As India enters Assessment Year 2026-27 (financial year 2025-26), the personal income tax landscape continues to offer taxpayers a choice between the new simplified tax regime (default since FY 2023-24) and the traditional old regime with its bouquet of deductions and exemptions. The Union Budget 2025, presented in February 2025, brought significant relief, especially to the middle class, by tweaking slabs, increasing rebates, and raising standard deductions. Whether you are a salaried employee, a senior citizen, a business owner, or a freelancer, understanding the updated slabs for AY 2026-27 can help you save thousands of rupees legally.
This comprehensive guide breaks down the latest income tax slabs under both regimes, highlights key changes, compares the two systems, and helps you decide which one suits you better.
Income Tax Slab For AY 2026-27 / FY 2025-26
India’s income tax system operates under two regimes: the Old Tax Regime (which allows various deductions and exemptions like under Sections 80C, 80D, HRA, etc.) and the New Tax Regime (default option, with lower rates but limited deductions). The slabs apply to individuals and Hindu Undivided Families (HUFs). The New Regime was updated in the Union Budget 2025, effective from April 1, 2025, while the Old Regime remains unchanged.
Key notes:
- Taxable income is calculated after deductions (e.g., standard deduction of ₹75,000 for salaried individuals in the New Regime).
- A rebate under Section 87A makes income up to ₹12 lakh effectively tax-free in the New Regime (rebate increased to ₹60,000).
- Surcharge applies on income above ₹50 lakh (rates: 10% for ₹50L–₹1Cr, 15% for ₹1Cr–₹2Cr, 25% for ₹2Cr–₹5Cr, 37% above ₹5Cr), capped at 25% in the New Regime.
- Health and Education Cess: 4% on tax + surcharge.
- No separate slabs for senior citizens in the New Regime; they follow the same structure.
Also Check >>>>> Income Tax Calculator for AY 2026-27 (FY 2025-26)
What is Assessment Year 2026-27?
Assessment Year (AY) 2026-27 refers to the year in which income earned during the Financial Year (FY) 2025-26 (1 April 2025 to 31 March 2026) will be assessed and taxed. The tax rates and slabs announced in Budget 2025 will apply while filing your ITR in July–August 2026.
The New Tax Regime (Default Regime) for AY 2026-27
Introduced in 2020 and made the default from FY 2023-24, the new regime focuses on lower tax rates in exchange for giving up most exemptions and deductions (except standard deduction, employer’s NPS contribution, and a few others).
Latest Income Tax Slabs under New Regime (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% |
Key Highlights & Relief Measures in Budget 2025
- Increased Basic Exemption Limit: Now ₹4 lakh (earlier ₹3 lakh).
- Higher Rebate under Section 87A: Rebate increased to ₹60,000 (from ₹25,000). This means individuals with taxable income up to ₹12 lakh pay zero tax after rebate (earlier ₹7 lakh).
- Standard Deduction: Raised to ₹75,000 for salaried individuals (from ₹50,000) and ₹25,000 for family pensioners.
- Revised Rebate Impact: Effectively, a salaried person earning up to ₹12.75 lakh gross salary (after standard deduction) will pay zero tax in the new regime.
- Surcharge reduced for income above ₹2 crore, and health & education cess remains 4%.
Zero Tax Liability Example (New Regime)
Mr. Sharma, aged 45, earns ₹12.5 lakh salary.
- Standard deduction: ₹75,000
- Taxable income: ₹11.75 lakh
- Tax before rebate: ₹59,500
- Rebate u/s 87A: ₹59,500
- Final tax: ₹0
The Old Tax Regime for AY 2026-27
The old (existing) regime continues to be available. You have to actively opt out of the new regime while filing ITR to use it. It offers over 70 exemptions and deductions (Chapter VI-A investments, HRA, Section 80D medical insurance, home loan interest under Section 24(b), etc.).
Income Tax Slabs under Old Regime (Unchanged since FY 2020-21, except standard deduction hike)
For Individuals below 60 years:
| 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% |
For Senior Citizens (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% |
For Super Senior Citizens (above 80 years):
| Income Range (₹) | Tax Rate |
|---|---|
| Up to ₹ 5,00,000 | Nil |
| ₹ 5,00,001 – ₹ 10,00,000 | 20% |
| Above ₹ 10,00,000 | 30% |
Standard deduction in old regime also increased to ₹75,000 in Budget 2025.
Rebate u/s 87A in old regime: ₹12,500 (income up to ₹5 lakh pay zero tax).
Major Deductions Available ONLY in Old Regime
- Section 80C: Up to ₹1.5 lakh (ELSS, PPF, life insurance, tuition fees, home loan principal, etc.)
- Section 80D: Health insurance premium (₹25,000 / ₹50,000 for seniors)
- Section 24(b): Home loan interest up to ₹2 lakh (self-occupied property)
- HRA exemption for rented accommodation
- Leave Travel Allowance (LTA)
- Section 80TTA/80TTB interest on savings/fixed deposits
- Section 80G donations, etc.
Head-to-Head Comparison: Which Regime Saves More Tax in AY 2026-27?
Let’s take real-life examples:
- Salary ₹8 lakh (no investments, rents house)
- New regime tax: ₹23,400
- Old regime tax (with ₹75,000 std ded + ₹50,000 HRA): ₹31,200 → New regime wins
- Salary ₹15 lakh (invests ₹1.5 lakh in 80C, ₹35,000 medical insurance, pays ₹2 lakh home loan interest)
- New regime tax: ₹1,24,800
- Old regime tax: ₹78,000 (after all deductions) → Old regime saves ~₹47,000
- Salary ₹25 lakh (high investments + home loan)
- New regime: ₹4,68,000 tax
- Old regime: ₹3,90,000 tax (approx.) → Old regime still better
Rule of thumb for AY 2026-27:
- If your total eligible deductions < ₹3.75–4.25 lakh → Choose New regime
- If deductions > ₹4.5 lakh (common for home loan + 80C + insurance) → Old regime is better
Special Points for AY 2026-27
- Default regime is New. If you have business income, opting out of new regime locks you into old regime till you withdraw the business.
- Salaried individuals can switch every year.
- Family pensioners get ₹25,000 standard deduction in new regime too.
- NPS withdrawal taxation rules remain the same.
- Higher TDS threshold for senior citizens continues.
How to Choose the Right Regime While Filing ITR in 2026
When you file ITR-1 or ITR-2 in July 2026, the income tax portal will show you tax liability under both regimes side-by-side. You can pick the lower one (except in certain business cases). Always calculate both before the due date!
Future Outlook
Finance Minister has repeatedly indicated that the new regime will gradually become more attractive by further lowering rates and increasing rebates. The old regime may slowly phase out in the coming years, but for AY 2026-27, it still remains a powerful tax-saving tool for those who plan investments wisely.
Final Words
Budget 2025 has made the new regime extremely lucrative for individuals earning up to ₹15–16 lakh with limited deductions. Zero tax up to ₹12.75 lakh gross salary is a game-changer for young professionals living in metros with high rent but minimal investments.
However, for home loan borrowers, parents paying children’s education loans, or disciplined investors maxing out 80C and 80D, the old regime continues to offer substantial savings.
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.