New Income Tax Slabs for FY 2025-26 (AY 2026-27)

The income tax slab rates define how much tax the individuals should pay for different income groups. The income tax slabs relaxation is the biggest relief brought in the financial year 2025-26, greatly reducing the tax liability for many. Various deductions are still available under the new tax regime such as employer's contribution to NPS under section 80CCD(2) and interest on home loan of a rented property under section 24. Other added benefits come from higher rebate limit and TDS threshold limits. 

Key Highlights

Tax slab changes under the new regime for FY 2025-26:

• Income up to Rs. 12 lakhs made zero-tax due to an increased rebate of Rs. 60,000.
• Basic exemption limit extended to Rs. 4 lakhs, from Rs. 3 lakhs.
• 30% tax slab rate of  will now apply on income above Rs. 24 lakh instead of Rs. 15 lakh.

Income Tax Slabs for FY 2025-26 (AY 2026-27) under New Tax Regime 

The income tax slabs under new regime for FY 2025-26 are: Up to Rs. 4 lakhs - Nil; Rs. 4 lakhs to Rs. 8 lakhs - 5%; Rs. 8 lakhs to Rs. 12 lakhs - 10%; Rs. 12 lakhs to Rs. 16 - lakhs - 15%; Rs. 16 lakhs to Rs. 20 lakhs - 20%; Rs. 20 lakhs to Rs. 24 lakhs - 25%; Above Rs. 24 lakhs - 30%. A tabular version of the slab rates are given below.

• For taxpayers with a lot of tax-saving deductions, often summing up to a few lakhs, the old regime is the most beneficial.
• For taxpayers with limited tax-saving deductions and middle-class income earners, the new regime is the most beneficial.
• The following table shows the break-even deduction for different income levels. If the taxpayer has deductions above the break-even deductions, the old regime will be the most beneficial. Otherwise, the new regime will be the most desirable choice.

• It is most beneficial for the taxpayers if they choose their most beneficial regime at the beginning of the financial year.
• Taxpayers can estimate their total income, consolidate all their tax-saving deductions, and calculate the taxable income and total tax payable under both regimes to determine which regime is most beneficial.
• The following table shows the most beneficial regime for a deduction amount of Rs.4.5 lakhs.

Shifting Regime - Form 10-IEA Requirements

• If you have figured out that old regime is the most beneficial, you have to switch regime from new to old.
• On absence of making this choice, new regime will be chosen in default and you might end up paying more taxes.
• Form 10-IEA is applicable if a person wants to file taxes under the old regime, and has business income.
• Form 10-IEA needs to be filed on opting in and opting out of old tax regime.

Tax Calculation under the New Regime FY 2025-26(AY 2026-27)

Example 1

Mr. Ramu had a salary income of Rs. 12 lakhs. He had invested Rs. 1.5 lakh in PPF and paid Rs. 30,000 towards health insurance of himself, spouse and children. 

For FY 2024-25 (AY 2025-26), his tax liability was as follows:

• New Tax Regime: Rs. 71,500
• Old Tax Regime: Rs. 1,10,760

As the tax liability under the new tax regime was less, Mr. Ramu filed his ITR under the new tax regime and saved Rs. 39,260 in taxes. 

However, for FY 2025-26, Mr. Ramu will have zero tax liability as his income is less than Rs. 12 lakh and is eligible for rebate u/s 87A. 

The bottom line: Income up to Rs. 12 lakhs will be practically tax free under the new regime in most cases for FY 2025-26, while you still have to pay taxes for the same level of income for FY 2024-25.   

Example 2 

Mr. Anban had a salary income of Rs. 25 lakhs in FY 2025-26. He lives in a rented accommodation and pays Rs. 45,000 p.m as rent and claimed Rs. 4 lakh HRA exemption. He also has a house property in his village for which he pays EMI. He also has deductions of Rs. 1.5 lakh u/s 80C, Rs. 50,000 u/s 80D and Rs. 50,000 u/s 80CCD(1B). 

For FY 2025-26 (AY 2026-27), his tax liability will be as follows:

• New Tax Regime: Rs. 3,19,800
• Old Tax Regime: Rs. 3,04,200

As the tax liability under the old tax regime was less, Mr. Anban chose to file his ITR under the old tax regime and saved Rs. 15,600 in taxes. This was because of the massive deductions worth Rs. 9 lakh that Mr. Anban could claim. Without these deductions, the new regime would have been beneficial for Mr. Anban. 

The Bottom Line: The old regime can also be more beneficial if you have sufficient tax saving deductions.  The new tax regime is apt for those taxpayers with fewer or no deductions to claims. This fact holds good for both FY 2024-25 and FY 2025-26.

Example 3

Mr. K has the following income for FY 2025-26:

Salary income - Rs. 20 lakhs

Interest income on FDs - Rs. 20,000

He does not have any other income or tax saving deductions. The tax calculation for old and new regime are as follows:

Tax payable under the old regime (including cess) = Rs.4,19,640

Tax payable under the old regime (including cess) = Rs.1,96,560

Since, the taxpayer in this case do not have tax saving deductions, new regime is the most beneficial for him for FY 2025-26.

The Bottom Line: The new regime is the most beneficial regime for middle income earners in most cases, since most taxpayers don't have lakhs of tax saving deductions.  

How to Save Taxes under the New Regime FY 2025-26?

Though the options to save taxes under the new regime are limited, the new regime proves to be extremely beneficial with tax planning strategies in place. The following are the ways to save taxes under the new regime:

1.Employer’s Contribution to NPS u/s 80CCD(2)

The employer’s contribution can be claimed as a deduction under this section. Up to 14% of the basic pay can be claimed as a deduction under this section. When you opt for NPS, the employer and you will contribute to the pension scheme.

2.Standard Deduction

Irrespective of whether you have made tax saving deductions or not, you can claim a standard deduction of Rs. 75,000 against your salary income under the new regime.

For salaried individuals, a standard deduction of Rs. 75,000 is allowed under the new regime.

3.Choice of Perquisites

• You can opt for a car leasing scheme if it is provided by your company, through which you can save significant taxes. 
• Also, allowances like transport allowance, conveyance allowance, and daily allowance are exempt under the new regime.
• Various perquisites like mobile reimbursement, transport facility provided under railways or airways, etc. are exempt irrespective of the old or new regime.

Structure your CTC accordingly and derive the maximum tax advantage!

Income Tax Changes from 01st April, 2025 (FY 2025-26)

The following are the changes made with effect form 01st April, 2025.

1. Slab Rate Relaxation

As already discussed, the income tax slabs and tax rates are relaxed with effect from FY 2025-26 under the new regime. Income chargeable under the maximum tax rate - 30% has been increased from Rs. 15 lakhs to Rs. 24 lakhs. Basic exemption limit has been relaxed from Rs. 3 lakhs to Rs. 4 lakhs.

2.Rebate Relaxation

Previously, under the new regime, Rs. 25,000 of rebate is allowed, making the income within Rs. 7 lakhs practically tax-free. With effect from FY 2025 - 26, Rs. 60,000 of rebate is allowed for an income within Rs. 12 lakhs under the new regime. This makes income up to Rs. 12 lakhs tax-free.

3.Relaxation of TDS Threshold Limits

If the payment amount does not cross a certain limit during the financial year, no TDS needs to be deducted as per the provisions of the act. This threshold limit has been relaxed from FY 2025-26, making transactions with higher value not liable to TDS. This has eased the compliance burden. 

4.Deductions and Exemptions

The important changes brought this year with respect to deductions and exemptions are:

• All the tax benefits of the NPS account have now been extended to the NPS Vatsalya account.
• All the withdrawals from NPS are exempt from 29th August, 2025.
• The tax benefits available to eligible start-ups under section 80-IAC have now been extended until 2030.

Income Tax Slabs for FY 2024-25 (AY 2025-26) under New Tax Regime

The existing new tax regime slabs for FY 2024-25 (AY 2025-26) are as follows:

Rebate under Section 87A is available for income up to Rs. 7 lakh, meaning taxpayers with total income not exceeding Rs. 7 lakh have zero tax liability.

Tax Savings due to New Income Tax Slabs - FY 2024-25 v/s FY 2025-26

The following table illustrates the tax savings under the new regime for FY 2025-26 as compared to FY 2024-25. The income provided in the first column is the taxable income, that is, income after reducing all the eligible deductions and exemptions under the new regime. The other column represent the savings in taxes in FY 2025-26 versus FY 2024-25. This tax saving is fully attributed to relaxation of slab rates.

Surcharge

Surcharge simply refers to tax on tax. It is levied on a percentage of tax, not income. When the taxable income of an individual crosses the limit of Rs. 50 lakhs, surcharge is applicable. The following table provides the surcharge rates for different income groups.

For dividends and capital gains income under section 111A, 112A and 112, the maximum surcharge amount is capped at 15%, even if such income crosses the threshold limit of Rs. 2 crore.

Cess

In addition to the income tax and surcharge, a health and education cess of 4% is levied in all cases. Cess is applicable wherever there is income tax payable.

Rebate

• When your total taxable income is within a certain threshold limit, a rebate helps reduce the tax liability to zero.
• The rebate allowed differs based on the choice of regime and the financial year. 
• Under the new regime, marginal relief on rebate is available, unlike under the old regime.
• With effect from FY 2025-26, the rebate is not available on special tax income. For example, capital gains, online gaming income, etc.

The following table shows the rebate applicability for FY 2024-25 and FY 2025-26 under new and old regime.

Note: In all the above cases, the rebate makes the total tax liability zero.

Conclusion

The taxation system, slabs, rates, and deduction options have evolved over the years, reflecting the changing economic landscape, the government’s intentions and governing style, and the advancement of technology. Therefore, it is necessary to keep pace with the changing tax laws. This will help the taxpayers not only to be tax compliance but also bring various benefits. The revised income tax slabs for FY 2025-26 (AY 2026-25) focus on increasing savings among taxpayers and reducing their compliance burden by reducing the taxes. This avoids complicated tax planning strategies and compliance requirements for taxpayers. However, the old regime may still be beneficial for those with higher incomes and large deductions. Evaluate your income and investment pattern before choosing.