As India enters Assessment Year (AY) 2026-27, corresponding to Financial Year (FY) 2025-26 (April 1, 2025, to March 31, 2026), taxpayers can choose between the new simplified tax regime—default since FY 2023-24—and the old regime with its deductions and exemptions. The Union Budget 2025, presented on February 1, 2025, by Finance Minister Nirmala Sitharaman, introduced key relief measures for the middle class, including revised slabs and higher rebates in the new regime. These changes apply when filing Income Tax Returns (ITR) in July-August 2026.
This guide covers the slabs for both regimes, major updates, comparisons, and tips to choose wisely. Whether salaried, senior citizen, freelancer, or business owner, these details can help minimize your tax legally.
Income Tax Slab for AY 2026-27 Dual Tax Regimes
India’s personal income tax system offers two options for individuals and Hindu Undivided Families (HUFs).
The old regime allows over 70 deductions (e.g., Sections 80C, 80D, HRA) but has higher rates.
The new regime, introduced in 2020 and default since FY 2023-24, provides lower rates with limited deductions like standard deduction and employer’s NPS contribution.
Budget 2025 revised the new regime slabs effective April 1, 2025; the old regime slabs remain unchanged.
Also Check >>>> Income Tax Filing in India 2025: Step-by-Step Guide, New Rules & Deadlines
Key Notes on Tax Calculation
Taxable income is computed after eligible deductions.
In the new regime, a ₹60,000 rebate under Section 87A applies if income ≤ ₹12 lakh, making it tax-free (excluding special-rate incomes like capital gains).
Surcharge applies above ₹50 lakh: 10% (₹50L-₹1Cr), 15% (₹1Cr-₹2Cr), 25% (₹2Cr-₹5Cr), capped at 25% above ₹5Cr in new regime.
Health and Education Cess is 4% on tax + surcharge.
No separate senior citizen slabs in new regime; all follow uniform structure.
What is Assessment Year 2026-27?
AY 2026-27 is the period for assessing and taxing income earned in FY 2025-26.
Budget 2025 rates apply to ITR filing in mid-2026.
The New Tax Regime: Default Option
The new regime trades most exemptions for lower rates, ideal for those with few deductions.
It includes standard deduction (₹75,000 for salaried, ₹25,000 for family pensioners) and employer’s NPS contribution (14% of salary).
New Regime Slabs for AY 2026-27
| 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% |
Budget 2025 Highlights for New Regime
- Basic exemption raised to ₹4 lakh (from ₹3 lakh).
- Section 87A rebate hiked to ₹60,000 (from ₹25,000), zero tax up to ₹12 lakh.
- Standard deduction increased to ₹75,000 (from ₹50,000) for salaried; ₹25,000 for family pensioners.
- Salaried up to ₹12.75 lakh gross (after ₹75,000 deduction) pay zero tax.
- Surcharge capped at 25% above ₹5 crore; cess unchanged at 4%.
Zero Tax Example in New Regime
Mr. Sharma (45 years) earns ₹12.5 lakh salary.
- Standard deduction: ₹75,000
- Taxable income: ₹11.75 lakh
- Tax before rebate: ₹59,500
- Section 87A rebate: ₹59,500
- Final tax: ₹0 (plus cess, but rebate covers it).
The Old Tax Regime: Opt-In Choice
Opt out of new regime via ITR to use old one, retaining deductions like 80C (₹1.5 lakh investments), 80D (health insurance), HRA, and home loan interest (₹2 lakh under Section 24(b)).
Slabs unchanged since FY 2020-21; standard deduction hiked to ₹75,000 in Budget 2025.
Section 87A rebate: ₹12,500 (zero tax up to ₹5 lakh).
Old Regime Slabs for Individuals Below 60
| 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% |
Old Regime Slabs for Seniors (60-80 Years)
| Income Range (₹) | Tax Rate |
|---|---|
| Up to 3,00,000 | Nil |
| 3,00,001 – 5,00,000 | 5% |
| 5,00,001 – 10,00,000 | 20% |
| Above 10,00,000 | 30% |
Old Regime Slabs for Super Seniors (Above 80)
| Income Range (₹) | Tax Rate |
|---|---|
| Up to 5,00,000 | Nil |
| 5,00,001 – 10,00,000 | 20% |
| Above 10,00,000 | 30% |
Major Deductions Exclusive to Old Regime
- Section 80C: Up to ₹1.5 lakh (PPF, ELSS, tuition, home loan principal).
- Section 80D: ₹25,000 health insurance (₹50,000 for seniors).
- Section 24(b): ₹2 lakh home loan interest (self-occupied).
- HRA exemption for renters.
- Leave Travel Allowance (LTA).
- Sections 80TTA/80TTB: Savings/FD interest.
- Section 80G: Donations.
Comparison: New vs. Old Regime
Use this rule: If deductions < ₹3.75-4.25 lakh, pick new; > ₹4.5 lakh (e.g., home loan + 80C), old saves more.
Example 1: ₹8 lakh salary, rents house (₹50,000 HRA, ₹75,000 std ded).
- New: ₹23,400 tax.
- Old: ₹31,200 tax. New wins.
Example 2: ₹15 lakh salary (₹1.5L 80C, ₹35,000 80D, ₹2L home interest).
- New: ₹1,24,800 tax.
- Old: ₹78,000 tax. Old saves ₹46,800.
Example 3: ₹25 lakh salary (high deductions).
- New: ₹4,68,000 tax.
- Old: ~₹3,90,000 tax. Old better.
Special Rules for AY 2026-27
New regime is default; business income opt-out locks old regime until withdrawn (once lifetime revert).
Salaried can switch yearly.
Family pensioners get ₹25,000 deduction in new regime.
NPS withdrawals taxed same; higher TDS threshold for seniors.
Section 87A rebate excludes special incomes (e.g., capital gains) from FY 2025-26.
Choosing Regime During ITR Filing
In July 2026, the e-filing portal shows side-by-side liabilities for ITR-1/ITR-2; select lower (business cases restricted). Simulate via incometaxindia.gov.in calculator.
Final Advice
Budget 2025 boosts new regime for incomes up to ₹15-16 lakh with minimal deductions—zero tax to ₹12.75 lakh aids young urban professionals.
Old regime favors high-deductors like home loan holders or 80C maxers.
Plan FY 2025-26 investments early, retain documents, and compare regimes annually.
Plan your investments early in FY 2025-26, keep documents ready, and use the income tax calculator on incometaxindia.gov.in to simulate both regimes.