Understanding income tax slabs is the first step in planning your taxes correctly. For FY 2025 to 26, which corresponds to AY 2026 to 27, there are two tax regimes available. The new tax regime continues as the default option, while the old tax regime remains optional.
There have been no changes in slab rates for FY 2025 to 26 and the same structure applies for FY 2026 to 27.
India follows a progressive tax system. This means that higher portions of income are taxed at higher rates. The slab rates differ under the old and new regimes and the availability of deductions and exemptions also changes between the two.
Let us understand both in detail.
New Tax Regime Slabs for FY 2025 to 26
The new tax regime is governed by Section 115BAC of the Income Tax Act, 1961. It offers lower slab rates but allows fewer deductions and exemptions compared to the old regime.
The income tax slab rates under the new regime are:
● Up to ₹4,00,000: Nil
● ₹4,00,001 to ₹8,00,000: 5%
● ₹8,00,001 to ₹12,00,000: 10%
● ₹12,00,001 to ₹16,00,000: 15%
● ₹16,00,001 to ₹20,00,000: 20%
● ₹20,00,001 to ₹24,00,000: 25%
● Above ₹24,00,000: 30%
These rates apply to all individual taxpayers under the new regime.
Old Tax Regime Slabs for FY 2025 to 26
The old tax regime continues as an optional choice. It allows several deductions and exemptions, such as those under Section 80C, 80D, HRA and home loan interest, subject to conditions.
The basic slab structure under the old regime is:
● Up to ₹2,50,000: Nil
● ₹2,50,001 to ₹5,00,000: 5%
● ₹5,00,001 to ₹10,00,000: 20%
● Above ₹10,00,000: 30%
However, there are higher basic exemption limits for certain resident individuals:
● For resident senior citizens aged 60 to 80 years, income up to ₹3,00,000 is not taxed.
● For resident super senior citizens aged above 80 years, income up to ₹5,00,000 is not taxed.
Apart from this change in exemption limits, the slab rates remain the same.
Tax-Free Income and Rebate under Section 87A
After applying slab rates, taxpayers must check whether they are eligible for a rebate under Section 87A.
Under the new regime:
● If taxable income is up to ₹12 lakh, the rebate can reduce tax liability to zero.
● The rebate limit is ₹60,000.
● Salaried individuals can benefit from tax-free income up to ₹12.75 lakh after considering the standard deduction.
Under the old regime:
● If taxable income is up to ₹5 lakh, the rebate can reduce tax liability to zero.
● The rebate limit is ₹12,500.
The rebate is applied before adding cess.
Standard Deduction in Both Regimes
Salaried individuals are eligible for a standard deduction in both regimes.
● New regime standard deduction: ₹75,000
● Old regime standard deduction: ₹50,000
This deduction reduces taxable salary before slab rates are applied.
Surcharge and Health and Education Cess
In addition to income tax, high income taxpayers may have to pay surcharge on their tax liability.
Surcharge rates are as follows:
● Up to ₹50 lakh: Nil under both regimes
● ₹50 lakh to ₹1 crore: 10% under both regimes
● ₹1 crore to ₹2 crore: 15% under both regimes
● ₹2 crore to ₹5 crore: 25% under both regimes
● Above ₹5 crore: 25% under the new regime and 37% under the old regime
After calculating tax and surcharge, a 4% health and education cess is added in both regimes.
Deductions and Exemptions: Key Differences
The biggest difference between the two regimes is the treatment of deductions and exemptions.
Under the old regime, common deductions may include:
● Section 80C investments such as PF, ELSS, life insurance premium and tuition fees
● Section 80D medical insurance premium
● HRA exemption where eligible
● Home loan interest, subject to rules
Under the new regime, most of these are not allowed. However, some benefits continue, such as:
● Standard deduction for salaried individuals
● Employer contribution to NPS under Section 80CCD(2), subject to limits
● Certain allowances as per rules
● Exemptions like gratuity and leave encashment where conditions are met
How to Calculate Your Income Tax
The general steps to calculate tax are:
1. Start with gross income, including salary and other taxable income.
2. Subtract exemptions that are allowed under your chosen regime.
3. Subtract eligible deductions, including standard deduction and other permitted deductions.
4. Arrive at taxable income.
5. Apply slab rates as per the selected regime.
6. Check eligibility for rebate under Section 87A.
7. Add surcharge if applicable.
8. Add 4% health and education cess.
Many taxpayers use anincome tax calculator to compare the final tax under both regimes before making a choice.
Old vs New Regime: Which One to Choose
There is no single answer that suits everyone.
The new regime may suit those who:
● Do not claim many deductions
● Prefer lower slab rates with fewer conditions
● Want a simpler structure
The old regime may suit those who:
● Claim significant deductions and exemptions
● Have investments under Section 80C and 80D
● Pay home loan interest and claim HRA
The right approach is to compute tax under both regimes using the same income details. The option with lower total tax liability should be selected.
Final Note
Understanding income tax slabs is essential before filing your Income Tax Return for FY 2025 to 26. The old regime may work better if you claim multiple deductions and exemptions. The new regime may suit those with fewer deductions and a preference for lower slab rates under Section 115BAC. The right choice should be based on two clear calculations done side by side using the same income details.