Union Budget 2026-27: New Tax Regime Slabs Revised, Standard Deduction Raised to 1 Lakh

The Union Budget 2026-27, presented on 1 February 2026, delivered what many middle-class taxpayers had been hoping for: meaningful relief under the new tax regime. The revised tax slabs, combined with an increase in the standard deduction from 75,000 to 1,00,000 rupees, make the new regime the definitively better choice for the vast majority of salaried individuals.

Revised New Regime Tax Slabs for FY 2026-27

The revised slabs under Section 115BAC provide a wider nil-tax bracket and lower rates across the board. Income up to 4 lakh is now fully exempt (up from 3 lakh). The 5% slab extends from 4-8 lakh (previously 3-7 lakh). The 10% rate applies to 8-12 lakh, 15% to 12-16 lakh, 20% to 16-20 lakh, 25% to 20-24 lakh, and the top rate of 30% kicks in above 24 lakh (previously above 15 lakh). The rebate under Section 87A has also been raised to cover income up to 8 lakh, meaning individuals earning up to approximately 9 lakh under the new regime pay zero tax after the standard deduction.

Standard Deduction Increase

The standard deduction for salaried individuals under the new regime has been increased from 75,000 to 1,00,000 rupees. This is a flat deduction that requires no documentation and applies to all salaried taxpayers and pensioners. Combined with the revised slabs, a salaried individual earning 12 lakh per annum will now have an effective tax liability of just 20,000 rupees under the new regime, compared to approximately 80,000 under the previous structure.

Old Regime vs New Regime: The Verdict

With these changes, the old regime remains beneficial only for taxpayers who claim substantial deductions exceeding 4-5 lakh annually. This typically includes individuals with both a home loan (Section 24 interest deduction up to 2 lakh) and maximum Section 80C investments (1.5 lakh) plus Section 80D health insurance premiums and additional deductions under 80CCD(1B) for NPS. For everyone else, the new regime is now unambiguously the better option.

The Budget also announced that the old regime will no longer be the default option starting AY 2027-28. Taxpayers who do not explicitly choose will be automatically placed under the new regime. This signals the government's long-term intent to phase out the deduction-heavy old structure in favour of a simpler, lower-rate system.

Other Notable Tax Changes

Section 80CCD(1B) additional deduction for NPS has been increased from 50,000 to 75,000 rupees under the old regime. TDS thresholds for fixed deposit interest have been raised from 40,000 to 50,000 for non-senior citizens. Capital gains tax on listed equity held over 12 months remains at 12.5% with the exemption limit of 1.25 lakh per year.