Income Tax Slabs for FY 2025-26 & AY 2026-27: New vs Old Tax Regimes

Tax planning for FY 2025-26 (assessment year 2026-27) often starts with a clear view of slab rates, basic deductions, rebate rules, and individual tax liability. An aspect many taxpayers often need help with is the presence of the two tax regimes: the old tax regime and the new tax regime. It is important to understand the difference between the two, to get a clear idea of the right option for your needs.

The new regime is the optional tax regime under Section 115BAC of the Income-tax Act, 1961. It offers lower slab rates, with fewer deductions and exemptions allowed in return. For salaried individuals, the standard deduction is available under the new regime as per later amendments.

Both regimes apply the same 4% health and education cess. Surcharge rules also continue as per applicable income levels.

This is important to note for salary earners, as the income tax on salary often changes when allowances, reimbursements, and deductions are removed or reduced under the new regime
 

Here are the new tax slabs that new regime taxpayers should know of:

_{Disclaimer: Note that tax benefits/rules are subject to terms and conditions as well as changes in tax laws.} 

The old tax regime lets taxpayers use deductions and exemptions (e.g., 80C, HRA, home loan interest, medical insurance) to lower taxable income. Its slab rates are higher than the new regime, but those tax breaks can cut your tax bill. If you have many eligible investments or expenses, the old regime may be more beneficial despite higher base rates. 

If you opt for the old regime, these are the tax slabs in India you should know of:

_{Disclaimer: Note that tax benefits/rules are subject to terms and conditions as well as changes in tax laws.} 

A practical method is to first compute taxable income, then apply the slab rates, followed by any eligible rebates, and finally, add the cess. Here’s a step-by-step guide: 

●    Start with gross salary and add taxable allowances.
●    Subtract exemptions that remain available (as applicable under the chosen regime).
●    Subtract allowed deductions (standard deduction and any permitted deductions under the chosen regime).
●    Arrive at total taxable income and apply slab rates.
●    Apply for a rebate under Section 87A if eligible under your chosen tax slabs in India.
●    Add a 4% cess to the tax payable.

Along with income tax slabs, the availability of rates and deductions also differ between the two regimes. That is why, the final selection should follow the computed amount, not only the slab chart.

After checking the taxable income table, the rebate rule must be applied. Under Section 87A, a rebate may make tax payable nil up to a threshold (commonly ₹5 lakh in the old regime and ₹12.75 lakh in the new regime, subject to conditions). Cess is added after the rebate.
 

Under the old regime, common deductions may include:
●    Section 80C items (PF, ELSS, life insurance premiums, tuition fees)
●    Section 80D medical insurance premium
●    HRA exemption (where eligible)
●    Home loan interest (subject to rules).

Under the new tax regime in 2025, most of the above are not claimed, but certain items remain permitted or continue as exemptions. Examples include:
●    Standard deduction for salaried persons (as per current provisions)
●    Employer contribution to NPS under Section 80CCD(2) (subject to limits)
●    Certain allowances for specific categories as per the rules
●    Exemptions like gratuity or leave encashment, where conditions are met.
 

Tax saving under the new tax regime slabs is more about salary design and permitted deductions than long lists of investments. The following options stay relevant in many cases.

●    Use the standard deduction fully, where salary income exists.
●    Consider employer NPS contribution under Section 80CCD(2), since it remains one of the major permitted deductions in the new regime.
●    Review salary components that are structured as exemptions under law (where allowed), rather than deductions.
●    Maintain clear proofs and payroll declarations to prevent mismatches at year-end, because corrections later become messy.
 

The old regime often suits those who have strong deductions and exemptions, while the new tax regime slabs often suits those with fewer investments and a preference for the revised income tax slab rates under Section 115BAC. The decision should be based on two computations done side by side, using the same income details.

Note that tax benefits/rules are subject to terms and conditions as well as changes in tax laws. 

For accurate filing, one can refer to the Income-tax Act, 1961 (notably Section 115BAC, Section 87A, and Section 80CCD(2)), the Income-tax Act, 2025, and the relevant Finance Act for FY 2025-26. 

Taxpayers are advised to consult a licensed financial expert before proceeding with financial decisions.