Income Tax Slabs 2025-26

Understanding Income Tax Slabs for FY 2025-26

What Changed in Budget 2025?

The Union Budget 2025 introduced revised tax slabs under the new regime, making it significantly more attractive for most taxpayers. The basic exemption limit was raised to ₹4 lakh (from ₹3 lakh), and the slab structure was restructured to 7 brackets with rates from 0% to 30%. The most notable change is the full tax rebate for income up to ₹12 lakh under the new regime, meaning salaried individuals earning up to ₹12.75 lakh (after ₹75,000 standard deduction) pay zero income tax.

New Regime vs Old Regime — Which Should You Choose?

The new regime is the default and works best for most taxpayers. It offers lower tax rates, a higher standard deduction of ₹75,000, and simplicity — no need to invest in tax-saving instruments or maintain proof of deductions.

However, the old regime may still be better if you claim significant deductions:

• HRA exemption for rent-paying employees in metro cities
• Section 80C investments (PPF, ELSS, LIC) — up to ₹1.5 lakh
• Section 80D health insurance premiums — up to ₹25,000/₹50,000
• Home loan interest under Section 24(b) — up to ₹2 lakh
• NPS contribution under Section 80CCD(1B) — additional ₹50,000

As a rule of thumb, if your total deductions under the old regime exceed approximately ₹3.75 lakh, the old regime may save you more tax. Use our full tax calculator to compare both regimes with your actual numbers.

How Income Tax is Calculated — Step by Step

1. Determine Gross Total Income: Sum of salary, house property, business income, capital gains, and other sources.
2. Apply Standard Deduction: ₹75,000 (new regime) or ₹50,000 (old regime) for salaried individuals.
3. Deduct Chapter VI-A (Old Regime): 80C, 80D, 80E, etc. if you opted for the old regime.
4. Arrive at Taxable Income: Gross income minus all applicable deductions.
5. Apply Slab Rates: Tax is calculated progressively — you pay each rate only on income within that slab.
6. Apply Rebate (Section 87A): If eligible, reduce tax by the rebate amount (up to ₹60,000 new regime, ₹12,500 old regime).
7. Add Surcharge: If income exceeds ₹50 lakh, add the applicable surcharge percentage.
8. Add Cess: 4% Health & Education Cess on total tax including surcharge.

Section 87A Rebate — Zero Tax Under New Regime

Under the new regime, Section 87A provides a rebate of up to ₹60,000 for individuals with taxable income up to ₹12 lakh. Since the tax on ₹12 lakh income (after ₹4 lakh exemption) works out to ₹60,000 in the new slab structure, this effectively means zero tax for income up to ₹12 lakh. For salaried persons, the ₹75,000 standard deduction raises this threshold to ₹12.75 lakh gross salary.

Under the old regime, the rebate is ₹12,500 for income up to ₹5 lakh.

Income Tax Act 2025 — What's Changing?

The Income Tax Act 2025 replaces the six-decade-old Income Tax Act 1961, effective April 1, 2026 (Tax Year 2026-27). While the tax rates and slab structure remain the same, the new Act simplifies the law by:

• Replacing the dual FY/AY system with a single "Tax Year" concept
• Renumbering all sections (e.g., 80C becomes 123(1), 80D becomes 124)
• Reducing the number of sections from 298 to 536 (clearer organization)
• Removing obsolete provisions and simplifying language

Use our Section Mapper tool to find the new section number for any old section.