Income Tax Slabs in India: FY 2025-26

An understanding of income tax slab rates and their application is an important aspect of tax planning in India. The level of tax that you will pay on taxable income is determined by the tax rate applicable to you based on your income level. Since the introduction of the new income tax structure in Budget 2025 (also known as the New tax regime), it has changed the way taxes are collected from taxpayers — most notably to provide complete tax exemption for any income earned up to ₹12 lakh per annum from the new tax regime (tax law). The purpose of this article is to provide you with detailed information about the new tax slab rates for the financial year 2025-26 (assessment year (2026-27).

Revisions to the 2025 Budget:

Budget 2025 has made a fundamental alteration to India's system of income tax. The rebate under section 87A was increased from ₹25,000 to ₹60,000 for the new regime of taxation resulting in determining income less than ₹12 lakh being tax free. Salaried individuals residing in the new regime have seen their standard deduction raised to ₹75,000.

Individual Taxpayers - New Tax Regime (Default)

Taxpayers can now choose the Default Option when they fill out their Forms 1040 (U.S. Individual Income Tax Return) using the new, lower rate of taxation provided by the IRS. Most of the existing available deductions and exemptions have been replaced with significantly reduced rates that will provide more disposable income than under the old tax system.

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

For many, especially those in the middle-income brackets, the new structure has created a material benefit due to the increased amount of applicable rebates.

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

Since last year’s budget announcements, numerous tax rule changes have resulted in an entirely new simplified income tax system. This change allows for the zero-rated taxable income up to ₹12 lakhs under the new tax laws. As a default for the majority of taxpayers, those who earn between ₹6 lakhs to ₹12 lakhs will receive large reductions in their tax burden simply because there are fewer rules and restrictions on what deductions they are allowed.

The new tax laws state that there is an increase in the amount a taxpayer can claim under Section 87A. Additionally, there is an increase in the amount a taxpayer can claim as a standard deduction. Lastly, with the abolishment of many previously available deductions, the simplified structure of the new tax laws makes them much more appealing than the prior tax structure.As with all changes, if a taxpayer is used to claiming a significant amount of deductions (from the old tax laws), they should do an analysis of their own personal tax situation under both tax laws to determine which will benefit them the most. All taxpayers should continue to periodically review their strategies for minimizing taxes as time goes by with their financial situation changing.

These changes to the income tax system illustrate the government’s intent to simplify the income tax system and provide a significant reduction in tax burden to middle-class earners. Finally, all taxpayers are encouraged to take advantage of their benefits while being compliant with all tax rules.

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.