New Financial Year 2025-26: What will be the maximum tax-free income in new and old tax regimes?

In the old regime, however, tax will be exempted only on income up to ₹5 lakh. However, salaried employees can reduce their tax liability under the old regime by claiming various deductions and exemptions.

Tax-free income in new tax regime

In Budget 2025, significant changes were proposed to be introduced to the income tax structure under the new tax regime. The rebate limit under Section 87A has been proposed to be increased from ₹25,000 to ₹60,000, and the income threshold for availing this rebate has been raised from ₹7,00,000 to ₹12,00,000.

Thus, individual taxpayers earning up to ₹12,00,000 will get a rebate of ₹60,000, effectively reducing their tax liability to zero. Additionally, a standard deduction of ₹75,000 is available for salaried individuals, which raises the effective tax-free income limit to ₹12,75,000 for salaried taxpayers.

Furthermore, marginal relief u/s 87A provides that individuals with incomes slightly exceeding ₹12,00,000 do not face a disproportionately high tax burden. This means that even for an income up to ₹12,75,000, taxpayers will not have to pay full tax as the additional tax does not exceed the incremental income. These changes make the new tax regime more attractive for middle-income earners.

Tax-free income in old tax regime

Under the old tax regime, the tax-free income threshold depends on various deductions and exemptions such as Section 80C (₹1.5 lakh), Section 80D (₹25,000 for Mediclaim premium), HRA, etc. The maximum salary up to which one can pay zero tax depends on the total eligible deductions claimed, and it varies based on individual financial planning.

However, considering that no deductions are claimed, taxpayers with a total income of up to ₹5,00,000 would not be liable to pay any tax after claiming rebate of up to ₹12,500 u/s 87A of the IT Act. With the revised proposed new tax regime, taxpayers will need to evaluate whether to opt for the higher rebate and reliefs of the new system or stick with the deductions available in the old regime.