₹12 Lakh, Zero Tax. The New Income Tax Regime Sounds Perfect. Here's What It Will Cost You.

India's ITR deadline is July 31. Crores of salaried Indians are switching to the default regime without running the actual numbers. We did.

Every year, the government finds a way to make tax season feel urgent and confusing at the same time.

This year, the confusion has a specific shape: the new income tax regime.

Since April 2023, the new tax regime has been the default. If you are a salaried employee and you have not actively chosen otherwise, your employer has already been deducting tax under the new regime all year. And now, with the ITR deadline of July 31, 2026 approaching, millions of Indians are filing returns — many of them switching to the new regime for the first time, drawn in by one number above all others.

Zero tax on income up to ₹12 lakh.

It sounds remarkable. And for a specific set of taxpayers, it genuinely is.

But for a large number of salaried Indians — particularly those earning above ₹12 lakh, those with home loans, those maximising 80C, those paying rent in a high-cost city — the new regime will quietly cost them significantly more than the old one.

At Fintrens, we ran the actual numbers across three realistic income profiles. What we found should be the first thing every Indian professional reads before filing their return this July.

What the New Regime Actually Is (And What Nobody Is Explaining Clearly)

The new income tax regime, as it applies to salaried individuals for AY 2026-27 (FY 2025-26), works like this.

Tax slabs under the new regime:

On top of this, salaried individuals get a standard deduction of ₹75,000 under the new regime. And for income up to ₹12 lakh, a Section 87A tax rebate eliminates the tax liability entirely — meaning you effectively pay zero.

That is the regime. Clean, simple, and for many people, genuinely attractive.

But here is what the new regime removes. And this is the part that the headlines leave out.

What you give up when you choose the new regime:

• Section 80C deductions (up to ₹1.5 lakh) — PPF, ELSS, life insurance premium, EPF contribution, principal repayment on home loan, children's school fees
• Section 80D (up to ₹25,000 for self/family, ₹50,000 for senior citizen parents) — health insurance premium
• House Rent Allowance (HRA) — which can amount to ₹1–₹3 lakh annually for someone renting in a metro
• Section 24(b) — deduction of up to ₹2 lakh on home loan interest
• Leave Travel Allowance (LTA)
• Section 80CCD(1B) — additional ₹50,000 deduction for NPS contributions beyond the 80C limit
• Standard deductions on other allowances that existed under old regime structure

In short: you pay lower tax rates on more income, but you lose every major deduction that the old regime provided.

Whether that trade-off works in your favour depends entirely on your income level and your personal financial situation. And the answer is different for almost every individual.

The Three Profiles: Where the Regimes Win and Lose

Let us be specific. Here are three realistic profiles — a mid-career IT professional, a senior manager, and a high-earning specialist — and what each regime actually costs them.

Profile 1: Rohan, 29, Software Engineer, Bangalore. Gross salary ₹10 lakh.

Rohan rents a flat at ₹18,000/month and contributes ₹1 lakh annually to ELSS and PPF. He has no home loan. His health insurance premium is ₹15,000/year.

New regime: ₹10,00,000 – ₹75,000 (standard deduction) = ₹9,25,000 taxable income. Under new slabs: Tax on ₹9.25 lakh = 0 (on first ₹4L) + ₹20,000 (5% on next ₹4L) + ₹12,500 (10% on ₹1.25L) = ₹32,500 But wait — total income is ₹10 lakh which is below ₹12 lakh. Section 87A rebate applies in full. Net tax: ₹0

Old regime: ₹10,00,000 – ₹75,000 (standard deduction) – ₹1,00,000 (80C) – ₹15,000 (80D) – ₹72,000 (HRA, simplified) = ~₹7,38,000 taxable. Tax: ₹12,500 (on slab up to ₹5L) + ₹57,600 (20% on ₹2.88L above ₹5L) = ₹70,100 Less rebate: Not applicable (taxable income above ₹5L limit). Tax = ₹70,100.

Verdict for Rohan: New regime wins decisively. He pays ₹0 vs ₹70,100. The switch is obvious.

Profile 2: Priya, 37, Senior Product Manager, Mumbai. Gross salary ₹22 lakh.

Priya rents a 2BHK in Andheri at ₹35,000/month. She maximises 80C (₹1.5 lakh via EPF + ELSS). She pays ₹25,000 for family health insurance. She is not NPS-enrolled. No home loan.

New regime: ₹22,00,000 – ₹75,000 = ₹21,25,000 taxable. Tax calculation:

• 0% on ₹4L = ₹0
• 5% on next ₹4L = ₹20,000
• 10% on next ₹4L = ₹40,000
• 15% on next ₹4L = ₹60,000
• 20% on next ₹4L = ₹80,000
• 25% on ₹1.25L (₹20L to ₹21.25L) = ₹31,250 New regime tax: ₹2,31,250

Old regime: ₹22,00,000 – ₹75,000 – ₹1,50,000 (80C) – ₹25,000 (80D) – ₹1,68,000 (HRA: 50% of salary or actual rent paid, whichever is less — simplified) = ~₹17,82,000 taxable. Tax:

• 0% on ₹2.5L = ₹0
• 5% on ₹2.5L = ₹12,500
• 20% on ₹5L (₹5L–₹10L) = ₹1,00,000
• 30% on ₹7.82L (₹10L–₹17.82L) = ₹2,34,600 Old regime tax: ₹3,47,100

Verdict for Priya: New regime wins by ₹1.15 lakh. Even with full deductions, the lower slab rates in the new regime come out ahead at her income level.

However — if Priya adds NPS (₹50,000 additional deduction under 80CCD(1B), available only in old regime), her old regime tax falls to approximately ₹2,99,600 — still ₹68,350 more than the new regime.

Profile 3: Vikram, 44, Vice President, Delhi. Gross salary ₹36 lakh. Home loan outstanding.

Vikram owns a flat in Gurugram with a home loan on which he pays ₹2.4 lakh/year in interest. He maximises 80C (₹1.5L). He pays ₹50,000 in health insurance for self, spouse, and senior citizen parents. He also contributes ₹50,000 to NPS under 80CCD(1B). He does not pay rent (no HRA).

New regime: ₹36,00,000 – ₹75,000 = ₹35,25,000 taxable. Tax:

• 0% on ₹4L = ₹0
• 5% on ₹4L = ₹20,000
• 10% on ₹4L = ₹40,000
• 15% on ₹4L = ₹60,000
• 20% on ₹4L = ₹80,000
• 25% on ₹4L = ₹1,00,000
• 30% on ₹11.25L = ₹3,37,500 New regime tax: ₹6,37,500 (plus 4% cess = ₹6,63,000)

Old regime: ₹36,00,000 – ₹75,000 – ₹1,50,000 (80C) – ₹50,000 (80D) – ₹2,00,000 (24(b) home loan interest) – ₹50,000 (NPS 80CCD(1B)) = ₹30,75,000 taxable. Tax:

• 0% on ₹2.5L = ₹0
• 5% on ₹2.5L = ₹12,500
• 20% on ₹5L = ₹1,00,000
• 30% on ₹20.75L = ₹6,22,500 Old regime tax: ₹7,35,000 (plus 4% cess = ₹7,64,400)

Wait — Vikram actually pays more in the old regime even with full deductions and a home loan.

Verdict for Vikram: New regime still wins — by approximately ₹1 lakh. Even with ₹4.5 lakh in total deductions including home loan interest and NPS, the lower slab rates in the new regime are competitive.

But — if Vikram's home loan interest were ₹3 lakh or more (a common scenario in Delhi/Mumbai with larger loan amounts), and if he were also paying HRA (renting out his property or had a joint family), the old regime could swing back into his favour. The margin narrows significantly with every additional deduction he can claim.

The Scenarios Where the Old Regime Still Wins

Based on the numbers, the old regime consistently outperforms the new regime for a specific profile: someone who can claim very high deductions relative to their income.

Practically, this means:

A large home loan in a high-cost city. If you are paying ₹2.5–3.5 lakh annually in home loan interest AND claiming ₹1.5 lakh 80C AND ₹50,000 NPS AND ₹50,000 in health insurance, your effective deductions under the old regime can exceed ₹6–7 lakh. At income levels of ₹20–30 lakh, this level of deductions can tip the balance back toward the old regime.

High HRA in metro cities. Someone paying ₹45,000–₹60,000/month rent in Mumbai, Bangalore, or Delhi can claim significant HRA — potentially ₹2–4 lakh annually — that the new regime does not permit. For mid-income professionals renting premium homes, this deduction alone can make the old regime competitive.

Senior citizen parents on health insurance. The Section 80D deduction for senior citizen parents goes up to ₹50,000 additionally. If you are paying premiums for ageing parents, that is a meaningful deduction with no equivalent in the new regime.

The rule of thumb: if your total eligible deductions under the old regime exceed approximately ₹4–5 lakh, run both calculations before deciding. At that level of deductions, the regimes are often competitive, and at higher deduction levels, the old regime may win.

The One Thing Nobody Is Telling You About Switching

Here is a critical rule that is buried in the fine print of every ITR article and almost never highlighted in plain language.

If you are a salaried individual with no business income, you can switch between the old and new regime every single year when filing your ITR.

This means you are not locked in. If you choose the new regime this year and realise next year that the old regime would serve you better — because you took a large home loan, or because your deductions have grown — you can switch back.

This is different from the rule for business income earners, who face restrictions on switching once they leave the old regime.

Salaried employees: you have full flexibility annually. Calculate both scenarios before filing. Pick the one that gives you a lower tax outgo this year. Review the choice every year.

That flexibility exists. But most Indians do not know it does, because no bank, no fintech app, and no HR department has explained it.

Why "Default" Is Doing a Lot of Work Here

The new regime being the default is not a neutral design choice.

When something is the default, most people accept it. Research on default effects in behavioural economics is unambiguous: the majority of people, given a pre-selected option, will not change it — even when changing would serve their interests.

For salaried employees, this means: if you did not actively submit Form 12BB to your employer at the start of FY 2025-26 declaring your choice of old regime, your TDS has already been deducted under the new regime. For many people, this was the right outcome. For others — those with significant deductions — it may have meant higher TDS throughout the year, and a potential refund due when they file their ITR under the old regime.

The ITR filing process gives you the opportunity to make that correction. But only if you know it is an option.

The Fintrens Calculator Approach: Five Questions Before You File

Before you choose a regime for AY 2026-27, answer these five questions. They will tell you which regime to run calculations for first.

1. What is your gross salary? If it is below ₹12 lakh, the new regime almost certainly wins. Your tax liability will be zero after the rebate, with minimal calculation needed.

2. Do you have a home loan — and how much annual interest are you paying? If your home loan interest exceeds ₹1.5 lakh annually, include Section 24(b) in your old regime calculation. The larger this number, the more competitive the old regime becomes.

3. Are you paying significant rent in a metro city? Calculate your actual HRA deduction (the lesser of: actual HRA received, rent paid minus 10% of basic salary, or 50%/40% of basic salary for metro/non-metro). If this number exceeds ₹1.5 lakh, factor it seriously into the old regime calculation.

4. Are you maximising your 80C and 80D? If you are not already investing ₹1.5 lakh in 80C instruments (PPF, ELSS, LIC premium, EPF, loan principal), the deduction is not being fully utilised anyway — making the new regime more attractive. If you are maximising both 80C (₹1.5L) and 80D (₹25–75K depending on parents' age), those deductions are real and should be calculated.

5. Are you contributing to NPS? The Section 80CCD(1B) deduction of up to ₹50,000 is available only under the old regime. If you are NPS-enrolled, this is an additional ₹50,000 deduction that vanishes in the new regime. At a 30% tax rate, that is ₹15,000 in real cash savings.

If your answers to questions 2–5 add up to total deductions exceeding ₹4–5 lakh, open a tax calculator and run both scenarios before filing. The difference could be meaningful.

What to Do Before July 31

The ITR deadline for salaried individuals is July 31, 2026. Here is what to do before then.

Step 1: Collect your Form 16. Your employer will issue Form 16 by June 15. This document shows your salary breakup, HRA component, TDS deducted, and the regime under which TDS was calculated. It is the starting point for all ITR calculations.

Step 2: Calculate your total deductions. Add up every deduction you are eligible for under the old regime: 80C, 80D, HRA, 24(b), LTA, NPS. This number tells you how competitive the old regime is.

Step 3: Use an official or reputable calculator. The Income Tax Department's e-filing portal has a built-in regime comparison tool. Use it. It is free, accurate, and requires no third-party app access.

Step 4: File with the regime that gives you the lower tax outgo — not the one that was already selected. If you deducted TDS under the new regime but the old regime would have saved you money, filing under the old regime will generate a refund. That refund is your money. Claim it.

Step 5: If you are close to the ₹12 lakh threshold, check the rebate eligibility carefully. The Section 87A rebate applies only if your total income (after standard deduction but before other deductions) is at or below ₹12 lakh. If you are at ₹12.5 lakh, you lose the rebate entirely and the tax liability jumps significantly. This cliff is important to understand.

What This Means for Financial Planning Going Forward

The new tax regime's lower rates are a genuine structural change — not a temporary measure. The government has signalled that the new regime is the long-term direction, with fewer deductions and simpler rates.

This has real implications for how you should think about financial products that previously existed primarily for their 80C tax benefit.

ELSS mutual funds, for example, were heavily sold on their 80C deduction. Under the new regime, that advantage disappears — and ELSS funds should now be evaluated purely on their investment merits, not their tax efficiency. The same applies to traditional life insurance policies bought for 80C: if the new regime is right for you, the tax argument for these products is gone.

PPF remains an attractive long-term investment for its guaranteed return, government backing, and EEE tax status (exempt at contribution, exempt during accumulation, exempt at maturity). That fundamental appeal does not change regardless of which regime you choose.

NPS — which had an additional ₹50,000 deduction available only under the old regime — becomes less compelling as a tax tool for those in the new regime, though its retirement income structure and employer contribution matching (where available) remain relevant.

The shift toward the new regime is, in effect, a shift away from deduction-based financial behaviour and toward return-based financial behaviour. That is not inherently bad. But it requires a different way of thinking about which products you buy and why.

The Fintrens Checklist: Before You File

1. Collect Form 16 from your employer (due by June 15)
2. List every deduction you can claim under the old regime: 80C, 80D, HRA, 24(b), LTA, NPS — total them up
3. Run both regime calculations using the Income Tax Department e-filing portal's comparison tool — not a third-party app
4. If your total deductions exceed ₹3.5–4 lakh, calculate carefully — the regimes are likely competitive at your income level
5. Check whether you are near the ₹12 lakh rebate cliff — income just above ₹12L triggers a significant tax jump
6. File under the regime that results in lower tax — you are entitled to choose every year
7. If you overpaid TDS under the new regime but the old regime would have saved you money, file under old regime and claim the refund
8. For future financial product decisions, ask: am I buying this for returns or for a tax deduction that may no longer apply to me?

The new income tax regime is not a trap. For millions of Indians — especially younger earners without home loans or large deductions — it is genuinely better. Simpler, lower rates, and zero tax up to ₹12 lakh is a real benefit.

But the narrative that the new regime is universally better, that everyone should simply accept the default, that the old regime is outdated — that narrative is serving the convenience of the system, not the financial interests of every individual it applies to.

The ITR deadline is July 31. You have time to do this correctly.

At Fintrens, doing it correctly means running your own numbers — not accepting a default that was chosen for you.

For ongoing, honest coverage of India's tax changes, fintech regulation, and personal finance decisions — follow Fintrens at blogs.fintrens.com

If you know someone who is about to file their ITR without running both regime calculations, share this with them. The refund they might be owed is real money.