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

Income Tax Slabs Remain the Same

In the Budget 2026, the government did not change income tax slab rates for the financial year 2026-27 (assessment year 2027-28). Both the new tax regime and the old tax regime slabs will continue as they are. 

Union Budget 2026 – Income Tax Slab Update

1. The Union Budget 2026 has not introduced any changes to the basic income tax slab rates for the financial year 2026–27.
2. The current income tax slabs will remain applicable for FY 2026–27 without any modification.
3. Taxpayers will continue to have the option of choosing the old tax regime for FY 2026–27 (Assessment Year 2027–28), as it remains in force.

Income up to Rs. 12 lakhs can be practically tax-free due to the increase in rebate to Rs. 60,000. Though the new regime remains default, significant relaxations were made in the slab rates for FY 2025-26, while the income tax slabs remain the same for old-regime taxpayers.

Features of the Old and New Tax Regime

Income Tax Slabs for FY 2025-26 under New Tax Regime

Budget 2025 has relaxed the tax slabs under the new regime significantly. A tabular version of the new tax regime slabs FY 2025-26 slabs rate are given below.

Key Highlights of the New Tax Regime

1. Higher rebate limit: From FY 2025–26 onwards, the rebate has been enhanced to ₹60,000. However, this benefit does not apply to special income such as capital gains.
2. Standard deduction benefit: Salaried taxpayers can claim a standard deduction of ₹75,000 against their salary income under the new regime.
3. Lower surcharge cap: The maximum surcharge under the new regime is capped at 25% for incomes exceeding ₹2 crore, compared to 30% in the old tax regime.
4. No special slabs for senior citizens: Unlike the old regime, the new tax regime does not offer separate or concessional slab rates for senior citizens.
   
   

Income Tax Slabs for FY 2025–26 under the Old Tax Regime

Starting from the financial year 2023–24, the old tax regime is available as an optional choice for taxpayers. The applicable income tax slab structure under the old tax regime for FY 2025–26 is outlined below.

Income Tax Slabs for Individuals below 60 Years, NRI and HUF

Common Deductions Available under the Old Tax Regime

Taxpayers opting for the old tax regime can reduce their taxable income by claiming various deductions and exemptions, including:

1. Investments and savings eligible under Section 80C, along with benefits under Sections 80D, 80G, and 80TTA
2. Salary-related exemptions such as House Rent Allowance (HRA) and Leave Travel Allowance (LTA)
3. Interest on home loans allowed under Section 24
4. Interest paid on education loans covered under Section 80E, among other permissible deductions.

2.Income Tax Slabs for Senior Citizens aged between 60 to 79 Years

The income tax slab for senior citizen aged above 60 years but below 80 years under the old tax regime are as follows:

3.Income Tax Slabs for Super Senior Citizens 80 Years and above

For super senior citizens aged from 80 years, the basic exemption limit increases to Rs. 5 lakh.

Note: The income tax slab under the old tax regime has not changed over many years.

Tax-Free Income under New and Old Regime – FY 2025-26

1.     New Regime: Salary income up to Rs 12.75 lakh can be tax-free from FY 2025-26, thanks to the rebate and standard deduction.

2.     New Regime: Income up to Rs 12 lakh is also eligible for a tax rebate, making it effectively tax-free.

3.     Important: This rebate does not apply to income taxed at special rates, such as capital gains, online gaming income, and similar sources.

4.     Old Regime: Under the old tax regime, income up to Rs 5 lakh is effectively tax-free due to existing exemptions and rebates.

New Tax Regime v/s Old Tax Regime - Which is Better?

Choosing the Right Tax Regime – FY 2025-26

The best tax regime depends on your income, deductions, and exemptions:

• Old Regime: Ideal for taxpayers with significant deductions and exemptions, such as HRA, home loan interest, Section 80C investments, etc., as these can reduce taxable income.
• New Regime: Suited for taxpayers with fewer deductions or exemptions, as it offers lower and more relaxed tax slabs, making tax computation simpler.

Key Differences in Old & New Tax Regime

Let us understand the other difference between the old and the new tax regime.

Which is the most Beneficial Tax Regime for FY 2025-26?

1. Old Regime: Best suited for taxpayers with substantial tax-saving deductions, often totaling several lakhs.
2. New Regime: Ideal for taxpayers with limited deductions and middle-class income earners, offering simpler compliance and lower tax slabs.
3. The table below highlights the break-even deduction for various income levels. If your total deductions exceed the break-even amount, the old regime is more advantageous; otherwise, the new regime is the better choice.

  Choosing early pays off: Taxpayers benefit the most by selecting the most advantageous tax regime at the start of the financial year.

  Estimate and compare: Calculate your total income, consolidate all eligible tax-saving deductions, and determine the taxable income and total tax under both regimes to identify which is more beneficial.

  The table below illustrates the most beneficial regime for a deduction amount of Rs. 4.5 lakhs.

How to Switch Tax Regimes – FY 2025-26

1.     If you determine that the old regime is more beneficial, you need to switch from the new regime to the old regime.

2.     If no choice is made, the new regime is applied by default, which could result in higher taxes.

3.     Salaried employees without business income can opt for the old regime while filing their ITR.

4.     Taxpayers with business income who wish to file under the old regime must use Form 10-IEA.

5.     Form 10-IEA must be submitted both when opting in or opting out of the old tax regime.

How to Save Taxes under the New Regime FY 2025-26

While the scope for tax-saving options under the new regime is limited, proper planning can make it highly beneficial. Here are the key ways to optimize your taxes under the new regime:

1. Employer’s Contribution to NPS u/s 80CCD(2)

Employer contributions to the National Pension System (NPS) can be claimed as a deduction under this section. You can claim up to 14% of your basic salary as a deduction. Both you and your employer contribute to the pension scheme, helping you save taxes while securing your retirement.

2. Standard Deduction

All salaried individuals are eligible for a standard deduction of Rs. 75,000 under the new regime, regardless of other tax-saving deductions. This automatically reduces your taxable salary income.

3. Choice of Perquisites

1. Opting for a car leasing scheme offered by your company can help save significant taxes.
2. Certain allowances such as transport allowance, conveyance allowance, and daily allowance remain exempt under the new regime.
3. Other perquisites like mobile reimbursement and transport facilities via railways or airways are exempt regardless of the regime.

Note: Structure your CTC smartly to maximize these exemptions and get the most tax benefit under the new regime!

How to change the Tax Regime?

  Salaried employees without business income can opt for a change in the tax regime while filing their ITR for the relevant financial year.

  Taxpayers with business income must submit Form 10IEA, and the corresponding acknowledgement number should be mentioned in their ITR.

  It is generally advisable to choose the most beneficial tax regime at the start of the financial year, as this helps reduce TDS deductions and increases disposable income.

Tax Savings due to New Income Tax Slabs - FY 2025-26

The table below highlights the tax savings under the new regime for FY 2025-26 in comparison to the previous financial year. The figures in the first column represent the taxable income, calculated after accounting for all eligible deductions and exemptions under the new regime. These tax savings arise entirely from the revised and more relaxed slab rates.

Surcharge
A surcharge is an additional charge levied on the amount of income tax, rather than on total income. It becomes applicable when an individual’s taxable income exceeds ₹50 lakh. The table below outlines the surcharge rates applicable across different income brackets.

For dividend income and capital gains taxable under Sections 111A, 112A, and 112, the surcharge rate is restricted to a maximum of 15%, even if the total income exceeds the threshold limit of ₹2 crore.

Cess
Apart from income tax and surcharge, a Health and Education Cess of 4% is charged in all applicable cases. This cess is levied whenever there is an income tax liability payable by the taxpayer.

Rebate

1.     A tax rebate helps bring the tax payable down to zero when the total taxable income falls within the specified threshold limit.

2.     The amount of rebate available varies depending on the tax regime selected and the relevant financial year.

3.     The new tax regime provides marginal relief in rebate benefits, whereas such relief is not available under the old tax regime.

4.     From FY 2025–26 onwards, rebate benefits will not apply to special category incomes, such as capital gains, online gaming income, and similar earnings.

The following table shows the rebate applicability for FY 2025-26 under new and old regime.

 Note: In all the above cases, the rebate makes the total tax liability zero.

Conclusion

The choice of the most suitable tax regime varies based on an individual’s income level, eligible deductions, and available exemptions. Taxpayers who claim substantial deductions and exemptions may find the old tax regime more beneficial. On the other hand, individuals with limited deductions may prefer the new tax regime due to its simplified structure and comparatively lower slab rates. Therefore, it is important for taxpayers to carefully evaluate both regimes to make informed decisions and optimise their tax planning.

FQA

Q1. Have the income tax slabs changed for FY 2025-26?

A: No, the income tax slab rates remain the same for both the new and old tax regimes. However, the new regime has relaxed the slab structure significantly for FY 2025-26, making it beneficial for taxpayers without substantial deductions.

Q2. What are the main differences between the old and new tax regime?

A:

Q3. What is the tax-free income under each regime?

A:

• New Regime: Salary up to Rs. 12.75 lakh is effectively tax-free due to rebate and standard deduction. Income up to Rs. 12 lakh qualifies for rebate.
• Old Regime: Income up to Rs. 5 lakh is effectively tax-free because of exemptions and rebates.

Note: Rebate does not apply to income taxed at special rates, such as capital gains or online gaming income.

Q4. Which tax regime is better for me?

A:

• Old Regime: Suitable for taxpayers with substantial deductions (HRA, home loan interest, Section 80C, etc.).
• New Regime: Best for those with limited deductions and middle-income earners.

Q5. How do I switch between tax regimes?

A:

1. Salaried employees without business income: Can switch while filing ITR.
2. Taxpayers with business income: Must submit Form 10-IEA and include the acknowledgement number in ITR.
3. Tip: Choose the most beneficial regime at the start of the financial year to reduce TDS and maximize disposable income.

Q6. How can I save taxes under the new regime?

A:

1.     Employer’s contribution to NPS (Section 80CCD(2)) – Up to 14% of basic salary.

2.     Standard Deduction – Rs. 75,000 for salaried individuals.

3.     Perquisites & Allowances – Transport allowance, daily allowance, mobile reimbursement, car leasing schemes, etc., remain tax-exempt.

Q7. What are the surcharge and cess applicable?

A:

1. Surcharge: Applies to taxable income above Rs. 50 lakh. Maximum surcharge under the new regime is 25%, while it goes up to 37% under the old regime for income above Rs. 5 crore.
2. Cess: Health and Education Cess of 4% applies to all tax liabilities.

Q8. What is the break-even point for choosing the right regime?

A:

1. The break-even deduction varies with income. For example:

                                i.            Rs. 10 lakh income → break-even deduction Rs. 4.5 lakh

                              ii.            Rs. 12 lakh income → break-even deduction Rs. 6.5 lakh

2. If your total deductions exceed the break-even amount, the old regime is better; otherwise, the new regime is more advantageous.

Q9. Why is early planning important?

A: Choosing the tax regime at the beginning of the financial year helps optimize tax savings, reduce TDS, and plan investments accordingly.