If your salary is below Rs 12.75 lakh per year, you owe zero income tax in 2026-27 under the new regime. Zero. Not a small amount — zero. After the Rs 75,000 standard deduction, your taxable income is Rs 12 lakh or below, and the Section 87A rebate covers the full tax liability. This is the biggest personal tax change in years and a surprising number of people are still filing ITR calculating tax they do not owe.
Every April, millions of Indian salaried employees face the same question: new regime or old regime? And every year, most people make the wrong choice simply because nobody explains it clearly.
In 2026-27, the answer has become simpler than ever. The new tax regime is now the default, offers zero tax up to Rs 12 lakh income, and has a Rs 75,000 standard deduction. For most salaried individuals in Kerala — teachers, nurses, IT employees, government staff — the new regime is better. But there are specific situations where the old regime still wins. This guide tells you exactly which applies to you, with real salary examples.
Income Tax Slabs 2026-27 — New Tax Regime (Default)
| Income Slab | Tax Rate | Tax on This Slab |
|---|---|---|
| Up to Rs 4,00,000 | Nil | Rs 0 |
| Rs 4,00,001 to Rs 8,00,000 | 5% | Up to Rs 20,000 |
| Rs 8,00,001 to Rs 12,00,000 | 10% | Up to Rs 40,000 |
| Rs 12,00,001 to Rs 16,00,000 | 15% | Up to Rs 60,000 |
| Rs 16,00,001 to Rs 20,00,000 | 20% | Up to Rs 80,000 |
| Rs 20,00,001 to Rs 24,00,000 | 25% | Up to Rs 1,00,000 |
| Above Rs 24,00,000 | 30% | 30% on amount above Rs 24L |
Income Tax Slabs 2026-27 — Old Tax Regime
| Income Slab | Below 60 Years | Senior Citizen (60-80) | Super Senior (80+) |
|---|---|---|---|
| Up to Rs 2,50,000 | Nil | Nil | Nil |
| Rs 2,50,001 to Rs 3,00,000 | 5% | Nil | Nil |
| Rs 3,00,001 to Rs 5,00,000 | 5% | 5% | Nil |
| Rs 5,00,001 to Rs 10,00,000 | 20% | 20% | 20% |
| Above Rs 10,00,000 | 30% | 30% | 30% |
New Regime vs Old Regime — Which Is Better for You?
| Annual Income | Tax (New Regime) | Tax (Old Regime — no deductions) | Old Regime (with Rs 3.5L deductions) | Verdict |
|---|---|---|---|---|
| Rs 6 lakh | Rs 0 (87A rebate) | Rs 32,500 | Rs 0 (87A rebate) | New regime — simpler |
| Rs 8 lakh | Rs 0 (87A rebate) | Rs 75,000 | Rs 0 | New regime — zero tax |
| Rs 10 lakh | Rs 0 (87A rebate) | Rs 1,12,500 | Rs 10,400 | New regime — clearly better |
| Rs 12 lakh | Rs 0 (87A rebate) | Rs 1,72,500 | Rs 52,000 | New regime — significantly better |
| Rs 15 lakh | Rs 45,000 | Rs 2,62,500 | Rs 1,30,000 | New regime — still better |
| Rs 20 lakh | Rs 1,45,000 | Rs 4,12,500 | Rs 2,62,000 | Depends on deductions — compare |
| Rs 30 lakh | Rs 4,45,000 | Rs 7,12,500 | Rs 5,12,000 | Old regime better with max deductions |
Exact Tax Calculation — Kerala Salary Examples
Example 1: Kerala Government School Teacher — Rs 50,000/month salary
| Item | New Regime | Old Regime |
|---|---|---|
| Gross Annual Salary | Rs 6,00,000 | Rs 6,00,000 |
| Standard Deduction | Rs 75,000 | Rs 50,000 |
| Section 80C (PF, LIC etc) | Not allowed | Rs 1,50,000 |
| Taxable Income | Rs 5,25,000 | Rs 4,00,000 |
| Tax (before rebate) | Rs 26,250 | Rs 7,500 |
| Section 87A Rebate | Rs 26,250 (full) | Rs 7,500 (full) |
| Final Tax | Rs 0 | Rs 0 |
| Health and Education Cess (4%) | Rs 0 | Rs 0 |
| Verdict | New regime — simpler with same result (zero tax) | |
Example 2: Kerala IT Employee — Rs 1,00,000/month (Rs 12L annual)
| Item | New Regime | Old Regime |
|---|---|---|
| Gross Annual Salary | Rs 12,00,000 | Rs 12,00,000 |
| Standard Deduction | Rs 75,000 | Rs 50,000 |
| HRA Exemption | Not allowed | Rs 1,20,000 (est) |
| Section 80C | Not allowed | Rs 1,50,000 |
| Section 80D (health insurance) | Not allowed | Rs 25,000 |
| Home Loan Interest (24b) | Not allowed | Rs 2,00,000 |
| Taxable Income | Rs 11,25,000 | Rs 6,55,000 |
| Tax before rebate | Rs 72,500 | Rs 40,500 |
| Section 87A Rebate | Rs 72,500 (full — income below Rs 12L) | Rs 40,500 (full) |
| Final Tax + Cess | Rs 0 | Rs 0 |
| Verdict | New regime — zero tax either way. New regime is simpler. | |
Example 3: Senior IT Professional Kerala — Rs 2,00,000/month (Rs 24L annual)
| Item | New Regime | Old Regime (max deductions) |
|---|---|---|
| Gross Annual Salary | Rs 24,00,000 | Rs 24,00,000 |
| Standard Deduction | Rs 75,000 | Rs 50,000 |
| HRA + 80C + 80D + Home Loan | Not allowed | Rs 5,00,000 |
| Taxable Income | Rs 23,25,000 | Rs 18,50,000 |
| Tax | Rs 3,42,500 | Rs 3,77,500 |
| Health and Education Cess (4%) | Rs 13,700 | Rs 15,100 |
| Total Tax | Rs 3,56,200 | Rs 3,92,600 |
| Verdict | New regime saves Rs 36,400 even with maximum deductions | |
Key Deductions and Exemptions — New vs Old Regime
| Deduction/Exemption | New Regime | Old Regime | Max Amount |
|---|---|---|---|
| Standard Deduction (Salaried) | ✅ Rs 75,000 | ✅ Rs 50,000 | As stated |
| Section 80C (PF, PPF, ELSS, LIC, Home loan principal) | ❌ Not allowed | ✅ Allowed | Rs 1,50,000 |
| Section 80D (Health insurance premium) | ❌ Not allowed | ✅ Allowed | Rs 25,000 (Rs 50,000 for senior citizen) |
| Home Loan Interest Section 24(b) | ❌ Not allowed | ✅ Allowed | Rs 2,00,000 |
| HRA Exemption | ❌ Not allowed | ✅ Allowed | Actual HRA or formula |
| NPS Employer Contribution 80CCD(2) | ✅ Allowed (14%) | ✅ Allowed (10%) | 14% of basic in new regime |
| LTA (Leave Travel Allowance) | ❌ Not allowed | ✅ Allowed | Actual travel cost |
| Section 80E (Education loan interest) | ❌ Not allowed | ✅ Allowed | Unlimited |
| Section 80G (Donations) | ❌ Not allowed | ✅ Allowed | Varies |
NRI and Gulf Malayalee Tax Guide 2026
Gulf Malayalees need to understand a few critical tax rules that apply to their specific situation:
- NRI status: If you spent less than 182 days in India in FY 2025-26 — you are an NRI. Only Indian-sourced income is taxable in India.
- NRE Fixed Deposit interest: Completely tax-free in India regardless of amount — no TDS, no declaration needed. This remains one of the best legal tax-free investments.
- NRO account interest: Taxable in India at 30% flat rate — TDS deducted by bank automatically.
- Gulf salary: Money earned in UAE, Saudi Arabia, Oman etc — not taxable in India while you are NRI.
- Rental income from Kerala property: Taxable in India even as NRI — file ITR if rental income exceeds basic exemption limit.
- DTAA benefit: India has Double Taxation Avoidance Agreements with UAE and most Gulf countries — if tax paid in Gulf, not taxed again in India.
How to Calculate Your Income Tax — Step by Step
- Calculate your gross total income — salary + rent + FD interest + capital gains
- Subtract standard deduction (Rs 75,000 new regime, Rs 50,000 old regime)
- For old regime — subtract eligible deductions: 80C, 80D, HRA, home loan interest
- Apply income tax slab rates to remaining taxable income
- Check if Section 87A rebate applies — taxable income below Rs 12L (new regime) or Rs 5L (old regime)
- Add surcharge if income above Rs 50 lakh: 10% surcharge above Rs 50L, 15% above Rs 1 crore
- Add Health and Education Cess: 4% on (tax + surcharge)
- Total = your final income tax liability
Income tax slab data sourced from the Income Tax Department of India official website and Finance Act 2026. NRI tax rules referenced from RBI FEMA guidelines. Consult a CA for personalised tax advice.
When to Choose Old Regime — Specific Situations
The old regime still wins in these specific Kerala situations:
- Large home loan in Kochi or Thrissur: If you pay Rs 2L+ in home loan interest AND have full 80C AND HRA — old regime may save Rs 30,000-80,000
- Senior citizens with significant FD income: Old regime has Rs 3L basic exemption vs Rs 4L in new — check your specific case
- Income above Rs 30L with maximum deductions: At very high income with all deductions maxed — old regime sometimes wins
- Business income with many deductions: Self-employed with business expenses — old regime allows more deductions
Under the new tax regime for FY 2026-27, a salaried individual with Rs 12 lakh annual income pays zero income tax. After the standard deduction of Rs 75,000, taxable income is Rs 11.25 lakh which is below Rs 12 lakh. The Section 87A rebate covers the full tax liability making it zero. Under the old regime with typical deductions of Rs 3.5 lakh, taxable income is also low enough for zero tax. The new regime is recommended as it is simpler and gives the same zero tax result.
For most salaried individuals in India in 2026-27, the new tax regime is better. The new regime offers zero tax on income up to Rs 12 lakh after standard deduction, simpler calculation with no complex deduction tracking, and Rs 75,000 standard deduction versus Rs 50,000 in old regime. The old regime is only better if your total deductions including home loan interest, HRA, Section 80C and 80D exceed Rs 3.75 lakh annually. Calculate both using actual figures before choosing.
Under the new tax regime for FY 2026-27: income up to Rs 4 lakh is nil, Rs 4-8 lakh taxed at 5%, Rs 8-12 lakh at 10%, Rs 12-16 lakh at 15%, Rs 16-20 lakh at 20%, Rs 20-24 lakh at 25%, and above Rs 24 lakh at 30%. The Section 87A rebate makes tax zero for taxable income up to Rs 12 lakh. Standard deduction of Rs 75,000 is available for salaried employees, effectively making gross salary up to Rs 12.75 lakh tax-free.
No. Interest earned on NRE Fixed Deposits is completely exempt from Indian income tax regardless of the amount. No TDS is deducted by the bank and NRI account holders do not need to declare NRE interest in their Indian ITR. This makes NRE FD one of the most tax-efficient investments available to Gulf Malayalees. Note that NRO account interest is taxable at 30% TDS — this is different from NRE accounts.
On Rs 50,000 monthly salary meaning Rs 6 lakh annual salary under the new tax regime in FY 2026-27, your income tax is zero. After Rs 75,000 standard deduction, taxable income is Rs 5.25 lakh. Tax on this is Rs 26,250 which is fully covered by the Section 87A rebate. Final tax liability is zero plus zero cess. Under the old regime with standard deduction and basic 80C deductions, the result is also zero tax. New regime is simpler and recommended.
Section 87A is an income tax rebate available under both new and old tax regimes. Under the new regime for FY 2026-27, taxpayers with taxable income up to Rs 12 lakh get a full rebate meaning tax liability becomes zero. Under the old regime, the rebate covers tax up to Rs 12,500 for taxable income up to Rs 5 lakh. The new regime Section 87A rebate is significantly more generous and benefits middle-income earners most. Note that this rebate does not apply to special rate income like long-term capital gains.
For salaried individuals, yes in most cases. The new regime is now the default and offers zero tax up to Rs 12 lakh income plus simpler compliance. Switch to new regime if your deductions are below Rs 3.75 lakh annually. Stay in old regime if you have a large home loan with Rs 2 lakh interest deduction plus full 80C plus HRA plus 80D totalling above Rs 4-5 lakh. Salaried employees can switch regimes every year — choose whichever is better for that financial year when filing ITR.
Gulf Malayalees who qualify as NRI spending less than 182 days in India in FY 2025-26 are taxed only on India-sourced income. NRE Fixed Deposit interest is fully tax-free. Rental income from Kerala property is taxable. Gulf salary earned abroad is not taxable in India. NRO account interest is taxable at 30% flat rate. India has DTAA with UAE and most Gulf countries preventing double taxation. If you returned to India and became resident in FY 2026-27, your full global income including Gulf salary earned after return is taxable.
- Best FD Interest Rates India 2026 — Save tax with NRE FD — 7.25% completely tax-free
- HDFC NRI Account Opening 2026 — NRE vs NRO account guide for Gulf Malayalees
- Education Loan India 2026 — Section 80E deduction on education loan interest
- Home Loan Kerala 2026 — Section 24(b) and 80C deductions on home loan
Guide by Robins Antony, Digital Finance Writer, Webova Soft, Changanacherry, Kerala. Income tax information sourced from Income Tax Department India and Finance Act 2026 as of September 2026. Tax laws change — consult a chartered accountant for personalized advice. This is for informational purposes only and not financial or tax advice.
