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

Every year, as the new financial year begins, one question comes up almost universally — how much income tax do I actually owe? For FY 2025-26 (AY 2026-27), the answer depends on which tax regime a taxpayer is under and how their income is structured. The Union Budget 2025 brought notable changes to the income tax slabs, particularly under the new tax regime, with a revised basic exemption limit and an enhanced rebate that makes income up to Rs. 12 lakh effectively tax-free for eligible individuals. Whether someone is salaried, self-employed, or a senior citizen, understanding the applicable income tax slab rate is the first step toward accurate tax planning and a stress-free filing season.

New Income Tax Slab for FY 2025-26 (AY 2026-27)

The new income tax slab rates were revised significantly in the Union Budget 2025. The basic exemption limit was raised from Rs. 3 lakh to Rs. 4 lakh, and the threshold for the highest 30% rate was pushed up from Rs. 15 lakh to Rs. 24 lakh. These two changes alone resulted in meaningful tax savings for most taxpayers.

The new tax regime is the default regime under Section 115BAC of the Income Tax Act, 1961. Taxpayers who wish to opt for the old regime must do so explicitly.

New Tax Regime Slab Rates — FY 2025-26

Note: A 4% Health and Education Cess applies on the total tax payable under both regimes.

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What Is the Section 87A Rebate Under the New Regime?

This is the most important update for FY 2025-26. Under the new tax regime, the Section 87A rebate has been increased to Rs. 60,000 (up from Rs. 25,000 in the previous year). This rebate applies to resident individuals whose total taxable income does not exceed Rs. 12 lakh.

In practice, this means individuals earning up to Rs. 12 lakh pay zero income tax under the new regime after the rebate is applied.

For salaried employees, it gets even better. With the standard deduction of Rs. 75,000 available under the new regime, a gross salary of up to Rs. 12.75 lakh is effectively tax-free.

Quick example:

Mr. Rajan earns a salary of Rs. 12.75 lakh. After claiming the standard deduction of Rs. 75,000, his taxable income comes down to Rs. 12 lakh. The tax computed on Rs. 12 lakh (as per new regime slabs) is Rs. 60,000. Since his rebate under Section 87A is Rs. 60,000, his final tax liability is zero.

Under the old regime, the Section 87A rebate is capped at Rs. 12,500 and applies only when taxable income is up to Rs. 5 lakh.

Old Tax Regime Slabs for FY 2025-26

The old tax regime has not been revised in Budget 2025. The slabs and rates remain the same as before. What makes the old regime attractive for some taxpayers is the wide range of deductions it allows — Section 80C, Section 80D, HRA exemption, home loan interest, and more.

Old Regime Slab Rates — FY 2025-26 (Individuals below 60 years)

Old Regime Slab Rates — Senior Citizens (60 to 80 years)

Old Regime Slab Rates — Super Senior Citizens (Above 80 years)

Under the old regime, the standard deduction for salaried individuals and pensioners remains at Rs. 50,000.

New Tax Regime vs Old Tax Regime: Key Differences

Here is a side-by-side view of the two regimes to make comparison easier.

How to Calculate Your Tax for FY 2025-26

Here is a straightforward step-by-step method:

1. Calculate total gross income from all sources (salary, business, house property, capital gains, other sources).
2. Subtract applicable exemptions based on the chosen regime.
3. Deduct eligible deductions — under the new regime, deductions are very limited; under the old regime, deductions under Chapter VIA apply.
4. Arrive at taxable income.
5. Apply the slab rates of the chosen regime to compute basic tax.
6. Check if Section 87A rebate applies.
7. Add surcharge if income crosses Rs. 50 lakh.
8. Add 4% cess on the total of tax plus surcharge.
9. Reduce TDS already deducted to find net payable or refund due.

To avoid surprises at the time of filing, it is important to track your TDS deductions carefully. You can file your TDS return and claim a tax refund online if excess tax has been deducted during the year.

What Deductions Are Still Allowed Under the New Regime?

The new tax regime restricts most exemptions and deductions, but a few are still permitted:

• Standard deduction of Rs. 75,000 for salaried individuals and pensioners
• Employer’s contribution to NPS under Section 80CCD(2)
• Transport and conveyance allowances in specific cases
• Perquisites like mobile reimbursement and transport facility via railways or airways

These are not negotiable deductions based on investments but automatic or employment-linked benefits. Everything else — 80C, 80D, HRA, home loan interest — is off the table under the new regime. Understanding the basics of direct tax and indirect tax can help taxpayers get a clearer picture of how different taxes impact their overall financial planning.

ITR Filing Due Date for FY 2025-26 (AY 2026-27)

Taxpayers should be aware of these deadlines:

• ITR-1 and ITR-2: 31st July 2026
• ITR-3 and ITR-4 (non-audit cases): 31st August 2026

Filing after the due date attracts late filing fees under Section 234F (up to Rs. 5,000) and interest on unpaid taxes under Section 234A. For a detailed look at all relevant deadlines and what the updated return option means for you, refer to our guide on income tax filing deadlines.

Final Thoughts

Understanding the income tax slab 2025-26 is the starting point for smart tax planning. The new tax regime offers simplicity and zero tax on income up to Rs. 12 lakh. But the old regime still makes sense for those with large investments and valid deduction claims.

The right choice is the one that results in the lower actual tax after computing both options side by side. There is no universal answer — it depends entirely on your income structure and the deductions you are eligible for.

Frequently Asked Questions (FAQs)

1. Is income up to Rs. 12 lakh really tax-free under the new regime?

Yes. For resident individuals under the new tax regime, taxable income up to Rs. 12 lakh attracts zero tax due to the Section 87A rebate of Rs. 60,000 introduced in Budget 2025.

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

Salaried individuals and others without business income can switch between the two regimes every year when filing their ITR. 

3. What is the income tax slab for senior citizens in the old regime?

Senior citizens aged between 60 and 80 years get a higher basic exemption of Rs. 3 lakh under the old regime. Super senior citizens above 80 years enjoy an exemption up to Rs. 5 lakh. The new regime offers no such age-based higher exemption.

4. What is cess in income tax and how is it calculated?

Health and Education Cess is levied at 4% on the total income tax plus surcharge. It is applicable under both regimes and cannot be avoided regardless of the tax liability amount.

5. Can an NRI opt for the new tax regime?

Yes. Non-resident Indians (NRIs) are also eligible to opt for the new tax regime. 

About the author

Mehul Jagwani

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Mehul is a seasoned content writer with a passion for simplifying complex accounting and GST topics. With a keen interest in entrepreneurship and business management, he specializes in creating informative and engaging content for themunim.com. His goal is to help businesses understand and implement accounting and GST software solutions effectively. When he's not crafting content, Mehul enjoys exploring new places and spending time with his Golden Retriever.