Income Tax Slabs and Rates for FY 2025-26 (AY 2026-27)
The Union Budget 2025, presented by Finance Minister Nirmala Sitharaman, introduced notable changes to the income tax slabs under the new tax regime.
- These revised rates, effective from April 1, 2025, aim to streamline taxation and offer relief across diverse income groups.
- The new structure simplifies tax compliance and is projected to lower tax burdens for a significant portion of taxpayers.
Latest Income Tax Slabs under the New Regime
The updated tax slabs for FY 2025-26 (AY 2026-27) under the new regime are as follows:
- Rs 0 – Rs 4,00,000: Nil tax
- Rs 4,00,001 – Rs 8,00,000: 5%
- Rs 8,00,001 – Rs 12,00,000: 10%
- Rs 12,00,001 – Rs 16,00,000: 15%
- Rs 16,00,001 – Rs 20,00,000: 20%
- Rs 20,00,001 – Rs 24,00,000: 25%
- Above Rs 24,00,000: 30%
This restructured framework ensures greater progressivity in taxation, particularly benefiting middle-income earners.
- Tax savings of up to Rs 1.14 lakh annually are now possible, especially for those in the middle brackets.
Section 87A Rebate: Boosting Tax-Free Income
A significant reform is the increase in the Section 87A rebate to Rs 60,000, a sharp jump from the earlier Rs 25,000.
- This means individuals earning up to Rs 12 lakh can effectively pay zero income tax.
- The earlier threshold covered only those earning up to Rs 7 lakh, making this update more inclusive.
This change empowers the lower and middle-income segments by offering enhanced relief.
- It’s particularly beneficial for salaried individuals and small business owners.
Basic Exemption Limit Revised
The basic exemption limit under the new regime has been increased to Rs 4 lakh, up from Rs 3 lakh.
- This change aligns with inflation trends and improves the affordability of living for low-income taxpayers.
- It also reduces the number of individuals required to file returns, easing compliance and administrative pressure.
Deductions and Allowances in the New Regime
While the new regime limits traditional deductions, certain benefits are retained:
- Salaried individuals can continue claiming a standard deduction of Rs 75,000.
- Additionally, an employer’s contribution of up to 14% to the NPS Tier-I account is deductible.
These limited deductions ensure that some benefits remain without complicating the tax filing process.
Surcharge and Predictability for High Earners
The surcharge structure remains unchanged in the new regime for FY 2025-26.
- This offers stability and predictability to high-income taxpayers, avoiding sudden increases in liability.
Key Update in the Old Regime: NPS Vatsalya Deduction
Although most changes focus on the new regime, a new deduction has been introduced under Section 80CCD (1B) for the NPS Vatsalya scheme.
- Parents can invest up to Rs 50,000 additionally, above the Rs 1.5 lakh limit under Section 80C.
- This move promotes long-term savings for children’s futures while offering tax incentives.
Meanwhile, the Section 87A rebate under the old regime remains at Rs 12,500 for incomes up to Rs 5 lakh.
Comparing Old and New Tax Regimes
The main distinction lies in deductions and exemptions:
- The new regime offers lower tax rates but does not allow popular deductions like Section 80C (Rs 1.5 lakh), 80D (Rs 25,000/Rs 50,000), or 80TTA (Rs 10,000 on savings account interest).
- The old regime, while offering higher tax rates, includes these deductions, benefiting those with significant eligible expenses.
Choosing the right regime requires evaluating individual financial scenarios.
Exemption Limits Based on Age (Old Regime)
The old regime still uses age-based exemption limits:
- Below 60 years: Rs 2.5 lakh
- Senior citizens (60–79 years): Rs 3 lakh
- Super senior citizens (80+ years): Rs 5 lakh
This structure ensures added relief for the elderly, reflecting their higher medical and living expenses.
Regime Selection Rules
The new regime is the default, and taxpayers must opt-in to use the old regime.
- Non-business taxpayers can switch between regimes annually.
- Business owners, however, can shift from old to new regime only once in a lifetime, and cannot revert afterward.
This policy encourages commitment to the simplified structure of the new regime.
Conclusion: Toward Simplified and Inclusive Taxation
With these reforms, the government aims to make the new tax regime the preferred choice.
- Enhanced rebates, revised slabs, and minimal compliance burden make it attractive for a majority of taxpayers.
- As India progresses toward a digitally empowered economy, these changes reflect a shift toward transparent, equitable, and user-friendly taxation.
