Income Tax Slab FY 2025-26 (AY 2026-27): New Regime vs Old Regime
- CA Pratik Bharda
- Apr 1
- 8 min read
Updated: Jun 8
Understanding income tax slabs is crucial for taxpayers in India because they directly affect take-home salary, tax liability, and savings. For FY 2025-26, individuals can choose between the New Tax Regime, offering lower slab rates with limited deductions, and the Old Tax Regime, which provides exemptions like HRA, Section 80C investments, Section 80D medical insurance, and home loan interest. Selecting the right regime helps reduce tax liability, optimize investments, and makes ITR filing smoother.
Table of Content
What is an Income Tax Slab for FY 2025-26 ?
An income tax slab is a specific range of income that is taxed at a particular rate. India’s tax system is progressive, meaning higher income is taxed at higher rates, while lower income enjoys either no tax or lower rates. For FY 2025-26, the New Tax Regime divides income into multiple slabs starting from tax-free income up to ₹4 lakh, gradually increasing up to 30% for income above ₹24 lakh. The Old Regime has slightly different ranges and allows various exemptions, making the effective taxable income lower for those who invest in eligible instruments or pay HRA.
Understanding which slab your income falls into is crucial because it determines how much tax you need to pay, how much you can save through deductions, and which regime is more beneficial for your circumstances. Accurate knowledge of slabs also ensures that your ITR filing is correct and prevents overpayment or penalties. By aligning your income and deductions with these slabs, you can plan your tax-efficient investments and optimize your take-home salary.
Income Tax Slab Rates for New Tax Regime FY 2025-26
Income Range (₹) | 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% |
Highlights of the New Tax Regime
The New Regime simplifies taxation with a standard deduction of ₹75,000 for salaried employees and pensioners. Section 87A rebate of up to ₹60,000 allows moderate-income taxpayers to reduce their liability, making income up to ₹12 lakh effectively tax-free. Most other exemptions, including HRA, 80C, and 80D, are not allowed, except limited provisions such as employer NPS contributions.
Income Tax Slab Rates for Old Tax Regime FY 2025-26
Income Range (₹) | 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% |
Highlights of the Old Tax Regime
Under the Old Regime, the standard deduction is ₹50,000. Section 87A rebate is available up to ₹12,500 for incomes ≤5 lakh. Eligible deductions such as HRA, 80C investments, 80D medical insurance, and home loan interest can significantly reduce taxable income, making this regime ideal for taxpayers with higher exemptions.
Income Tax Slab for Senior Citizens FY 2025-26
Age Group | Old Regime Basic Exemption | New Regime Basic Exemption |
60–80 yrs | ₹3,00,000 | ₹4,00,000 |
80+ yrs | ₹5,00,000 | ₹4,00,000 |
Senior citizens can benefit from higher exemption limits under the Old Regime, which reduces tax liability and simplifies ITR filing.
Tax Credit Benefits Under Section 87A
Section 87A provides a direct tax rebate for eligible resident taxpayers. In the New Regime, income up to ₹12 lakh can avail a rebate up to ₹60,000, while in the Old Regime, taxpayers earning up to ₹5 lakh can claim ₹12,500. Incomes taxed at special rates, such as short-term and long-term capital gains, are excluded from this rebate. Understanding this rebate allows taxpayers to plan deductions and optimize net tax payable.
Incremental Tax Relief in the New Regime
The incremental tax relief mechanism, commonly referred to as marginal relief, ensures that taxpayers whose income slightly exceeds the rebate threshold do not pay disproportionately higher tax.
Example:
Particulars | Amount (₹) |
Taxable Income | 12,15,000 |
Rebate Limit | 12,00,000 |
Excess Income | 15,000 |
Tax as per Slabs | 63,000 |
Tax Payable After Relief | 15,000 |
Although slab-based calculation would suggest ₹63,000, marginal relief ensures only the income exceeding the rebate limit is taxed, providing fairness and predictability in ITR filing.
How Standard Deduction Reduces Tax
For FY 2025-26, salaried employees and pensioners are eligible for a standard deduction under “Income from Salary”:
New Regime: ₹75,000
Old Regime: ₹50,000
How Rebate and Standard Deduction Can Reduce Your Tax to Zero
Example: Ms. Aisha, a salaried employee earning ₹11,80,000 with no other deductions:
Standard Deduction (New Regime): ₹75,000 - Taxable Income: ₹11,05,000
Tax calculated using New Regime slabs: ₹50,500
Section 87A rebate: ₹50,500 - Net Tax = ₹0
This example shows how taxpayers can optimize take-home salary by combining deductions and rebate effectively.
How to Calculate Tax on Salary Using Income Tax Slabs
Example 1: Salary ₹12 Lakh
New Regime:
0–4L: Nil
4–8L: 5% - ₹20,000
8–12L: 10% - ₹40,000
Total Tax: ₹60,000
87A Rebate: ₹60,000 - Net Tax = ₹0
Old Regime (without deductions):
Total Tax: ₹1,12,500 – 87A Rebate ₹12,500 - Net Tax = ₹1,00,000
Example 2: Salary ₹12.75 Lakh (Marginal Relief Applied)
Income Slab (₹) | Tax Rate | Tax Amount (₹) |
0–4,00,000 | Nil | 0 |
4,00,001 – 8,00,000 | 5% | 20,000 |
8,00,001 – 12,00,000 | 10% | 40,000 |
12,00,001 – 12,75,000 | 15% | 11,250 |
Total Tax Before Rebate | – | 71,250 |
87A Rebate: ₹60,000 - Net Tax = ₹11,250
Marginal Relief: Ensures that only the excess income above ₹12 lakh is taxed at 15%, making taxation fair for incomes slightly above rebate threshold.
Comparing Old vs New Regime with Deductions
Feature | Old Regime | New Regime |
Basic Exemption | ₹2.5L | ₹4L |
Standard Deduction | ₹50,000 | ₹75,000 |
Rebate u/s 87A | ₹12,500 (≤5L) | ₹60,000 (≤12L) |
Max Surcharge | 37% | 25% |
Deduction Options | 80C/HRA/80D/Home Loan | Mostly Not Allowed |
Scenario Example:
Salary: ₹15L, HRA: ₹3L, 80C: ₹1.5L, Home Loan Interest: ₹1L
Old Regime Taxable Income: 15L – (3L + 1.5L + 50K) = 10L then Tax ₹1,75,000
New Regime Taxable Income: 15L – 75K then Tax ₹1,90,000
Observation: Old Regime saves tax when deductions are significant.
Marginal Relief
Protects taxpayers slightly above rebate threshold from paying excessive tax.
Example: ₹12.75L - only extra ₹75,000 taxed at 15% - ₹11,250.
Ensures fair progressive taxation.
Surcharge and Health & Education Cess FY 2025-26
Cess: 4% of total tax
Surcharge:
₹50L–₹1Cr: 10%
₹2–5Cr: 25%
Above ₹5Cr: 25% (New), 37% (Old)
How Year-End Tax Planning Can Optimize Your Refund
Planning investments and exemptions before March 31 can reduce taxable income and maximize refunds. For example, contributing to PPF or NPS at the year-end under Old Regime reduces taxable income and increases take-home salary. Similarly, adjusting HRA or salary components before FY-end can optimize net tax payable.
Special Tax Rates FY 2025-26
Income Type | Rate |
Short-term Capital Gains (STCG) | 20% |
Long-term Capital Gains (LTCG) | 12.5% |
Lottery/Game Show Winnings | 30% |
Crypto/Virtual Digital Assets | 30% |
Income Tax Slabs Overview for Women, NRIs, and HUFs
Income Tax Slabs for Women
Women taxpayers follow the same slabs as general taxpayers. They can utilize standard deduction, rebate, and exemptions under the Old Regime for HRA and 80C investments to reduce taxable income.
Income Tax Slabs for NRIs
NRIs are taxed only on India-sourced income such as salary, property income, or capital gains from Indian assets. Eligible deductions are limited, and careful reporting ensures correct ITR filing and avoids notices.
Income Tax Slabs for HUF
A Hindu Undivided Family (HUF) is treated as a separate taxpayer. HUF income includes ancestral property or business income, and the tax regime can be chosen based on available deductions. Proper calculation ensures optimized tax and correct ITR filing.
Filing Your ITR for FY 2025-26
Filing ITR starts with calculating total taxable income, choosing the tax regime, and selecting the correct ITR form (ITR-1 for salaried individuals, ITR-2/3/4 for those with capital gains or HUF income). Enter all income, deductions, rebates, and taxes paid. Submit through the Income Tax e-Filing portal, and verify using Aadhaar OTP, net banking, or authorized banks/post offices. Proper filing ensures accuracy, timely refunds, and compliance.
Conclusion
Selecting the right regime, understanding slabs, using rebates, marginal relief, and standard deduction, and planning deductions can significantly reduce tax liability. Accurate calculation, careful reporting, and timely ITR filing not only save money but also prevent penalties and ensure compliance.
FAQs
1. How do tax slabs influence my take-home salary?
Income tax slabs determine how much tax is applied to different portions of your income. India follows a progressive system, so the higher your earnings, the higher the rate applied to the additional income. By understanding which slab your income falls into, you can plan deductions, exemptions, and investments to reduce taxable income. This directly impacts your take-home salary, helping you retain more of your earnings after tax.
2. Can I save taxes under the New Regime with HRA or 80C?
The New Tax Regime simplifies tax calculation by offering lower slab rates, but it restricts most common deductions. Exemptions like House Rent Allowance (HRA) or investments under Section 80C are largely not allowed. Taxpayers who rely on these deductions to reduce their taxable income will generally save more under the Old Regime. The New Regime is most beneficial for those with minimal deductions or simpler salary structures.
3. How do standard deduction and 87A rebate work together?
The standard deduction automatically reduces taxable salary—₹75,000 under the New Regime and ₹50,000 under the Old Regime. Section 87A rebate then provides a direct reduction in tax payable for eligible incomes (up to ₹60,000 under New Regime for income ≤ ₹12 lakh, ₹12,500 under Old Regime for income ≤ ₹5 lakh). Together, these provisions can reduce your tax liability to zero if your taxable income falls within the rebate limits.
4. What is marginal relief?
Marginal relief prevents taxpayers whose income slightly exceeds the rebate threshold from paying a disproportionately high tax. For example, under the New Regime, if your taxable income is slightly above ₹12 lakh, only the amount above ₹12 lakh is taxed at the higher slab rate, rather than applying the higher rate to your entire income. This ensures fair and predictable taxation, avoiding sudden jumps in liability for incomes just over the threshold.
5. How are senior citizens taxed?
Senior citizens benefit from higher exemption limits under the Old Regime: ₹3 lakh for ages 60–80 and ₹5 lakh for 80+. Under the New Regime, the basic exemption is uniform at ₹4 lakh. Standard deduction and 87A rebate still apply. This means retirees may pay less tax under the Old Regime if they have significant deductions, but the New Regime offers simplicity for those with minimal exemptions.
6. How are capital gains taxed?
Capital gains income is taxed differently from salary. Short-term capital gains (STCG) from assets sold within the short-term period are taxed at 20%, while long-term capital gains (LTCG) are taxed at 12.5% for equity assets. Winnings from lotteries, game shows, or cryptocurrencies are taxed at 30%. These are reported separately in your ITR and require careful calculation to avoid errors.
7. How to choose the best regime?
Choosing between the Old and New Regime depends on your deductions and exemptions. If you have minimal deductions, the New Regime’s lower slab rates may reduce your tax more. If you can claim significant deductions like HRA, 80C, 80D, or home loan interest, the Old Regime often results in lower tax. Comparing taxable income and net tax under both regimes using examples or a tax calculator helps make the best decision.
8. Can NRIs and HUFs use the New Regime?
Yes, NRIs and Hindu Undivided Families (HUFs) can opt for the New Regime. NRIs are taxed only on India-sourced income, and deductions are limited. HUFs are treated as a separate taxpayer and can choose the regime based on available exemptions and deductions. Proper reporting ensures accurate ITR filing and avoids discrepancies with TDS and foreign income reporting.
9. What are the filing deadlines for FY 2025-26?
The Income Tax Department sets deadlines to ensure compliance:
Salaried/non-audit taxpayers: 31st July 2026
Non-audit business/profession: 31st August 2026
Audit cases: 31st October 2026
Belated returns: 31st December 2026 Filing within deadlines prevents penalties, interest, and ensures timely processing of refunds.
10. How can year-end planning reduce tax?
Year-end tax planning helps reduce taxable income and maximize refunds. Making investments in eligible instruments like PPF, ELSS, or NPS before 31st March can reduce your taxable income for the year. Adjusting HRA, bonuses, or salary components near year-end also allows you to claim more exemptions. Effective planning ensures lower tax liability and smoother ITR filing.
Thanks for the clear explanation. The part about the new tax regime becoming the default is really important, but many Football Bros taxpayers still don’t realize they need to actively choose the old regime if they want deductions like 80C or HRA. This article makes that distinction very clear.