New Tax Regime for Salaried Employees: What You Actually Pay
For most salaried employees in India, the new tax regime results in lower or zero tax in FY 2025-26. Here is exactly what you pay at every income level and how to switch.
All figures and facts in this article are sourced directly from primary government and regulatory publications — including the Reserve Bank of India, SEBI, EPFO, the Income Tax Department, PFRDA, and IRDAI — and verified before publication. No claim is published from a single source without corroboration.
The new regime is now the default for salaried employees
From FY 2023-24, the new tax regime became the default. If you did not tell your employer which regime you prefer, your TDS is being deducted under the new regime. This was a deliberate policy choice: the government made the new regime the opt-out system instead of the opt-in system it was when introduced in 2020.
This matters because many salaried employees continue to assume they are in the old regime. Check your Form 16 or ask your payroll team.
What salaried employees pay under the new regime (FY 2025-26)
The new regime gives salaried employees two important advantages over the general slabs:
Combined, a salaried employee pays zero tax on gross salary up to ₹12,75,000.
Here is the actual tax at different income levels for a salaried employee below 60, with no other deductions:
| Gross salary | Taxable income | Tax (with cess) |
| ₹7,00,000 | ₹6,25,000 | ₹0 (87A rebate) |
| ₹10,00,000 | ₹9,25,000 | ₹0 (87A rebate) |
| ₹12,75,000 | ₹12,00,000 | ₹0 (87A rebate) |
| ₹13,00,000 | ₹12,25,000 | ~₹26,000 (marginal relief) |
| ₹15,00,000 | ₹14,25,000 | ~₹1,00,100 |
| ₹20,00,000 | ₹19,25,000 | ~₹2,08,000 |
| ₹30,00,000 | ₹29,25,000 | ~₹5,72,000 |
| ₹50,00,000 | ₹49,25,000 | ~₹12,06,000 |
All figures include 4% education cess. Surcharge applies above ₹50 lakh.
Employer NPS: the only significant deduction available
If your employer contributes to your NPS account, that contribution is deductible under Section 80CCD(2) — even in the new regime. The limit is 14% of your basic salary.
For someone with a basic salary of ₹8L (in a ₹20L CTC), the employer can contribute up to ₹1.12L to NPS, reducing taxable income from ₹19.25L to ₹18.13L. That saves approximately ₹22,400 in tax.
This is the primary tax-planning lever available to salaried employees under the new regime. If your employer offers a flexible NPS contribution as part of CTC restructuring, it is worth using. The NPS structure is regulated by PFRDA.
What about HRA, 80C, and home loan interest?
These deductions are not available under the new regime:
- HRA: If you pay rent and receive HRA from your employer, the exemption cannot be claimed. The full HRA is taxable.
- 80C: PPF contributions, ELSS investments, LIC premiums, EPF (own share), home loan principal — none of these reduce your taxable income.
- Section 24(b): Home loan interest on a self-occupied property (up to ₹2L in old regime) is not deductible.
This is why the old regime can still be better for employees who pay significant rent in a metro city and have a home loan. For those employees, the combined deductions can exceed what the new regime's lower rates compensate for.
Use the [old vs new tax regime calculator](/tools/tax-regime-calculator) to see which is better for your specific situation.
How TDS works under the new regime
Your employer deducts Tax Deducted at Source (TDS) from your salary every month. The TDS amount is based on an estimate of your full-year tax liability divided by 12.
At the start of the financial year, you should declare to your employer:
If you do not declare anything, your employer defaults to the new regime. The CBDT Circular No. 4/2023 specifies the process for employees to declare their regime preference.
If your TDS is higher than your actual tax liability (common when regime choice is not communicated), you will receive a refund when you file your ITR.
How to switch from old to new regime
If you were in the old regime and want to switch:
- Inform your employer in writing at the start of the financial year (April)
- No formal form — a declaration to HR/payroll is sufficient
- Also declare your choice on your ITR-1 or ITR-2 when filing
Salaried employees (with no business income) can switch every year. Business owners and professionals who have opted out of the new regime can switch back, but only once.
Is the new regime better for you?
For most salaried employees earning up to ₹15L with modest deductions, yes. The zero-tax benefit up to ₹12.75L is significant. Above ₹15L, it depends on your deductions — particularly HRA and home loan interest. Run the comparison with your actual numbers at the [tax regime calculator](/tools/tax-regime-calculator).
Sources
Content on Ek Crore is for educational purposes only. Nothing here is financial advice. Always consult a SEBI-registered advisor, CA, or qualified professional before making investment or tax decisions.