Income Tax Slabs and Rates for FY 2025–26 (AY 2026–27): Old vs New Tax Regime Explained

If you earn an income in India, one of the first things you hear about is income tax slabs. Many beginners assume that once income crosses a limit, the entire income gets taxed at a higher rate. But that is not how the income tax system works in India.

India follows a progressive tax system, which simply means different portions of your income are taxed at different rates.

For Financial Year 2025-26 (Assessment Year 2026-27), taxpayers can choose between the Old Tax Regime and the New Tax Regime. Understanding how these Income tax slabs work helps you estimate your tax liability and choose the regime that suits your situation.

Let’s walk through it step-by-step.

What Income Tax Slabs Actually Mean

Imagine you start your first job and your annual salary is ₹12 lakh. A common doubt beginners have is:

“Will I pay tax on the entire ₹12 lakh at one rate?”

No.

Income tax slabs divide your income into parts. Each part is taxed separately.

Think of it like steps on a staircase. As your income moves to the next step, only that portion moves into the higher tax rate.

Example

Suppose your income is ₹12 lakh under the new tax regime.

So you do not pay 10% on the entire ₹12 lakh.

Instead:

• ₹4 lakh → no tax
• ₹4 lakh → taxed at 5%
• ₹4 lakh → taxed at 10%

This system ensures that tax increases gradually as income grows.

New Tax Regime Slabs for FY 2025-26 (AY 2026-27)

Today, the new tax regime is the default option when you file your Income Tax Return. If you do nothing, your tax will be calculated using this new tax regime.

Under this system, tax rates are lower, but most deductions are not available.

New Income Tax Regime Slabs

Key Features of the New Tax Regime

Standard Deduction

If you are a salaried employee or pensioner, the government allows you to reduce ₹75,000 from your salary income automatically before calculating tax.

Income up to about ₹12 lakh can become tax-free

Because of the rebate available under Section 87A, if your taxable income is within this limit, the tax calculated gets cancelled out.

Most deductions are not allowed

Common deductions like:

• Section 80C investments,
• HRA exemption, and
• Health insurance deductions (80D) are usually not available in this new tax regime.

Many salaried employees choose this regime because the calculation becomes simpler.

Old Tax Regime Slabs for FY 2025-26

The old tax regime works differently. Tax rates are higher, but it allows many deductions and exemptions that can reduce your taxable income.

Old Tax Regime Slabs when an individual below the age of 60 years

Key Features of the Old Tax Regime

Here are some things that matter in real life.

Standard Deduction

Salaried employees can reduce ₹50,000 from salary income before tax is calculated.

Many deductions are allowed

For example:

• Section 80C investments (PF, ELSS, insurance etc.)
• Health insurance deduction (80D)
• HRA exemption
• Home loan interest deduction

These deductions reduce your taxable income.

Income up to ₹5 lakh can become tax-free

If your taxable income after deductions is within this limit, the rebate under Section 87A removes the tax. This regime usually benefits people who invest and claim multiple deductions.

Understanding Section 87A Rebate

This is one concept that often confuses beginners.

A rebate is not the same as a deduction.

A deduction reduces your income first.

A rebate works after tax has been calculated, and it reduces the final tax amount.

Under the New Tax Regime, if your taxable income is around ₹12 lakh or below, the tax calculated can be reduced by a rebate of up to ₹60,000.

Under the Old Tax Regime, if taxable income is within ₹5 lakh, the tax calculated can be reduced by a rebate of up to ₹12,500.

Example: How Section 87A Makes Income Tax-Free

Let’s look at a practical example.

Suppose Mr. Kumar earns ₹11.75 lakh salary and uses the new tax regime.

Step 1: Standard Deduction

₹11,75,000 – ₹75,000 = ₹11,00,000 taxable income

Step 2: Apply Tax Slabs

Total tax = ₹50,000

Step 3: Apply Rebate

Section 87A rebate reduces tax by ₹50,000

Final tax payable = ₹0

This is why many people say income up to about ₹12 lakh can become tax-free under the new regime.

Surcharge and Health & Education Cess

If your income becomes very high, the tax system adds an extra layer.

Surcharge

A surcharge is an additional tax applied only when income crosses certain levels.

Most beginners do not encounter surcharge early in their careers because income needs to be quite high.

Health & Education Cess

Regardless of income, everyone pays 4% extra tax on the final tax amount.

This cess helps fund health and education initiatives.

Income Tax Slabs for Different Categories of Taxpayers – Old tax regime

Senior Citizens (Age 60-80)

Under the old tax regime, resident senior citizens do not pay tax on the first ₹3 lakh of income.

The rest of the slabs remain the same.

However, under the new tax regime, there is no special higher exemption for senior citizens.

Super Senior Citizens (Age 80+)

Under the old tax regime, residents aged above 80 years do not pay tax on the first ₹5 lakh of income.

Again, the new regime does not provide this higher exemption.

Women Taxpayers

Many beginners assume women have different tax rates.

In reality, income tax slabs are the same for men and women under both regimes.

Non-Resident Indians (NRIs)

NRIs can also choose between the old and new regimes.

However, the higher exemption available to senior citizens under the old regime is only for resident taxpayers, not NRIs.

Hindu Undivided Family (HUF)

HUFs are also taxed using the same slab rates.By default, the new tax regime applies, but they can opt for the old regime if needed.

Special Income Tax Rates for Certain Types of Income

Some types of income are not taxed using normal slabs.

They are taxed at fixed rates.

This is why people sometimes see different tax rates on investment income.

Old vs New Tax Regime: Which One Usually Works Better?

Many beginners ask this question.

The answer depends on how many deductions you claim.

The new tax regime often works better when:

• you have few deductions
• your salary is straightforward
• you want simpler tax filing

The old tax regime can be better when you claim:

• HRA exemption
• home loan deductions
• insurance or ELSS under Section 80C
• health insurance deduction

In practice, many salaried employees compare both calculations before filing their return.

Example: Comparing Tax in Old vs New Regime

Suppose Mr. Kumar earns ₹25 lakh salary.

He claims:

• HRA exemption: ₹4 lakh
• Section 80C investment: ₹1.5 lakh
• Health insurance deduction: ₹25,000

After deductions, his taxable income becomes lower under the old regime.

Result

In this case, the new tax regime saves about ₹70,200.

But if deductions were larger, the old regime might have been better.

How Income Tax is Calculated

In practice, tax calculation follows a simple sequence.

• Add income from salary, business, property, and other sources to find gross income.
• Reduce deductions or exemptions depending on the regime.
• Calculate taxable income.
• Apply slab rates.
• Apply rebate if eligible.
• Add 4% health & education cess.
• Adjust taxes already paid like TDS or advance tax.

The result is either:

• tax payable, or
• refund.

Filing Income Tax Return for FY 2025-26

After calculating tax, the next step is filing the Income Tax Return (ITR).

For FY 2025-26 (AY 2026-27), the usual due date for most individuals is:

31 July 2026

Filing before the deadline helps avoid:

• late fees
• interest on unpaid tax.

Income Tax Calculation Examples

To understand how income tax is calculated in real life, let’s look at two simple examples. These examples show how tax is calculated step-by-step under the new tax regime and how the old and new regimes compare.

Example 1: Tax Calculation for Salary Income (New Tax Regime)

Suppose Mr. Raj earns a salary of ₹15 lakh in FY 2025–26 and chooses the new tax regime.

Step 1: Calculate Taxable Income

Step 2: Apply Income Tax Slabs

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

Total Tax Payable = ₹97,500So, Mr. Raj’s final tax under the new tax regime is ₹97,500.

Example 2: Comparing Old vs New Tax Regime

Now consider Mr. Kumar, who earns ₹25 lakh salary and also claims some deductions.

His details are:

• Salary: ₹25,00,000
• HRA Exemption: ₹4,00,000
• Section 80C Deduction: ₹1,50,000
• Section 80D Deduction: ₹25,000

Step 1: Calculate Taxable Income

Step 2: Tax Calculation Under New Tax Regime

Add 4% cess: ₹12,300

Total Tax = ₹3,19,800

Step 3: Tax Calculation Under Old Tax Regime

Add 4% cess: ₹15,000

Total Tax = ₹3,90,000

Final Comparison

In this situation, Mr. Kumar pays ₹70,200 less tax under the new tax regime.However, it is important to remember that the new regime does not allow many deductions and exemptions, so the better option can vary depending on each person’s income and deductions.

Conclusion

Income tax slabs look confusing at first, but once you understand how they work, the system becomes much clearer. Remember three key ideas:

• India taxes income in steps, not one flat rate.
• You can choose between old and new tax regimes depending on deductions.
• Rebates, deductions, and standard deduction can significantly change your final tax.

For most beginners, the practical approach is simple: calculate tax under both regimes once before filing ITR. That usually shows which option is more suitable for your situation.

Income Tax Slabs for FY 2026–27 (AY 2027–28)

As announced in Budget 2026, there are no changes in the income tax slab rates for FY 2026–27. This means taxpayers will continue to follow the same tax structure that was applicable in FY 2025–26.

The new tax regime under Section 115BAC remains the default tax system, but taxpayers can still choose the old tax regime if it is more beneficial for them.

For tax year 2026–27, the basic tax-free income limits remain the same:

• ₹4 lakh under the new tax regime
• ₹2.5 lakh under the old tax regime

Since the slabs and rates remain unchanged, individuals calculating tax for tax-year 2026–27 can follow the same slab structure, rebates, and standard deductions that applied in FY 2025–26. Below are the income tax slab rates under both the new tax regime and the old tax regime.

Income Tax Slab Rates for FY 2026–27 (AY 2027–28)

1. New Tax Regime

Important Note: If your total income is up to ₹12 lakh, you may not have to pay tax because of a rebate of up to ₹60,000 under the new tax regime.

Old Tax Regime

Individuals Below 60 Years

Senior Citizens (Age 60–80 Years)

Super Senior Citizens (Above 80 Years)

Income tax works in slabs (steps). As your income increases, the tax rate on the extra income also increases.

Key Points About Income Tax Slabs in India (FY 2025-26)

FAQs: Income Tax Slabs in India (FY 2025-26)

When people first learn about income tax slabs, the old tax regime, and the new tax regime, many small doubts naturally come up.

These FAQs answer both the common questions people search online and the practical questions beginners usually ask when trying to understand income tax for the first time.

What are income tax slabs in India?

Income tax slabs are income ranges set by the government to decide how much tax you pay. Different parts of your income are taxed at different rates. As income increases, the tax rate applied to the next portion of income also increases.

Does the entire income get taxed at one rate if I cross a slab?

No, this is a common misunderstanding. Only the income that falls in the higher slab gets taxed at that higher rate. The earlier portion of income continues to be taxed at the lower rates.

What is the difference between the old tax regime and the new tax regime?

The new tax regime offers lower tax rates but allows very few deductions. The old tax regime has higher tax rates but allows many deductions such as HRA, Section 80C investments, and health insurance deductions.

Which tax regime is the default one now?

The new tax regime is the default option when you file your income tax return. If you want to use the old tax regime, you must actively choose it while filing your return.

What is the basic tax-free income limit under the new tax regime?

Under the new tax regime for FY 2025-26, the first ₹4 lakh of income is not taxed. This means tax calculation starts only after this amount.

What is the tax-free limit under the old tax regime?

Under the old tax regime, income up to ₹2.5 lakh is tax-free for most individuals. Senior citizens get a slightly higher tax-free limit under this regime.

What is Section 87A rebate in income tax?

Section 87A provides a tax rebate that can reduce your final tax to zero if your income is within certain limits. It is applied after tax is calculated, not before.

Is income up to ₹12 lakh really tax-free in the new tax regime?

In many cases, yes. Because of the Section 87A rebate, the tax calculated on income up to around ₹12 lakh can get fully cancelled. This makes the final tax payable zero for many taxpayers.

What is standard deduction in salary income?

Standard deduction is a fixed amount the government allows you to reduce from salary income before tax is calculated. For FY 2025-26, it is ₹75,000 in the new tax regime and ₹50,000 in the old tax regime.

Can salaried employees switch between tax regimes every year?

Yes, salaried individuals can choose either regime each year while filing their income tax return. This allows them to compare which regime results in lower tax.

Can business owners switch between tax regimes every year?

No. If a person has business or professional income, switching regimes is more restricted. They are generally allowed to switch only once and then revert back only once.

Why do some people still choose the old tax regime?

Many people choose the old tax regime because it allows deductions like home loan interest, HRA, insurance investments, and medical insurance. These deductions can reduce taxable income significantly.

Which tax regime is better for beginners with simple salary income?

In many simple salary cases, the new tax regime is easier and sometimes results in lower tax because the tax rates are lower and calculations are simpler.

What is health and education cess in income tax?

After your income tax is calculated, an additional 4% tax is added. This is called health and education cess and applies to all taxpayers.

What is the surcharge in income tax?

Surcharge is an additional tax applied only when income becomes very high. It generally applies when total income crosses ₹50 lakh or more.

Do women get different income tax slabs in India?

No. Income tax slabs are the same for men and women in India. Both follow the same tax rates under the old and new tax regimes.

Do senior citizens get extra tax benefits?

Under the old tax regime, senior citizens get a higher tax-free income limit. However, the new tax regime does not provide this additional exemption.

Are capital gains taxed using normal income tax slabs?

Not always. Some investment gains like short-term capital gains or long-term capital gains are taxed at fixed rates instead of normal slab rates.

How is income tax actually calculated step by step?

First, all income sources are added to find total income. Then deductions or exemptions are reduced depending on the tax regime. After that, tax slabs are applied, rebates are adjusted, and finally 4% cess is added.

What happens if tax has already been deducted from my salary?

Employers usually deduct TDS (Tax Deducted at Source) from salary every month. When you file your income tax return, this deducted amount is adjusted against your final tax.

What is the last date to file income tax return for FY 2025-26?

The usual due date for filing the Income Tax Return (ITR) for FY 2025-26 (AY 2026-27) is 31 July 2026 for most individual taxpayers.

Can I check which tax regime saves more tax for me?

Yes. Many people calculate tax under both regimes using an income tax calculator. This comparison helps them decide which regime results in lower tax.

Why do many beginners feel confused about tax slabs?

Most confusion happens because people think the entire income gets taxed at one rate. Once you understand that tax is calculated step-by-step on different portions of income, the concept becomes much clearer.

What should beginners learn after understanding income tax slabs?

After learning about tax slabs, it helps to understand deductions, rebates, capital gains, and how to file income tax returns. These topics complete the basic picture of how personal income tax works in India.