ₹62,000 × 30% × 1.04 = ₹19,344
Rules: Only interest (not principal), available for 8 consecutive years, for higher education of self / spouse / children.
💡 When is Old Regime Better?
Old Regime wins when total deductions are very high:
- 80C maxed: ₹1,50,000
- 80D for senior citizen parents: ₹50,000
- High HRA exemption
- Large Home Loan interest: ₹2,00,000
- Education loan interest: unlimited
Rule of Thumb: If total deductions exceed ₹3,75,000–₹4,00,000, compare both carefully.
Quick Revision Summary 🎓
All numbers at one place — ideal for last-minute revision before exams.
| Parameter | 🔴 Old Regime | 🟢 New Regime |
|---|---|---|
| Basic Exemption Limit | ₹2,50,000 | ₹4,00,000 |
| Standard Deduction (Salary) | ₹50,000 | ₹75,000 |
| 80C / 80D / 80E / 80TTA | ✅ Allowed | ❌ Not Allowed |
| Home Loan Interest u/s 24(b) | ✅ Up to ₹2,00,000 | ❌ Not Allowed |
| HRA & LTA Exemption | ✅ Allowed | ❌ Not Allowed |
| 30% Deduction on Rent u/s 24(a) | ✅ Allowed | ✅ Allowed |
| Highest Slab Rate | 30% (above ₹10L) | 30% (above ₹24L) |
| STCG Tax u/s 111A | Flat 15% | Flat 15% |
| LTCG Exemption u/s 112A | ₹1,25,000 | ₹1,25,000 |
| LTCG Tax Rate u/s 112A | 12.5% | 12.5% |
| Health & Education Cess | 4% on Tax | 4% on Tax |
| Default Regime? | No — must opt-in | Yes — auto-applied |
| Gross Total Income (GTI) | ₹16,38,000 | ₹18,13,000 |
| Chapter VI-A Deductions | ₹2,57,000 | NIL |
| Normal Taxable Income | ₹13,81,000 | ₹18,13,000 |
| Slab Tax | ₹2,26,800 | ₹1,62,600 |
| Capital Gains Tax (STCG + LTCG) | ₹23,875 | ₹23,875 |
| Cess @ 4% | ₹10,027 | ₹7,459 |
| 🏆 TOTAL TAX PAYABLE | ₹2,60,702 | ₹1,93,934 |