Key Takeaways
- Under the new tax regime (default), income up to Rs 12 lakh is tax-free for residents due to the Section 87A rebate of Rs 60,000.
- Salaried individuals earning up to Rs 12.75 lakh pay zero tax after the Rs 75,000 standard deduction.
- The old tax regime requires an opt-in and offers a basic exemption of Rs 2.5 lakh (Rs 3 lakh for senior citizens, Rs 5 lakh for super senior citizens).
- No slab changes were made in Budget 2026. The rates introduced by Finance Act 2025 continue unchanged for FY 2026-27.
- The Income Tax Act 2025 is now in effect. "Tax Year 2026-27" replaces the earlier FY/AY terminology.
FY 2026-27 is the first full year under the Income Tax Act 2025, which replaced the 1961 Act on April 1, 2026. While the new Act restructured section numbers and filing procedures, the actual slab rates remain unchanged from FY 2025-26. This guide covers the exact rates under both regimes, the rebate and deduction rules, and a worked example comparing the two.
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New Tax Regime: Slab Rates for FY 2026-27
Tax Rate Chart
New Tax Regime Slab Rates — FY 2026-27 (Default Regime)
Effective from FY 2025-26 under Finance Act 2025 · Section 115BAC
Up to ₹4,00,000
Nil tax. Also applies to HUFs and AOPs.
₹4,00,001 – ₹8,00,000
₹20,000 max tax on this slab alone.
₹8,00,001 – ₹12,00,000
Section 87A rebate makes tax nil up to ₹12L total income.
₹12,00,001 – ₹16,00,000
₹60,000 max on this slab.
₹16,00,001 – ₹20,00,000
₹80,000 max on this slab.
₹20,00,001 – ₹24,00,000
₹1,00,000 max on this slab.
Above ₹24,00,000
Plus 4% health & education cess on total tax. Surcharge applies above ₹50L.
Source: Finance Act 2025; PIB Press Release Feb 1, 2025; incometaxindia.gov.in
The new regime under Section 115BAC is the default for all individual taxpayers, Hindu Undivided Families (HUFs), and Associations of Persons (AOPs). You do not need to opt in; it applies automatically unless you choose the old regime.
| Taxable Income | Tax Rate |
|---|---|
| Up to Rs 4,00,000 | Nil |
| Rs 4,00,001 to Rs 8,00,000 | 5% |
| Rs 8,00,001 to Rs 12,00,000 | 10% |
| Rs 12,00,001 to Rs 16,00,000 | 15% |
| Rs 16,00,001 to Rs 20,00,000 | 20% |
| Rs 20,00,001 to Rs 24,00,000 | 25% |
| Above Rs 24,00,000 | 30% |
These rates were introduced by the Finance Act 2025 and apply to both FY 2025-26 and FY 2026-27 (PIB Press Release, February 1, 2025).
Standard deduction for salaried individuals and pensioners: Rs 75,000.
Section 87A rebate: A resident individual with taxable income up to Rs 12,00,000 gets a rebate of up to Rs 60,000, making the entire tax liability nil. For salaried employees, after deducting the Rs 75,000 standard deduction, gross salary up to Rs 12,75,000 is effectively tax-free (incometaxindia.gov.in, Tax Rates as amended by Finance Act 2025).
Marginal relief: If your income is slightly above Rs 12 lakh, the tax payable will not exceed the amount by which your income exceeds Rs 12,00,000. This prevents a sharp jump in liability.
Capital gains exclusion: From FY 2025-26 onwards, short-term capital gains under Section 111A and long-term capital gains under Section 112 are excluded when calculating eligibility for the Section 87A rebate. If you have capital gains taxed at special rates, those amounts do not count toward the Rs 12 lakh threshold, and the rebate does not apply to the tax on those gains (Finance Act 2025 amendment to Section 87A).
Old Tax Regime: Slab Rates for FY 2026-27
The old regime is available only if you explicitly opt in. Salaried individuals can choose each year during ITR filing. Business owners must file the selection before the due date, and the choice is binding.
Individual Below 60 Years
| Taxable Income | Tax Rate |
|---|---|
| Up to Rs 2,50,000 | Nil |
| Rs 2,50,001 to Rs 5,00,000 | 5% |
| Rs 5,00,001 to Rs 10,00,000 | 20% |
| Above Rs 10,00,000 | 30% |
Senior Citizen (60 to 80 Years)
| Taxable Income | Tax Rate |
|---|---|
| Up to Rs 3,00,000 | Nil |
| Rs 3,00,001 to Rs 5,00,000 | 5% |
| Rs 5,00,001 to Rs 10,00,000 | 20% |
| Above Rs 10,00,000 | 30% |
Super Senior Citizen (Above 80 Years)
| Taxable Income | Tax Rate |
|---|---|
| Up to Rs 5,00,000 | Nil |
| Rs 5,00,001 to Rs 10,00,000 | 20% |
| Above Rs 10,00,000 | 30% |
Standard deduction: Rs 50,000 for salaried individuals and pensioners.
Section 87A rebate: Rs 12,500 for resident individuals with taxable income up to Rs 5,00,000.
The old regime allows deductions under Section 80C (up to Rs 1.5 lakh), Section 80D (medical insurance), HRA exemption, home loan interest under Section 24, and other provisions not available in the new regime (incometax.gov.in, AY 2026-27 guide for salaried individuals).
Surcharge and Health & Education Cess
Both regimes charge a 4% Health and Education Cess on total tax (including surcharge, if any).
Surcharge Rates
| 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% |
The new regime caps the maximum surcharge at 25%, regardless of income level. Under the old regime, income above Rs 5 crore attracts a 37% surcharge (incometaxindia.gov.in, Tax Rates PDF).
Worked Example: Rs 15 Lakh Salaried Income
To illustrate the difference between regimes, consider a salaried individual earning Rs 15,00,000 gross salary with no other income.
New Regime Calculation
- Gross salary: Rs 15,00,000
- Standard deduction: Rs 75,000
- Taxable income: Rs 14,25,000
- Tax: Nil (first 4L) + Rs 20,000 (4L to 8L at 5%) + Rs 40,000 (8L to 12L at 10%) + Rs 33,750 (12L to 14.25L at 15%) = Rs 93,750
- Cess at 4%: Rs 3,750
- Total tax: Rs 97,500
Old Regime Calculation (with typical deductions)
Assume: Rs 1,50,000 under Section 80C, Rs 25,000 under Section 80D.
- Gross salary: Rs 15,00,000
- Standard deduction: Rs 50,000
- Deductions: Rs 1,75,000
- Taxable income: Rs 12,75,000
- Tax: Nil (first 2.5L) + Rs 12,500 (2.5L to 5L at 5%) + Rs 1,00,000 (5L to 10L at 20%) + Rs 82,500 (10L to 12.75L at 30%) = Rs 1,95,000
- Cess at 4%: Rs 7,800
- Total tax: Rs 2,02,800
Difference: The new regime saves Rs 1,05,300 in this scenario. The old regime becomes more favourable only when total deductions and exemptions (80C, 80D, HRA, home loan interest, NPS) significantly exceed Rs 3.75 lakh.
Common Mistakes to Avoid
-
Assuming the old regime applies by default. The new regime is the default from FY 2023-24 onwards. If you want the old regime, you must explicitly select it when filing your return.
-
Forgetting the capital gains exclusion for Section 87A. If your salary income is Rs 10 lakh but you also have Rs 3 lakh in short-term capital gains, you still qualify for the Section 87A rebate on your salary income. However, the tax on capital gains (at the applicable special rate) is not reduced by the rebate.
-
Comparing regimes without calculating actual deductions. Many taxpayers assume the old regime is better without adding up their actual eligible deductions. Run the numbers for both before choosing.
Tax Garden Can Help
Choosing the right regime and filing accurately under the new Income Tax Act 2025 requires attention to detail. Tax Garden's income tax filing service includes regime comparison for your specific situation, accurate computation, and timely filing. Explore our income tax compliance plans or read more about what changed under the new Act.
Frequently Asked Questions
Are income tax slab rates different for FY 2026-27 compared to FY 2025-26?
No. Budget 2026 made no changes to slab rates under either regime. The rates introduced by Finance Act 2025 continue unchanged for FY 2026-27.
What is the tax-free income limit under the new regime for salaried individuals?
Salaried individuals earning up to Rs 12,75,000 gross salary pay zero tax under the new regime, after the Rs 75,000 standard deduction and the Section 87A rebate of Rs 60,000.
Can I switch between old and new regime every year?
Salaried individuals can choose their regime each year at the time of filing their ITR. Business owners (with business income) must file the selection before the due date, and the choice applies for that year and subsequent years unless changed.
What does Tax Year 2026-27 mean?
The Income Tax Act 2025 introduced the Tax Year concept, replacing the Financial Year (FY) and Assessment Year (AY) split. Tax Year 2026-27 refers to income earned from April 1, 2026 to March 31, 2027. It is equivalent to what was previously called FY 2026-27 or AY 2027-28.
Disclaimer: This guide is current as of April 2026 and based on the Income Tax Act 2025 and Finance Act 2025 provisions. Slab rates, rebate limits, and surcharge thresholds should be confirmed against the latest CBDT notifications before making tax decisions. This is not tax advice; consult a qualified CA for your specific situation.
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