Income Tax Slabs and Rates for FY25-26 (AY26-27): New Vs Old Regime

If you earn an income in India, the income tax slabs decide how much tax you pay every year. The higher your taxable income, the higher the tax rate applied to different portions of it.

In the Union Budget 2026 presented by Finance Minister Nirmala Sitharaman, there was no change in the income tax slabs, and the government retained the existing slabs.

For FY 2025–26 (AY 2026–27), taxable income is divided into multiple slabs with tax rates ranging from 0% to 30%. In this blog, we will clarify the latest income tax slabs and rates that can help you estimate your tax liability and make better financial decisions during the year.

Tax Slab 2025-26: Key Highlights

The new tax regime aims to simplify the tax structure by offering lower tax rates across multiple income brackets while reducing the number of deductions and exemptions.

• Default tax system: The new tax regime is now the default option for individual taxpayers.
  
• Lower tax rates: Income is taxed across multiple slabs with rates ranging from 0% to 30%.
  
• Limited deductions: Most deductions, such as Section 80C, HRA, and LTA, are not available.
  
• Standard deduction available: Salaried taxpayers can still claim the standard deduction under the new regime.
  
• Simpler tax calculation: With fewer exemptions and deductions, the tax structure becomes easier to understand and calculate.

New Income Tax Slabs (FY 2025–26) 

Taxable Income	Tax Rate
Up to ₹4,00,000	Nil
₹4,00,001 – ₹8,00,000	5%
₹8,00,001 – ₹12,00,000	10%
₹12,00,001 – ₹16,00,000	15%
₹16,00,001 – ₹20,00,000	20%
₹20,00,001 – ₹24,00,000	25%
Above ₹24,00,000	30%

How Income Tax Is Calculated Using Slabs

India follows a progressive tax system, which means different portions of your income are taxed at different rates depending on the slab they fall into.

Instead of taxing your entire income at a single rate, the income is divided across slabs, and each slab is taxed separately.

Example

Suppose your taxable income is ₹10,00,000 under the new tax regime.

Income Portion	Tax Rate	Tax Amount
Up to ₹4,00,000	0%	₹0
₹4,00,001 – ₹8,00,000	5%	₹20,000
₹8,00,001 – ₹10,00,000	10%	₹20,000

Total Tax Payable: ₹40,000

This structure ensures that only the portion of income falling within a specific slab is taxed at that slab’s rate.

But, Is Income Up to ₹12 Lakh Tax-Free?

After the Union Budget 2026, several reports highlighted that income up to ₹12 lakh could effectively become tax-free under the new tax regime due to the rebate available under Section 87A.

However, this does not mean that the tax slab rate is zero up to ₹12 lakh. Income is still taxed according to the applicable slab rates. The rebate simply reduces the final tax liability for eligible taxpayers.

As a result, if the tax calculated under the slabs falls within the rebate limit, the final tax payable may become zero.

What if your income slightly increases above 12 Lakh? Here comes marginal relief!

What Is Marginal Relief?

When a taxpayer’s income slightly exceeds the rebate threshold, the tax liability can increase sharply because the Section 87A rebate is no longer fully available. To prevent this sudden jump in tax, the government provides a provision known as marginal relief.

Marginal relief ensures that the additional tax payable does not exceed the additional income earned beyond the rebate limit.

Example

Suppose a taxpayer has a taxable income of ₹12,10,000.

Without marginal relief, the tax calculated under the slab rates could be significantly higher than the additional ₹10,000 income above ₹12 lakh, creating a disproportionate tax burden.

With marginal relief applied, the tax payable is adjusted so that the increase in tax does not exceed the additional income earned above ₹12 lakh.

Without marginal relief:

• Tax calculated under slabs may exceed the additional ₹10,000 income.
• This would create an unfairly high tax burden.

With marginal relief applied, the tax payable will be adjusted so that the additional tax does not exceed the income earned above ₹12 lakh.

Old Income Tax Slabs (FY 2025–26)

Under the old regime, income is taxed using the following slab rates for individuals below 60 years of age.

Taxable Income	Tax Rate
Up to ₹2,50,000	Nil
₹2,50,001 – ₹5,00,000	5%
₹5,00,001 – ₹10,00,000	20%
Above ₹10,00,000	30%

Comparison Between Old and New Tax Regime

Taxpayers in India can choose between the old tax regime and the new tax regime when filing their income tax returns. The main difference lies in tax rates and eligibility for deductions.

While the new tax regime offers lower tax rates across multiple slabs, it removes most deductions and exemptions. The old tax regime, on the other hand, allows taxpayers to claim several deductions that can reduce taxable income.

Feature	Old Tax Regime	New Tax Regime
Tax Slabs	Fewer slabs with higher rates	More slabs with lower rates
Deductions & Exemptions	Available (80C, 80D, HRA, LTA etc.)	Mostly not allowed
Standard Deduction	Available	Available
Default Tax System	No	Yes
Best Suited For	Taxpayers claiming multiple deductions	Taxpayers preferring simpler taxation

Which Tax Regime Is Better for ₹15 Lakh Income?

For taxpayers earning around ₹15 lakh annually, choosing between the old tax regime and the new tax regime depends largely on the deductions and exemptions they can claim.

Example Comparison for ₹15 Lakh Income

Particulars	Old Tax Regime	New Tax Regime
Annual Income	₹15,00,000	₹15,00,000
Deductions (Example)	₹2,00,000	Not applicable
Taxable Income	₹13,00,000	₹15,00,000

Estimated Tax Calculation

Regime	Approx. Tax Payable*
Old Tax Regime	₹1,72,500
New Tax Regime	₹1,20,000

So, which one works better for an ₹15 Lakh income?

• The new tax regime may be beneficial if you do not claim many deductions.
• The old tax regime may work better if you regularly claim deductions such as 80C investments, insurance premiums, and housing-related benefits.

Note: The final choice depends on how much they invest in tax-saving instruments and the exemptions they are eligible to claim.

Does the New Tax Regime Apply to All Individuals?

The new tax regime introduced under Section 115BAC of the Income Tax Act primarily applies to individual taxpayers and Hindu Undivided Families (HUFs). It is currently the default tax system, meaning income tax is calculated under this regime unless a taxpayer chooses to opt for the old regime.

However, the new tax regime does not automatically apply to every category of taxpayer in the same way.

1. Individuals and HUFs

• The new tax regime is the default option for individuals and HUF taxpayers.
• Taxpayers can still opt for the old tax regime if they want to claim deductions and exemptions.

2. Salaried Individuals

• Salaried taxpayers are automatically placed under the new tax regime by default.
• They can switch to the old regime while filing their income tax return if deductions such as HRA, Section 80C, or home loan interest provide greater tax benefits.
  

3. Business or Professional Income

• Individuals earning business or professional income can also opt for the new regime.
  
• However, once they choose to switch back to the old regime, the option to change regimes may be restricted under certain conditions.
  

4. Other Taxpayers

Entities such as companies, partnership firms, LLPs, and trusts follow separate tax rate structures and provisions under the Income Tax Act.

Income Tax Slabs for Different Taxpayers

Income tax rules in India differ depending on the type of taxpayer. While individual taxpayers follow the slab-based system under the old or new tax regime, other entities such as firms, companies, and special bodies are taxed according to separate provisions under the Income Tax Act.

1. Individuals and Salaried Taxpayers

Individual taxpayers are taxed according to the income tax slab system, where income is divided into different brackets and taxed progressively. Salaried individuals can choose between the old tax regime, which allows deductions and exemptions, and the new tax regime, which offers lower tax rates but fewer deductions.

Learn more about the Income Tax for Salaried Employees!

2. Senior Citizens

Senior citizens aged 60 years and above may benefit from higher basic exemption limits and certain additional tax benefits under the old tax regime. However, under the new tax regime, the same slab rates apply to all individuals regardless of age.

Explore more Income Tax for Senior Citizens!

3. Non-Resident Individuals (NRIs)

Non-resident individuals are taxed on income that is earned or received in India. While the slab structure may remain similar to resident individuals, some deductions and exemptions available to residents may not apply.

4. Hindu Undivided Family (HUF)

A Hindu Undivided Family (HUF) is treated as a separate taxable entity under the Income Tax Act. HUFs follow a similar slab structure as individual taxpayers, but can claim deductions and exemptions separately from individual members.

5. Partnership Firms and LLPs

Partnership firms and Limited Liability Partnerships (LLPs) are not taxed under the individual slab system. Instead, they are taxed at a flat income tax rate on their total income, along with applicable surcharge and health and education cess.

6. Domestic Companies

Domestic companies follow corporate tax rates specified under the Income Tax Act. Depending on the provisions chosen, companies may opt for different tax regimes introduced through corporate tax reforms.

7. Foreign Companies

Foreign companies operating in India are taxed on income earned within the country. The tax rates applicable to foreign companies differ from those applicable to domestic companies.

8. Associations of Persons (AOP) and Bodies of Individuals (BOI)

Entities formed by multiple individuals or groups for a common purpose are taxed as AOPs or BOIs under the Income Tax Act, with specific tax provisions depending on the structure of income.

9. Trusts and Artificial Juridical Persons

Trusts and certain legally recognised entities that do not fall under other taxpayer categories are taxed under specific provisions applicable to artificial juridical persons.

10. Local Authorities

Local authorities such as municipalities and certain statutory bodies may also be subject to taxation under specific provisions of the Income Tax Act.

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Surcharge and Health & Education Cess

Apart from the income tax calculated under the applicable slab rates, taxpayers may also need to pay additional charges such as surcharge and health & education cess, depending on their total income.

These components increase the final tax liability and are applied after the base income tax is calculated.

What Is Surcharge?

A surcharge is an additional tax imposed on individuals whose income exceeds certain thresholds. It is calculated as a percentage of the income tax payable.

Surcharge Rates for Individual Taxpayers

Total Income	Surcharge Rate
₹50 lakh – ₹1 crore	10%
₹1 crore – ₹2 crore	15%
₹2 crore – ₹5 crore	25%
Above ₹5 crore	37% (subject to conditions under tax regimes)

Surcharge is applied only after calculating income tax based on slab rates.

What Is Health and Education Cess?

In addition to income tax and surcharge, taxpayers must also pay a Health and Education Cess of 4% on the total tax amount.

This cess is used by the government to fund healthcare and education initiatives.

Example

If your calculated income tax is ₹1,00,000:

• Health & Education Cess (4%) = ₹4,000
• Total tax payable = ₹1,04,000

What are the Different Types of Taxable Income in India

Under the Income Tax Act, income is classified into different categories, and each category is taxed according to the applicable rules and provisions. 

1. Income from Salary

This includes the income employees receive from their employer.

Common components include:

• Basic salary
• Dearness allowance
• House rent allowance (HRA)
• Bonuses and incentives
• Leave encashment
• Pension

Certain deductions and exemptions may apply depending on the tax regime chosen by the taxpayer.

2. Income from House Property

Income earned from owning and renting out property is taxed under this category.

This may include:

• Rental income from residential or commercial properties
• Deemed rent from certain properties

Taxpayers may also claim deductions such as home loan interest under the applicable regime.

3. Income from Business or Profession

Income generated through business activities or professional services is taxed under this category.

Examples include:

• Business profits
• Freelance income
• Professional fees
• Consultancy income

4. Capital Gains

Capital gains arise when a taxpayer sells a capital asset at a profit.

Examples of capital assets include:

• Shares and mutual funds
• Real estate
• Gold or other investments

Capital gains may be classified as short-term or long-term, depending on the holding period.

5. Income from Other Sources

Any income that does not fall under the previous categories is taxed under income from other sources.

Examples include:

• Interest income from savings accounts or fixed deposits
• Dividend income
• Lottery winnings
• Gifts received beyond the permitted limit

Tax-Saving Investments to Reduce Your Tax Liability

Many of these investments fall under Section 80C and other related provisions, which allow taxpayers to claim deductions on specified savings and investment options.

Investment Option	Section	Maximum Deduction
Public Provident Fund (PPF)	80C	Up to ₹1.5 lakh
Equity Linked Savings Scheme (ELSS)	80C	Up to ₹1.5 lakh
National Savings Certificate (NSC)	80C	Up to ₹1.5 lakh
Tax-Saving Fixed Deposits	80C	Up to ₹1.5 lakh
National Pension System (NPS)	80CCD(1B)	Additional ₹50,000
Life Insurance Premium	80C	Up to ₹1.5 lakh
Health Insurance Premium	80D	Up to ₹25,000–₹50,000

What are the Changes in Securities Transaction Tax (STT) in Budget 2026

The Union Budget 2026 also introduced certain revisions to the Securities Transaction Tax (STT) structure applicable to transactions in the stock market. STT is a tax levied on the purchase and sale of securities such as equities, equity derivatives, and mutual fund units traded on recognised stock exchanges.

These changes aim to align the tax framework with evolving market activity while ensuring transparency in securities transactions.

Key Changes in STT

• Revised STT rates on certain derivative transactions to reflect increased trading volumes in options and futures.
  
• Adjustments in STT on options contracts, particularly on the premium component during sale transactions.
  
• Continued application of STT on equity delivery trades, intraday equity trades, and derivatives executed on recognised exchanges.
  

STT and Capital Gains Tax

It is important to note that STT is separate from capital gains tax. While STT is charged on every eligible transaction executed on an exchange, capital gains tax is calculated on the profit earned from selling securities.

What are the Changes in ITR Filing Deadlines and Penalties (Budget 2026)

The Union Budget 2026 also introduced changes related to Income Tax Return (ITR) filing timelines and penalties, aimed at improving compliance and encouraging taxpayers to file returns within the prescribed deadlines.

Revised ITR Filing Deadlines

The due dates for filing income tax returns generally remain aligned with taxpayer categories:

Category of Taxpayer	Due Date for Filing ITR
Individuals and HUFs (not requiring audit)	31 July 2026
Businesses requiring an audit	31 October 2026
Transfer pricing cases	30 November 2026

Taxpayers are encouraged to file their returns before the due date to avoid penalties and ensure timely processing of refunds.

Updated Return and Revised Return Deadlines

Taxpayers who discover errors or omissions after filing their ITR can submit a revised return within the permitted timeframe.

Type of Return	Deadline
Revised Return	31 December 2026 of the assessment year
Updated Return (ITR-U)	Up to 24 months from the end of the relevant assessment year

This allows taxpayers additional time to correct mistakes or disclose previously omitted income.

Penalty for Late Filing of ITR

Failing to file an income tax return within the due date may attract a late filing fee under Section 234F.

Total Income	Late Filing Fee
Up to ₹5 lakh	₹1,000
Above ₹5 lakh	₹5,000

In addition to the late filing fee, taxpayers may also need to pay interest under Section 234A on any unpaid tax liability.

After calculating your tax using the FY 2025-26 tax slabs, don’t forget the advance tax deadline—missing it may lead to a penalty and interest.

Things to Consider for Choosing Between the Old and New Tax Regime

Here are some practical tips to help decide which regime may work better.

1. Evaluate Your Deductions

If you regularly claim deductions such as:

• Section 80C investments (PPF, ELSS, insurance)
  
• Health insurance under Section 80D
  
• Home loan interest
  
• House Rent Allowance (HRA)

The old tax regime may provide greater tax savings.

2. Consider Simplicity of Tax Filing

The new tax regime simplifies tax calculation because most deductions and exemptions are not applicable. This makes it easier for taxpayers who prefer a straightforward tax structure.

3. Compare Tax Liability Under Both Regimes

Before filing your income tax return, it is advisable to calculate tax liability under both regimes. Many taxpayers choose the option that results in lower overall tax payable.

4. Review Your Investment Strategy

Tax-saving investments are an important factor. If you actively invest in instruments such as PPF, ELSS, or NPS, the old regime might provide better benefits.

5. Reassess Your Choice Every Year

Salaried individuals generally have the flexibility to review their tax regime choice each financial year while filing their income tax return.

Looking for last year’s tax rates? Read our guide on Income Tax Slabs in India for AY 2024-25.

Conclusion

Looking ahead, tax planning will remain an essential part of personal financial management. By staying informed about income tax slab changes, filing rules, and investment-linked tax benefits, you can not only remain compliant but also make smarter financial decisions that support long-term wealth creation.

Income Tax Slabs and Tax Regime | FAQs

Source: https://www.pib.gov.in/

Disclaimer: Investments in the securities market are subject to market risks; read all the related documents carefully before investing.