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

Introduction

The income tax system in India follows a progressive slab rate structure, where your tax rate increases as your income rises. Under the Income-tax Act, 1961, taxpayers have the flexibility to choose between two distinct systems:

1. The Old Tax Regime: Allows you to claim various exemptions and deductions (like 80C, HRA, and home loan interest) to lower your taxable income.
2. The New Tax Regime: Offers significantly lower upfront tax rates, but requires you to forego most standard exemptions and deductions.

The Union Budget 2025 introduced several key updates designed to make the new tax regime more attractive. These include revised income tax slabs, increased Section 87A rebates, and a higher standard deduction. Below is a detailed breakdown of the tax slabs for FY 2025-26 (AY 2026-27) under both regimes, alongside practical calculation examples for various income levels.

Key Budget 2025 Updates on Income Tax

The latest finance bill brought major relief for the middle class, specifically under the new tax regime:

• Zero Tax up to ₹12 Lakh: Individuals earning up to ₹12,00,000 will have zero tax liability due to the enhanced Section 87A rebate of ₹60,000.
• Increased Standard Deduction: Salaried individuals and pensioners can now claim a ₹75,000 standard deduction (up from ₹50,000), further reducing their taxable income.
• Marginal Relief: Relief is available for taxpayers whose income slightly exceeds the ₹12 lakh rebate threshold, ensuring their tax payable doesn’t exceed the income earned above the limit.

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

The new tax regime is the default regime. If you do not explicitly choose the old regime, your employer or the IT portal will calculate your taxes based on these rates.

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

The old regime remains unchanged and continues to offer different exemption limits based on the taxpayer’s age.

Surcharge and Cess Rules (FY 2025-26)

Regardless of the regime you choose, high-income earners are subject to additional charges:

• Health and Education Cess: A flat 4% is applied to the total tax amount.
• Surcharge Rates:
  • 10% on income between ₹50 lakh and ₹1 crore
  • 15% on income between ₹1 crore and ₹2 crore
  • 25% on income between ₹2 crore and ₹5 crore (Note: Capped at 25% under the new regime)
  • 37% on income above ₹5 crore (Only applies under the old regime)

Practical Tax Calculation Examples

Let’s look at how the numbers play out for a salaried individual under both regimes. (Note: These calculations assume no investments/deductions under the old regime for baseline comparison. If you have significant 80C or home loan deductions, the old regime may perform better).

Example 1: Income of ₹12,00,000

New Regime:

• Tax on ₹8,00,001 – ₹12,00,000 @ 10% = ₹40,000
• Less: Section 87A Rebate (₹60,000) = ₹0 Tax Payable

Old Regime:

• ₹5,00,001 – ₹10,00,000 @ 20% = ₹1,00,000
• ₹10,00,001 – ₹12,00,000 @ 30% = ₹60,000
• Total Tax Payable: ₹1,60,000 (Plus 4% Cess)

Verdict: The New Regime is highly beneficial here due to the zero-tax rebate.

Example 2: Income of ₹20,00,000

New Regime:

• ₹12,00,001 – ₹16,00,000 @ 15% = ₹60,000
• ₹16,00,001 – ₹20,00,000 @ 20% = ₹80,000
• Total Tax Payable: ₹1,40,000 (Plus 4% Cess)

Old Regime:

• ₹10,00,001 – ₹20,00,000 @ 30% = ₹3,00,000
• Total Tax Payable: ₹3,00,000 (Plus 4% Cess)

Verdict: The New Regime saves you ₹1,60,000 before cess.

Example 3: Income of ₹25,00,000

New Regime:

• ₹20,00,001 – ₹24,00,000 @ 25% = ₹1,00,000
• ₹24,00,001 – ₹25,00,000 @ 30% = ₹30,000
• Total Tax Payable: ₹2,70,000 (Plus 4% Cess)

Old Regime:

• ₹10,00,001 – ₹25,00,000 @ 30% = ₹4,50,000
• Total Tax Payable: ₹4,50,000 (Plus 4% Cess)

Verdict: The New Regime remains significantly more beneficial for straight salary without deductions.

Example 4: Income of ₹55,00,000 (Surcharge Applied)

New Regime:

• Base Tax: ₹9,00,000
• Add: Surcharge @ 10% = ₹90,000
• Add: Health & Education Cess @ 4% = ₹39,600
• Total Tax Payable: ₹10,29,600

Old Regime:

• Base Tax: ₹13,50,000
• Add: Surcharge @ 10% = ₹1,35,000
• Add: Health & Education Cess @ 4% = ₹59,400
• Total Tax Payable: ₹15,44,400

Verdict: The New Regime saves you over ₹5 Lakh.

Frequently Asked Questions (FAQs)

1. Is the standard deduction available in the new tax regime?
Yes, Budget 2025 increased the standard deduction for salaried individuals and pensioners to ₹75,000 under the new tax regime. Under the old regime, it remains ₹50,000.

2. Which tax regime is better for FY 2025-26?
For taxpayers with few investments and deductions, the new tax regime is almost always better due to lower slab rates and the ₹12 lakh tax-free rebate limit. However, if you claim significant deductions (HRA, Section 80C, 80D, home loan interest), you should calculate your liability under both before deciding.

3. Can I switch between the new and old tax regimes?
Salaried individuals without business income can choose their preferred tax regime every year when filing their returns. Those with business or professional income can only switch back to the old regime once in their lifetime.

Conclusion

The Finance Bill 2025 clearly positions the New Tax Regime as the preferred choice for the majority of Indian taxpayers, thanks to sweeping rate cuts and expanded rebates. However, personal finance is never one-size-fits-all. Before filing your ITR for AY 2026-27, take a few minutes to calculate your exact liability using both methods—especially if you have ongoing home loans or heavy traditional investments.

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