Income Tax Slabs FY 2025-26 & AY 2026-27

Table of Content

1. What is the Income Tax Slab?

2. Quick glance at the latest Income Tax Slabs for FY 2025-26 & AY 2026-27 after budget 2025

3. Let's Better Understand the Income Tax Slabs Under the Union Budget FY 2025-26 (AY 2026-27)

4. Comparison of Tax Rates under New Tax Regime and Old Tax Regime for FY 2026-26 (AY 2026-27)

5. Example of Old Tax Regime vs. New Tax Regime:

6. Deductions and Exemptions Under the New Tax Regime

7. How to Determine Which Income Tax Slab Applies to You?

8. Different Types of Taxable Income in India

9. How to Calculate Income Tax with Tax Slabs?

10. What is a Surcharge and what are the Rates?

11. Important Points to Consider When Selecting the New Tax Regime

12. Key Highlights of the New Income Tax Regime for FY 2025-26

13. Consequences of Missing the Filing Deadline for FY 2025-26 & AY 2026-27

14. Summary

15. Frequently Asked Questions (FAQ)

What is the Income Tax Slab?

Income Tax in India follows a tax slab system. Here, taxpayers’ income is categorised as ranges or slabs and certain tax rates are assigned to them. This is a progressive system of taxation where people earning more income are taxed at higher income tax slabs in proportion to their higher income.

By introducing income tax slabs in India, the Government of India aims to achieve a fair taxation system for all citizens. With this aim, the government revises the tax slabs periodically and announces amendments to the Union Budget accordingly.

Now that you know what income tax slabs are, let's take you through the different slabs under the old and new tax regimes for a better understanding.

For several years, many people purchased life insurance simply as a tax-saving method. The truth is, life insurance plays a crucial role in every sound financial plan. Before we create financial plans for the upcoming financial year, let’s better understand the new rules and regulations. In February 2023, the finance minister outlined the budget for the upcoming year, which included a few changes to the new tax regime. The finance minister reduced the number of tax slabs and extended the standard deduction to the salaried class and pensioners as well.

Below, we have provided a detailed understanding of the income tax slab rates for the Financial Year 2025-26 (Assessment Year 2026-27).

New Tax Regime

The new tax regime, introduced by the finance minister Nirmala Sitharaman, offers concessional tax rates with limited exemptions and deductions. As per Budget 2025, taxpayers with incomes up to Rs. 12 lakh will get a rebate of Rs. 60,000, effectively bringing their tax liability to zero. The revised income tax slabs are as follows:

Old Tax Regime

The old tax regime continues to offer various exemptions and deductions. The income tax slab for FY 2025-26 is:

Note: Senior citizens (60-80 years) have a basic exemption limit of Rs. 3 lakh, and super senior citizens (above 80 years) have Rs. 5 lakh.

Quick glance at the latest Income Tax Slabs for FY 2025-26 & AY 2026-27 after budget 2025

The following table gives an overview of the latest income tax slabs in India after the budget 2025 announcement for FY 2025-26 (AY 2026-27):

Here are a few key highlights to glance through about the latest income tax slab rates:

• Default Option

The new tax regime remains the default choice, but individuals without business income can opt for the old regime each financial year.

• Higher Basic Exemption Limit:

  In case of New Tax Regime, Basic Exemption limit raised from Rs. 3 lakh to Rs. 4 lakh effective April 1, 2025, offering greater tax relief.

• Enhanced Section 87A Rebate:

  Taxpayers with incomes up to Rs. 12 lakh will get a rebate of Rs. 60,000, effectively bringing their tax liability to zero.

• Standard Deduction:

  Salaried employees are eligible for a standard deduction of Rs. 75,000, increasing the tax-free income threshold to Rs. 12.75 lakh.

• No Change in Surcharge:

  The highest surcharge rate of 37% has been reduced to 25% under the New Tax regime .

• Tax Savings:

- Taxable income of Rs. 12 lakh: No tax under the New tax regime vs. Rs.  1,63,800 under the Old tax regime .

- Taxable income of Rs. 15 lakh: Rs. 97,500 under the new regime tax vs. Rs.  2,57,400 under the old regime – saving Rs. 1,59,900.

- Taxable income of Rs. 25 lakh: Rs. 3,19,800under the New tax regime vs. Rs. 5,69,400 under the Old tax regime – saving Rs. 2,49,600.

Impact: These updates simplify the tax structure and boost disposable income, especially benefiting middle-income earners.

Let's Better Understand the Income Tax Slabs Under the Union Budget FY 2025-26 (AY 2026-27)

The Union Budget 2025 focused on simplifying the income tax system and boosting taxpayer savings through higher rebates and streamlined slabs. Here's a closer look at the major updates:

• Increased Rebate:

  Taxpayers with an annual income of up to Rs. 7 lakh continue to get a full tax rebate under Section 87A. However, with the revised slabs and deductions, individuals earning up to Rs. 12 lakh may now have zero tax liability under the new tax regime, depending on salary structure and eligible benefits.

• Standard Deduction:

  Under the new tax regime, salaried individuals and pensioners can claim a flat Rs. 75,000 standard deduction, enhancing tax savings without any investment conditions.

• Simplified Slabs

  The new regime continues with a granular slab structure, featuring lower tax rates for each income bracket. This eases the burden on middle-class taxpayers and promotes transparency in the tax system.

Comparison of Tax Rates under New Tax Regime and Old Tax Regime for FY 2026-26 (AY 2026-27)

The following is a comparative table related to tax rates under the new tax regime and the old tax regime for FY 2025-26:

Please note that the new regime offers lower rates for middle-income brackets but limits exemptions and deductions.

Example of Old Tax Regime vs. New Tax Regime:

To help you better understand how the old and new tax regimes impact your tax liability, let us consider a simple example

Scenario: An individual with a gross annual income of Rs. 15,00,000.

Old Tax Regime Calculation:

This regime allows several deductions and exemptions that help reduce taxable income.

Deductions Claimed:

• Section 80C (e.g., PPF, ELSS, LIC Premium): Rs. 1,50,000

• Section 80D (Medical Insurance Premium): Rs. 25,000

• Standard Deduction (for salaried individuals): Rs. 50,000

Net Taxable Income: Rs. 15,00,000 – Rs. 2,25,000 = Rs. 12,75,000

Income Tax Computation:

Rs. 2,50,001 – Rs. 5,00,000 @ 5% = Rs. 12,500

Rs. 5,00,001 – Rs. 10,00,000 @ 20% = Rs. 1,00,000

Rs. 10,00,001 – Rs. 12,75,000 @ 30% = Rs. 82,500

Total Tax: Rs. 1,95,000

Add: Health & Education Cess (4%): Rs. 7,800

Total Tax Liability: Rs. 2,02,800

New Tax Regime Calculation:

This regime offers lower tax rates but fewer deductions. Only the standard deduction of Rs. 75,000 is applicable.

Net Taxable Income: Rs. 15,00,000 – Rs. 75,000 = Rs. 14,25,000

Income Tax Computation (As per FY 2025-26 slabs):

• Rs. 4,00,001 – Rs. 8,00,000 @ 5% = Rs. 20,000

• Rs. 8,00,001 – Rs. 12,00,000 @ 10% = Rs. 40,000

• Rs. 12,00,001 – Rs. 14,25,000 @ 15% = Rs. 33,750

Total Tax: Rs. 93,750

Add: Health & Education Cess (4%): Rs. 3,750

Total Tax Liability: Rs. 97,500

In this scenario, the new tax regime results in significantly lower tax liability compared to the old regime. While the old regime benefits those with high deductions, the new regime is more tax-efficient for individuals with fewer deductions. Always evaluate based on your actual eligible deductions before choosing.

Deductions and Exemptions Under the New Tax Regime

The new tax regime as per Budget 2025 aims to simplify tax filing by removing most exemptions and deductions. However, a few key deductions are still allowed:

• Standard Deduction:

Salaried individuals and pensioners can now claim a higher standard deduction of Rs. 75,000, up from Rs. 50,000 in the previous year. This helps reduce taxable income under the income tax slab for FY 2025-26.

• Employer’s Contribution to NPS for the benefit of employee [Section 80CCD(2)]:

10% of Salary(14% for government employees) or Employer’s Contribution whichever is higher, is allowed as a deduction , offering a tax-efficient retirement benefit.

• Section 80JJAA:

Available for businesses hiring new employees, encouraging job creation.

• Section 80CCH(2):

Allows deduction on contributions made to the Agniveer Corpus Fund by Agniveers.

Additionally, the surcharge rates remain capped at 25% for income above Rs. 2 crore under the new tax regime. Though limited, these deductions still offer smart tax planning opportunities within the revised income tax slab rates.

How to Determine Which Income Tax Slab Applies to You?

Determining your applicable income tax slab for FY 2025-26 begins with calculating your gross income, which includes earnings from salary, business/profession, house property, capital gains, and other sources. Next, evaluate the deductions and exemptions you are eligible for. Under the old tax regime, you could claim deductions like Section 80C, 80D, HRA, and LTA. The new tax regime, however, allows fewer deductions but offers lower tax rates and a higher standard deduction of Rs. 75,000.

Once deductions are considered, compute your taxable income by subtracting eligible deductions from gross income. Then, match this figure with the latest tax slabs as per the regime you choose.

Additionally, factors like your age category (general, senior, or super senior citizen), source of income, and long-term tax planning goals should be weighed when selecting the appropriate regime. A tax calculator can help simplify this decision-making process and ensure optimal tax savings.

Different Types of Taxable Income in India

To calculate income tax in India, the taxpayers’ sources of income are categorised into different groups. The five main heads of taxable income in India are as follows.

• Income from Salaries
  

  The income which an employee receives from an employer is categorised under this head. Even the pension a person receives after retirement is also categorised under this section. Form 16 carries every detail of your income from salaries. While filing your taxes, consider submitting this form as proof of your income and employment.

• Income from Business or Profession
  

  According to Sections 30 to Section 43D of the Income Tax Act, the income a person earns from sources like freelancing, business or professions is taxable under this head. Income from such professions or side hustles is categorised under this head.

• Income from House Property
  

  Any income that an individual makes by renting, leasing or selling a residential property is taxable by the Income Tax Act under this category.

• Income from Capital Gains
  

  This category considers the earnings that you make from sources like investments in capital assets. This can include mutual funds, real estate and stocks. This section also divides your capital gains into two major categories based on your holding period. These are long-term capital gains (LTCG) and short-term capital gains (STCG).

• Income from Other Sources
  

  Lastly, any income that does not fall under the above four categories is taxed as income from other sources. Examples of income sources that belong to this category are as follows.
  
• Gifts received from any TV show or programme
• Interests on FDs, saving bank accounts, etc
• Interests from securities, bonds and debentures
• Income from dividends
• Profits from gambling, horse races and lotteries
• Gifts from friends and families
• Pension a person receives after pensioner’s death
• Rental income from properties used for non-residential purposes

How to Calculate Income Tax with Tax Slabs?

Calculating income tax involves a few simple steps that are discussed below:

• Determine Taxable Income:

  Start by subtracting eligible deductions (like standard deduction, Section 80C, etc.) from your gross total income to arrive at your taxable income.

• Apply Slab Rates:

  Based on the tax regime you choose (old or new), apply the applicable slab rates to the respective portions of your income.

• Add Cess:

  Once the basic tax is calculated, add 4% Health and Education Cess to it.

• Total Tax Liability:

  Combine the calculated tax and cess to find your total payable amount.

What is a Surcharge and what are the Rates?

A surcharge is an additional tax levied on the income tax amount (not on the total income) of individuals earning above certain thresholds. It is applicable primarily to high-income taxpayers and is aimed at ensuring a fair contribution from the ultra-rich.

For FY 2025-26 (AY 2026-27), the applicable surcharge rates under the old and new tax regimes are:

• 10% on income tax if the total income exceeds Rs. 50 lakh but does not exceed Rs. 1 crore

• 15% on income tax if the total income exceeds Rs. 1 crore but does not exceed Rs. 2 crore

• 25% on income tax if income exceeds Rs. 2 crore but does not exceed Rs. 5 crore

• 37% on income tax if income exceeds Rs. 5 crore under the old regime

Note: Under the new tax regime, the surcharge is capped at 25%, even for incomes above Rs. 5 crore, providing some relief to high earners.

Always consider the surcharge impact while planning taxes under either regime.

Important Points to Consider When Selecting the New Tax Regime

When deciding between the new income tax regime and the old one for FY 2025-26 (AY 2026-27), it is crucial to weigh key differences in deductions, rebates, and overall tax liability. Below are some essential factors to keep in mind:

• Limited Deductions and Exemptions

The new tax regime offers lower income tax slab rates, but significantly limits deductions. Over 70 exemptions and deductions, including those under Section 80C (like ELSS, PPF, life insurance premiums), Section 80D (health insurance), HRA, and LTA, are not applicable. This makes the new regime ideal for individuals who do not have many investments or claims.

• Enhanced Standard Deduction

A key benefit introduced in Budget 2025 is the increased standard deduction of Rs. 75,000 (up from Rs. 50,000 in FY 2024-25) for salaried and pensioned individuals. This deduction is automatically applied and provides basic relief even without any additional investments.

• Section 87A Rebate Expansion

Under the revised structure, individuals with income up to Rs. 12 lakh may effectively pay zero tax after considering the standard deduction, lower tax rates, and the enhanced Section 87A rebate

• Surcharge Cap

The maximum surcharge under the new regime is capped at 25%, ensuring more predictable tax outgo for high-income earners.

• Uniform Applicability

Unlike the old regime, the new tax slabs apply uniformly across all age groups, general, senior, and super senior citizens, offering a simplified structure.

Also, use an online income tax calculator to evaluate which tax regime suits your financial profile best before filing.

Key Highlights of the New Income Tax Regime for FY 2025-26

The following are a few highlights to look at related to the latest tax slab as per the 2025 Budget:

• Default Regime:

  The new tax regime is now the default option for all taxpayers unless they specifically opt for the old regime while filing returns.

• Standard Deduction:

  Salaried individuals and pensioners are eligible for a standard deduction of Rs. 75,000 under New tax regime, offering direct relief from taxable income.

• Simplified Slabs:

  The regime features seven income tax slabs with lower tax rates, simplifying calculations and reducing overall tax burden.

• No Major Deductions Allowed:

  Common exemptions and deductions, such as Section 80C (investments), 80D (health insurance), and HRA, are not applicable under New tax regime .

• Higher Rebate Limit:

  Section 87A rebate has been enhanced, effectively eliminating tax liability for individuals with income up to Rs. 12 lakh who has opted for New tax regime, subject to conditions.

• Reduced Surcharge:

  The maximum surcharge is capped at 25%, lowering the effective tax rate for high-income earners under New Tax Regime.

• Pensioners’ Relief:

  A deduction of Rs. 25,000 or 1/3rd of family pension (whichever is less) continues to be allowed.

Consequences of Missing the Filing Deadline for FY 2025-26 & AY 2026-27

Filing your Income Tax Return (ITR) on or before the due date is not just a formality—it has financial and legal implications. Here's what could happen if you miss the deadline for FY 2025-26 (AY 2026-27):

1. Interest and Penalties

As per Section 234A of the Income Tax Act, interest at 1% per month or part thereof is levied on any unpaid tax amount from the due date until the date of filing.

 Additionally, under Section 234F, a late filing fee of Rs. 5,000 is applicable if the return is filed after the due date but before 31st December 2026. If your total income is below Rs. 5 lakh, the penalty is reduced to Rs. 1,000.

2. Inability to Carry Forward Losses

If you miss the deadline, you cannot carry forward losses under the head “Capital Gains” or “Business and Profession” to offset against future income. However, loss from house property can still be carried forward.

3. Restriction on Choosing Tax Regime

Taxpayers with business income are required to declare their preferred regime (new or old) in their return. Filing late could restrict your ability to opt or switch to old tax regimes, potentially increasing your tax liability.

4. Legal Consequences

In serious cases of willful default, Section 276CC allows for prosecution, with imprisonment ranging from 3 months to 7 years, along with fines.

Please note that the last date to file the return for FY 2025-26 is 31st July 2026 (non-audit cases). Belated returns can be filed by 31st December 2026 with applicable penalties.

Summary

The Union Budget 2025 has refined and simplified the personal income tax regime for FY 2025-26 (AY 2026-27). With increased standard deductions, restructured slab rates, and capped surcharges, the new regime aims to ease tax compliance while offering fair relief to middle and upper-middle-class taxpayers. Choosing between the old and new regime depends on your income structure and eligible deductions, so evaluate both carefully before filing your return.

Frequently Asked Questions (FAQ)

1. Is filing income tax returns compulsory?

As per income tax laws, filing income tax returns is mandatory for individuals whose total income during the financial year exceeds the basic exemption limit of more than the gross total income of ₹ 2,50,000 under the old regime or ₹ 3,00,000 under the new regime. You will be attracting penalties by not filing returns. Also, it will hamper your chances of getting a loan, when you apply for a visa for travel purposes, or even property registration.

Do note that the exemption limit for an individual depends on his/her age. Citizens will have to inform the government mandatorily about income earned irrespective of the tax regime in Financial Year 2023-24.

2. Are there separate slab rates for different categories?

Individual taxpayers have to pay tax based on their age and income. For the financial year 2023-24, income tax slab rates are divided into the old regime, which has higher tax rates with three tax slabs and different deductions for senior and super senior citizens, and the revised new regime with lower tax rates.

3. What is the limit of new regime tax slab?

Under the new tax regime for FY 2025-26, income up to Rs. 4 lakh is tax-exempt due to the revised basic exemption limit. With the enhanced Section 87A rebate of Rs. 60,000, individuals earning up to Rs. 12 lakh may not have any tax liability, depending on eligible conditions.

4. What is the 80C limit for 2023-24?

Yes, for FY 2025-26, salaried individuals and pensioners can claim a standard deduction of Rs. 75,000 under the new tax regime. This amount has been increased from Rs. 50,000 in the previous year. Under the old tax regime, the standard deduction remained unchanged at Rs. 50,000.

5. How can individuals opt for the new tax regime? Understanding the exemption

Inclusions and exclusions
Taxpayers choosing to file tax under the new tax regime will have to forgo a few exemptions and deductions that were available in the existing old tax regime. Although there are 70 deductions and exemptions that taxpayers need to forgo, below are the most common ones:

6. What's not allowed under new tax rate regime?

a. Leave Travel Allowance (LTA) for salaried employees

b. House Rent Allowance (HRA)

c. Children education allowance

d. Helper allowance

e. Interest on housing loan (Section 24)

f. Other special allowances [Section 10(14)]

g. Professional tax

h. Donation to Political party/trust, etc

7. What's retained under new tax rate regime?

a. Retirement benefits, gratuity etc.

b. Conveyance allowance for expenditure incurred for travelling for duties of an office

c. Transport allowance for specially-abled people

d. Education scholarships

e. Retrenchment compensation

f. Investment in Notified Pension Scheme under section 80CCD(2)

g. Depreciation u/s 32 of the Income-tax act except additional depreciation.

8. Which entities are required to file income tax returns mandatorily?

As per the Income Tax Act, it is mandatory to file ITRs for these entities in India:

1. Individuals who want to claim an income tax refund

2. Those who want to set off and carry forward losses under a head of income

3. Individuals with assets or financial interests located outside of India

4. Individuals gaining income from property held under a trust for religious, charitable, or political purposes.

5. NRIs whose income accrued in India exceed ₹ 2.5 lakh

9. Is there any standard deduction for FY 2024-25?

Yes, the Income Tax Act allows a standard deduction of ₹ 50,000 to the income taxable under the head 'Salaries' for FY 2023-24.

Standard deduction is a tax benefit that can be claimed irrespective of the actual amount spent on Transport Allowance and Medical Allowance and is applicable to individuals earning a salary or pension income. The limit of standard deduction was set at ₹ 50,000.

10. What is the 80C limit for 2024- 25?

The Section 80C deduction limit for FY 2025-26 continues to be Rs. 1.5 lakh under the old tax regime. This includes a wide range of tax-saving investments such as Public Provident Fund (PPF), Equity Linked Savings Schemes (ELSS), National Savings Certificate (NSC), and life insurance premiums etc.

11. Do I need to file an Income Tax Return (ITR) if my annual income is below Rs 2.5 lakh?

If your annual income is below Rs. 2.5 lakh, according to income tax slabs, the nil tax rate is applicable to you. Therefore, you don't need to file income tax returns or pay income tax.

12. Can you avail the standard deduction on a salary of Rs. 50,000 under the new tax regime?

As a salaried individual, you can avail a standard deduction of Rs. 50,000 by opting for the income tax slabs under the new regime.

13. Can we change tax regime every year?

Yes, Individual is allowed to switch between the old and the new regime as per Budget 2023.

14. Are there any conditions for opting New Tax Regime?

To be eligible for the lower income tax rates under the new regime, the following conditions must be met by the individual or HUF's total income:

• No business income is included.
• No exemptions or deductions from the Income Tax Act are taken into account.
• Losses, including carry forward and depreciation-related losses, are not offset.
• Capital losses from the sale of house property cannot be deducted.
• No exemptions or deductions for allowances or perquisites from any other law are taken into account.

15. Can I switch between the old and new tax regimes every year?

Yes, salaried individuals are allowed to switch between the old and new tax regimes each year while filing their returns. However, taxpayers opted for New tax regime with business or professional income can switch regimes only once in their lifetime unless they cease to have such income thereafter.

Related Articles-

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• Tax Planning: Meaning, Importance, and Benefits
• Tax Planning Tips for All Age Groups
• Old Vs New Tax Regime: Which One Suits Your Financial Goals Better?
• Income Tax Act of 1961: Sections, Goals, Characteristics, and Clauses
• Income Tax Slab 2021-22