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How Income Tax Is Calculated Under the New Regime

A walkthrough of India's new tax regime slab structure, the Section 87A rebate, and a worked example of calculating tax on a sample income.

India's new income tax regime uses a slab structure like the old regime, but with fewer deductions available and different rates. Understanding how the slabs actually stack — rather than assuming your whole income is taxed at one flat rate — is the part most people get wrong when estimating their own liability.

How slabs actually apply

Tax slabs are marginal, not flat. This means only the portion of your income that falls within a given slab is taxed at that slab's rate — not your entire income. Someone earning ₹12 lakh isn't taxed at one single rate on the full amount; each slice of income up to that point is taxed at its own applicable rate, and the results are added together.

The Section 87A rebate

Under the new regime, a rebate under Section 87A effectively brings tax liability down to nil for income up to a threshold, even though the slab structure technically starts taxing income above the lowest bracket. This is why many salaried individuals in the lower-to-middle income range end up with zero tax liability despite the slabs showing a non-zero rate.

Worked example

For an income of ₹12,00,000, tax is calculated by applying each slab's rate only to the income within that slab, then summing the results across all slabs the income passes through. A 4% health and education cess is then added on top of the calculated tax to arrive at the final liability.

New regime vs old regime

The new regime generally offers lower rates but removes most deductions (like HRA, Section 80C investments, and home loan interest benefits) that the old regime allowed. Whether the new regime results in lower tax depends heavily on how many deductions you'd otherwise claim — someone with significant 80C investments and HRA claims may still come out ahead under the old regime despite its higher headline rates.

Use the income tax calculator below to estimate your liability under the new regime based on your annual income.

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Frequently Asked Questions

Are tax slabs applied to my entire income or just part of it?

Only the portion of income within each slab is taxed at that slab's rate — tax slabs are marginal, not flat, so income is taxed progressively across the slabs it passes through.

Why do some people pay zero tax despite the slabs showing a rate above zero?

The Section 87A rebate effectively reduces tax liability to nil for income up to a certain threshold under the new regime, even though the slab structure technically applies a rate above that point.

Is the new tax regime always better than the old one?

Not necessarily — the new regime offers lower rates but removes most deductions. Whether it's better depends on how many deductions (like 80C investments or HRA) you would otherwise be able to claim under the old regime.