How do you calculate income tax in India for FY 2026-27? Compute Gross Total Income across all five heads, subtract eligible deductions (old regime only), apply the applicable slab rates to arrive at tax before surcharge, add surcharge if income exceeds Rs. 50 lakh, then add 4% health and education cess. Under the new regime, income up to Rs. 12 lakh attracts zero net tax after the Section 87A rebate.
Income tax calculation in India follows a fixed sequence. For FY 2026-27, which the Income-tax Act, 2025 calls Tax Year 2026-27, the computation is governed by the new Act; returns for FY 2025-26 (AY 2026-27) and earlier are still under the Income-tax Act, 1961. The same five steps apply to a salaried employee, a business owner and a retiree living on pension and fixed deposit interest. The slabs, rebate limit and standard deduction that took effect in FY 2025-26 carry over unchanged to FY 2026-27, and understanding the exact numbers prevents both overpayment and ITR filing errors.
The 5-Step Framework for Calculating Income Tax in India
Every income tax computation begins with classifying income under the five heads recognised by the Income Tax Act, then working through the following sequence:
Step 1: Compute Gross Total Income (GTI) Add all income across the five heads:
- Salaries (including perquisites and allowances after exemptions)
- Income from House Property (net annual value after 30% standard deduction for let-out property)
- Profits and Gains from Business or Profession (PGBP)
- Capital Gains (short-term and long-term, computed separately with special rates)
- Income from Other Sources (FD and savings interest, dividends, which are fully taxable, lottery winnings taxed at 30%)
Step 2: Apply Chapter VI-A Deductions (old regime only) Under the old tax regime, deduct eligible amounts under sections such as 80C (up to Rs. 1.5 lakh), 80D (medical insurance), 80G (donations), and others. Under the new tax regime, these deductions are not available; the main ones left are the Rs. 75,000 standard deduction for salaried individuals and pensioners and the employer's NPS contribution (up to 14% of salary).
Step 3: Arrive at Total Taxable Income Total Taxable Income = GTI minus Chapter VI-A deductions (and minus standard deduction where applicable).
Step 4: Apply Slab Rates and Special Capital Gains Rates Apply the normal slab rates to the remaining income. Capital gains are taxed at special rates: long-term capital gains on listed equity above Rs. 1.25 lakh at 12.5%, short-term capital gains on listed equity at 20%, and other capital gains per applicable rates.
Step 5: Add Surcharge and Health & Education Cess If total income exceeds Rs. 50 lakh, a surcharge applies on the income tax computed in Step 4. Then add health and education cess at 4% on (income tax + surcharge). This gives the final tax payable.
New Tax Regime Slab Rates for FY 2026-27 (AY 2027-28)
Tax Rate Chart
New Tax Regime Slab Rates : FY 2026-27 (AY 2027-28)
Default regime for individuals and HUFs (Section 202 of the Income-tax Act, 2025, earlier Section 115BAC). The rebate makes net tax zero for resident individuals with taxable income up to Rs. 12 lakh.
Up to Rs. 4 lakh
Nil slab : no tax
Rs. 4L to Rs. 8L
Tax: up to Rs. 20,000
Rs. 8L to Rs. 12L
Section 87A rebate covers tax up to this slab
Rs. 12L to Rs. 16L
87A rebate does not apply above Rs. 12L
Rs. 16L to Rs. 20L
Standard deduction Rs. 75K for salaried
Rs. 20L to Rs. 24L
Surcharge starts above Rs. 50L
Above Rs. 24L
Plus surcharge if income exceeds Rs. 50L
Source: Finance Act 2025 slabs, continued for Tax Year 2026-27 : Income-tax Act, 2025, Section 202
The Finance Act 2025 revised the new regime slabs from FY 2025-26, and the same slabs apply for FY 2026-27. The new regime is the default for individuals and HUFs (Section 202 of the Income-tax Act, 2025; Section 115BAC of the 1961 Act for earlier years). Firms and companies do not use these slabs.
Key features: standard deduction of Rs. 75,000 for salaried employees and pensioners; Section 87A rebate wipes out tax liability when net taxable income does not exceed Rs. 12,00,000; salaried employees with gross salary up to Rs. 12,75,000 pay zero tax after the standard deduction reduces taxable income to Rs. 12,00,000.
Old Tax Regime Slab Rates for FY 2026-27
| Taxable income | Below 60 years | 60 to 79 years | 80 years and above |
|---|---|---|---|
| Up to Rs. 2.5 lakh | Nil | Nil | Nil |
| Rs. 2.5L to Rs. 3L | 5% | Nil | Nil |
| Rs. 3L to Rs. 5L | 5% | 5% | Nil |
| Rs. 5L to Rs. 10L | 20% | 20% | 20% |
| Above Rs. 10L | 30% | 30% | 30% |
Standard deduction under the old regime is Rs. 50,000 for salaried employees. The Section 87A rebate under the old regime is Rs. 12,500, available only when total income does not exceed Rs. 5,00,000. The old regime permits Chapter VI-A deductions; for many taxpayers with large 80C, 80D, and HRA claims, it still files lower tax than the new regime. See the old vs new tax regime comparison guide for a break-even analysis.
Surcharge and Health & Education Cess: How They Add Up
Surcharge is computed as a percentage of income tax (before cess) and depends on total income:
| Total income | New regime | Old regime |
|---|---|---|
| Up to Rs. 50 lakh | Nil | Nil |
| Rs. 50 lakh to Rs. 1 crore | 10% | 10% |
| Rs. 1 crore to Rs. 2 crore | 15% | 15% |
| Rs. 2 crore to Rs. 5 crore | 25% | 25% |
| Above Rs. 5 crore | 25% (capped) | 37% |
Surcharge on dividend income and on capital gains under Sections 111A, 112 and 112A is capped at 15%.
The Marginal Relief provision prevents the incremental income above the surcharge threshold from being taxed more than the incremental income itself. After adding surcharge, health and education cess of 4% is applied to the combined amount. Cess has no minimum income threshold; it applies even if surcharge is zero.
Section 87A Rebate: When Your Tax Becomes Zero
Section 87A provides a tax rebate that reduces tax liability to zero for taxpayers below the income ceiling. For a full treatment of eligibility and edge cases, see the Section 87A rebate guide for AY 2026-27.
Under the new regime for FY 2026-27 (Section 156 of the Income-tax Act, 2025, earlier Section 87A): if a resident individual's net taxable income (after standard deduction) does not exceed Rs. 12,00,000, the rebate equals the tax on that income, up to Rs. 60,000, making net tax payable nil. Just above Rs. 12 lakh, marginal relief limits the tax to the income above Rs. 12 lakh (it fades out at about Rs. 12.7 lakh). The rebate does not apply to special-rate income such as short-term capital gains on listed equities.
Under the old regime: the rebate is Rs. 12,500 and is available only when total income does not exceed Rs. 5,00,000.
Worked Example 1: Salaried Employee at Rs. 12 Lakh
Facts: Gross salary Rs. 12,00,000; new regime.
| Step | Amount |
|---|---|
| Gross salary | Rs. 12,00,000 |
| Less: standard deduction | Rs. 75,000 |
| Taxable income | Rs. 11,25,000 |
| Tax: 5% on Rs. 4L to Rs. 8L | Rs. 20,000 |
| Tax: 10% on Rs. 8L to Rs. 11.25L | Rs. 32,500 |
| Tax before rebate | Rs. 52,500 |
| Less: rebate (income up to Rs. 12L) | Rs. 52,500 |
| Net tax | Nil |
The employee pays zero income tax. The gross salary threshold for zero tax under the new regime for salaried employees is Rs. 12,75,000 (Rs. 12L taxable after Rs. 75K deduction).
Worked Example 2: Salaried Employee at Rs. 15 Lakh (New Regime)
Facts: Gross salary Rs. 15,00,000; new regime.
| Step | Amount |
|---|---|
| Gross salary | Rs. 15,00,000 |
| Less: standard deduction | Rs. 75,000 |
| Taxable income | Rs. 14,25,000 |
| Tax: 5% on Rs. 4L to Rs. 8L | Rs. 20,000 |
| Tax: 10% on Rs. 8L to Rs. 12L | Rs. 40,000 |
| Tax: 15% on Rs. 12L to Rs. 14.25L | Rs. 33,750 |
| Tax before cess | Rs. 93,750 |
| Add: 4% cess | Rs. 3,750 |
| Total tax | Rs. 97,500 |
The Section 87A rebate does not apply because taxable income (Rs. 14.25L) exceeds Rs. 12L. For an evaluation of whether the old regime would reduce tax at this salary level given typical deduction profiles, the regime comparison guide provides a structured break-even table.
Worked Example 3: Business Owner at Rs. 30 Lakh Net Profit
Facts: Business net profit Rs. 30,00,000; new regime; no salary, no standard deduction available for business income.
| Slab | Tax |
|---|---|
| Up to Rs. 4L | Nil |
| Rs. 4L to Rs. 8L at 5% | Rs. 20,000 |
| Rs. 8L to Rs. 12L at 10% | Rs. 40,000 |
| Rs. 12L to Rs. 16L at 15% | Rs. 60,000 |
| Rs. 16L to Rs. 20L at 20% | Rs. 80,000 |
| Rs. 20L to Rs. 24L at 25% | Rs. 1,00,000 |
| Rs. 24L to Rs. 30L at 30% | Rs. 1,80,000 |
| Tax before cess | Rs. 4,80,000 |
| Add: 4% cess | Rs. 19,200 |
| Total tax | Rs. 4,99,200 |
No surcharge since income is below Rs. 50 lakh. Business owners must also compute advance tax instalments on this liability (15% by June 15, 45% by September 15, 75% by December 15, 100% by March 15). Review ITR filing plans at Tax Garden for assisted computation and filing.
Worked Example 4: Senior Citizen on Pension and FD Interest
Facts: Age 65; pension Rs. 5,00,000; FD interest Rs. 3,00,000; new regime; total income Rs. 8,00,000.
Pension is taxed as salary under the new regime; standard deduction of Rs. 75,000 applies. The new regime has no higher basic exemption for senior citizens.
| Step | Amount |
|---|---|
| Pension less Rs. 75,000 standard deduction | Rs. 4,25,000 |
| FD interest | Rs. 3,00,000 |
| Taxable income | Rs. 7,25,000 |
| Tax: 5% on Rs. 4L to Rs. 7.25L | Rs. 16,250 |
| Less: rebate | Rs. 16,250 |
| Net tax | Nil |
Taxable income of Rs. 7.25L is below Rs. 12L, so the rebate covers the full Rs. 16,250 and net tax is nil. The senior citizen pays zero income tax on this income combination under the new regime.
Note for old regime: the senior citizen basic exemption limit is Rs. 3,00,000 (not Rs. 2,50,000), and TDS on FD interest (Section 194A) has a higher threshold of Rs. 1,00,000 for senior citizens under Finance Act 2025 rules.
Quick Reference Table: Approximate Tax at Common Income Levels (New Regime, Salaried)
Gross salary, Rs. 75,000 standard deduction, no other income, tax including 4% cess:
| Gross salary | Taxable income | Total tax |
|---|---|---|
| Rs. 10,00,000 | Rs. 9,25,000 | Nil |
| Rs. 12,75,000 | Rs. 12,00,000 | Nil |
| Rs. 15,00,000 | Rs. 14,25,000 | Rs. 97,500 |
| Rs. 20,00,000 | Rs. 19,25,000 | Rs. 1,92,400 |
| Rs. 25,00,000 | Rs. 24,25,000 | Rs. 3,19,800 |
| Rs. 30,00,000 | Rs. 29,25,000 | Rs. 4,75,800 |
How to Verify Your Calculation Before Filing ITR
Three cross-checks prevent errors before you submit:
-
Form 16 vs. self-computed tax: The employer's tax deducted at source (TDS) shown in Part B of Form 16 should match your computed tax. Differences arise when the employer used the old regime but you elect the new regime in ITR, or vice versa.
-
Form 26AS and AIS: The Annual Information Statement lists all income reported to the tax department: salary TDS, FD interest TDS, dividend, property transactions, and securities transactions. Reconcile your GTI with AIS line items before computing tax.
-
Advance tax reconciliation: If you had business or investment income beyond salary, verify that advance tax paid (Challan ITNS 280 on the e-Pay Tax service) matches the instalments due. Shortfall attracts interest under Sections 234B and 234C.
The Income Tax Department's e-filing portal offers a tax calculator for a quick check; a review of your full computation still helps where you have capital gains, surcharge or marginal relief.
This article is based on the Finance Act 2025 rates, continued for FY 2026-27 (Tax Year 2026-27) under the Income-tax Act, 2025 (Sections 156 and 202, corresponding to Sections 87A and 115BAC of the 1961 Act). The worked examples assume no capital gains income unless stated. Taxpayers with equity investments, property transactions, or foreign income should obtain a separate computation for those components.
Frequently Asked Questions
How much tax does a salaried person earning Rs 15 lakh pay under the new regime?
After the Rs 75,000 standard deduction, taxable income is Rs 14,25,000. Tax is nil on the first Rs 4 lakh, Rs 20,000 on Rs 4 to 8 lakh, Rs 40,000 on Rs 8 to 12 lakh and Rs 33,750 at 15% on the remaining Rs 2,25,000, a total of Rs 93,750. Adding 4% cess gives about Rs 97,500. No rebate applies because taxable income exceeds Rs 12 lakh.
Why does a Rs 12.75 lakh salary pay no tax under the new regime?
The Rs 75,000 standard deduction brings a Rs 12.75 lakh salary down to Rs 12 lakh of taxable income. Slab tax on Rs 12 lakh is Rs 60,000, and the rebate for resident individuals with taxable income up to Rs 12 lakh is up to Rs 60,000, so net tax becomes nil. Income taxed at special rates, such as STCG on listed shares, is not covered by this rebate.
What happens if my income is just above Rs 12 lakh under the new regime?
Marginal relief applies. If taxable income is slightly above Rs 12 lakh, your tax cannot exceed the amount by which income crosses Rs 12 lakh. For example, at Rs 12,10,000 slab tax is Rs 61,500, but tax payable is limited to Rs 10,000 plus cess. The relief fades out at roughly Rs 12.7 lakh of taxable income.
When does surcharge apply and how is cess calculated?
Surcharge applies only when total income exceeds Rs 50 lakh: 10% above Rs 50 lakh, 15% above Rs 1 crore, 25% above Rs 2 crore, and in the old regime 37% above Rs 5 crore, while the new regime caps it at 25%. Health and education cess of 4% is then charged on income tax plus surcharge, whatever your income level.
Do business owners get the Rs 75,000 standard deduction?
No. The Rs 75,000 standard deduction in the new regime is only for salary and pension income. A business owner or professional computes income after allowable business expenses and pays tax on that profit at slab rates. Since there is no TDS on most business income, advance tax is due in instalments of 15%, 45%, 75% and 100% by 15 June, 15 September, 15 December and 15 March.
Which law governs income tax for FY 2026-27?
Income earned from 1 April 2026 is governed by the Income-tax Act, 2025, where FY 2026-27 is called Tax Year 2026-27 instead of AY 2027-28. The new regime slabs, the Rs 12 lakh rebate limit and the Rs 75,000 standard deduction carry over from FY 2025-26. Returns for FY 2025-26 (AY 2026-27) are still filed under the Income-tax Act, 1961.
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