Income Tax Slabs in India: FY 2025-26

Understanding income tax slabs is fundamental to effective tax planning in India. The Budget 2025 has introduced significant changes to the tax structure, particularly benefiting middle-income taxpayers. The most notable change is the effective exemption of income tax for those earning up to ₹12 lakh annually under the new tax regime. This comprehensive guide provides detailed information about the updated tax slabs for FY 2025-26 (AY 2026-27).

Major Changes in Budget 2025

Budget 2025 has brought revolutionary changes to India's income tax structure. The government has increased the rebate under Section 87A from ₹25,000 to ₹60,000 for the new tax regime, effectively making income up to ₹12 lakh tax-free. Additionally, the standard deduction for salaried employees has been increased to ₹75,000 in the new regime.

Individual Taxpayers - New Tax Regime (Default)

The new tax regime is now the default option for all taxpayers. While it restricts most deductions and exemptions, it offers lower tax rates and a higher rebate limit, making it beneficial for most income levels.

Individual Taxpayers - Old Tax Regime (Optional)

Taxpayers can still opt for the old tax regime if they have significant deductions under various sections. However, the old regime has higher tax rates and lower rebate limits.

Senior Citizens (60-80 years)

Senior citizens enjoy higher basic exemption limits. They can also benefit from the new tax regime's enhanced rebate structure.

Super Senior Citizens (Above 80 years)

Super senior citizens have the highest basic exemption limit in the old regime and can also benefit from the new regime's structure.

Hindu Undivided Family (HUF)

HUFs are taxed at the same rates as individual taxpayers and can opt for either the old or new tax regime. The new regime is now default for HUFs as well.

Surcharge Rates - FY 2025-26

Surcharge is levied on taxpayers with income above specified thresholds. The rates vary between the old and new tax regimes.

Rebate under Section 87A

The rebate under Section 87A has been significantly enhanced in the new tax regime, making it the most taxpayer-friendly provision in Budget 2025.

Standard Deduction - FY 2025-26

Standard deduction is available to salaried employees and pensioners. The new regime offers a higher standard deduction compared to the old regime.

Marginal Relief for New Tax Regime

To prevent taxpayers from being penalized for earning slightly above ₹12 lakh, marginal relief has been provided for those earning between ₹12-13 lakh.

Health and Education Cess

Health and Education Cess continues to be levied at 4% on the amount of income tax and surcharge for all taxpayers.

Tax Comparison: Old vs New Regime - FY 2025-26

The new regime is significantly more beneficial for most taxpayers, especially those in the middle-income group, due to the enhanced rebate structure.

Who Should Choose Which Regime?

While the new regime is now default and beneficial for most, some taxpayers with significant deductions might still benefit from the old regime.

Key Deductions Available

Tax Planning Strategies for FY 2025-26

With the new tax structure, tax planning strategies need to be revised to maximize benefits under the enhanced rebate system.

Important Dates and Deadlines

Conclusion

Budget 2025 has brought the most significant changes to India's income tax structure in recent years. The effective exemption of income tax for earnings up to ₹12 lakh under the new tax regime is a game-changer for middle-income taxpayers. With the new regime now being the default option, most taxpayers will benefit from lower tax liability without the complexity of claiming multiple deductions.

The enhanced rebate under Section 87A, increased standard deduction, and simplified tax structure make the new regime attractive for the majority of taxpayers. However, those with significant deductions should still compare both regimes to make an informed choice. Regular review of your tax planning strategy considering your changing income and circumstances will help optimize your tax liability.

The government's commitment to simplifying the tax structure while providing substantial relief to middle-income groups is evident in these changes. Taxpayers should leverage these benefits while ensuring compliance with all tax regulations.

Quick Reference Summary - FY 2025-26

Disclaimer: This information is for educational purposes only and reflects the tax structure as announced in Budget 2025. Tax laws may change, and individual situations can vary. For the latest updates and personalized assistance, stay connected with us. Our team is here to provide detailed insights and support tailored to your tax needs.