Income Tax Slabs & Rate for FY 2025-26 (AY 2026-27) – Check Old & New Regime

Understanding income tax slabs is an important part of financial planning for every taxpayer. For Financial Year 2025-26 (Assessment Year 2026-27), individuals continue to have the option of choosing between the old tax regime and the new tax regime, each structured with different tax rates, deductions, and compliance requirements.

Selecting a tax regime is not only about comparing slab rates. It also involves evaluating deductions claimed, income composition, and long-term financial commitments. Since tax provisions may influence investment choices, savings behaviour, and cash flow planning, understanding the applicable slabs and rates becomes essential before filing income tax returns.

This article explains the income tax slabs and applicable rates for FY 2025-26 (AY 2026-27), along with a clear comparison of the old and new tax regimes to help taxpayers make informed and compliant decisions.

Table of contents

• What are income tax slabs?
• Income tax slabs and rates for FY 2025-26 (AY 2026-27) After Budget 2026
• Income Tax Slabs for FY 2025-26 (AY 2026-27) Under the Old Regime
• Mutual funds can help save taxes
• Income Tax Slab for Non Resident Indians FY 2025-26 (AY 2026-27)
• Comparison of new tax regime v/s old tax regime
• Income tax calculation example under FY 2025-26 (AY 2026-27)
• Tax savings due to new income tax slabs for FY 2025-26 (AY 2026-27)
• Income Tax Benefits of ELSS Funds in Budget 2026

What are income tax slabs?

Income tax slabs refer to the structured ranges of income on which individuals in India are required to pay tax at prescribed rates. Income within each slab is taxed at the rate applicable to that slab. Tax slabs differ for individuals, senior citizens, and super senior citizens under the old regime.

The slab system ensures that taxation progresses with income levels, meaning higher income segments are taxed at comparatively higher rates. The government periodically revises these slabs to align with economic conditions and policy objectives.

Income tax slabs and rates for FY 2025-26 (AY 2026-27) After Budget 2026

Taxation rates vary based on the annual income. Low earners are taxed at a lower rate while high earners are taxed at a higher rate. The income tax slabs were overhauled in the 2025 Union Budget for the new regime. These will be implemented if cleared by both houses of Parliament and upon receiving the President’s assent. Here are the existing and proposed tax slabs under the new regime.

Note: the 2025 budget has also proposed increasing tax rebate up to Rs 50,000 for annual incomes of up to Rs. 12 lakh. Currently, the rebate limit is Rs. 25,000 and can be claimed by those earning up to Rs. 7 lakh annually.

Income Tax Slabs for FY 2025-26 (AY 2026-27) Under the Old Regime

Individuals aged below 60 years & HUF

Note: The income tax exemption limit is up to Rs. 2.5 lakh for Individuals, HUF below 60 years aged, and NRIs. Surcharge and cess will be applicable.

Individuals aged 60 years to 80 years

Note: The income tax exemption limit is up to Rs.3 lakh for senior citizens aged above 60 years but less than 80 years. Surcharge and cess will be applicable.

Individuals aged above 80 years

Note: Income tax exemption limit is up to Rs. 5 lakh for super senior citizens aged above 80 years. Surcharge and cess will be applicable.

Mutual funds can help save taxes

Among the many mutual funds available, Equity Linked Savings Schemes (ELSS) are particularly beneficial for reducing tax outflows.

ELSS are a type of mutual fund that offers dual benefits of tax savings and equity investment growth. Under Section 80C of the Income Tax Act, 1961, investments of up to Rs. 1.5 lakh in ELSS schemes are eligible for tax deductions per financial year under the old regime. This makes ELSS an effective option for investors looking to maintain tax efficiency while building wealth. Hence, ELSS investment can effectively reduce your taxable income and may help you enter a lower tax slab.

ELSS funds invest primarily in equities, offering the potential for wealth building in the long term. They come with a mandatory lock-in period of three years, the shortest among tax-saving instruments like Public Provident Fund (15 years) or National Savings Certificate (5 years). Investors can choose to invest a lump sum or opt for a Systematic Investment Plan (SIP) for regular contributions.

Moreover, the three-year lock-in period ensures that capital gains arising from ELSS investments are categorised as Long Term Capital Gains and taxed at a lower rate compared to short-term capital gains tax. This can result in further optimisation of your tax outgo.

Income Tax Slab for Non Resident Indians FY 2025-26 (AY 2026-27)

As per the official Income Tax Department portal, the income tax slabs applicable for Assessment Year 2026-27 remain unchanged from the previous year. NRIs are taxed using the same slab structure applicable to individuals (other than resident senior or super senior citizens), because higher basic exemption limits for senior citizens do not apply to NRIs.

NRIs may choose between the new tax regime (default) and the old tax regime, depending on eligibility for deductions and exemptions.

Income tax slabs under the new tax regime:

Income tax slabs under the old tax regime:

Comparison of new tax regime v/s old tax regime

India currently provides individual taxpayers with two taxation systems: the old tax regime and the new tax regime under section 115BAC. The new regime continues as the default option, while taxpayers retain the flexibility to opt for the old regime based on deductions, exemptions, and income structure.

The choice between the two regimes does not depend only on income level. It primarily depends on whether a taxpayer claims multiple deductions or prefers a simplified tax structure.

Income tax calculation example under FY 2025-26 (AY 2026-27)

Below are three worked examples. In each case “taxable income” means income after allowable deductions under the chosen regime. Slabs, surcharge and cess used are as published by the income tax department.

Moderate income where old regime deductions matter (old tax regime):

Assumptions: gross salary ₹12,00,000; standard deduction ₹50,000 and section 80C investments ₹1,50,000.

Step 1: Taxable income = 12,00,000 − 50,000 − 1,50,000 = ₹10,00,000.

Step 2: Compute tax under old slabs:

Up to ₹2,50,000: 0.

₹2,50,001–₹5,00,000 = ₹2,50,000 at 5% → 0.05 × 2,50,000 = ₹12,500.

₹5,00,001–₹10,00,000 = ₹5,00,000 at 20% → 0.20 × 5,00,000 = ₹1,00,000.

Total tax before cess/surcharge = 12,500 + 1,00,000 = ₹1,12,500.

Step 3: cess @ 4% = 0.04 × 1,12,500 = ₹4,500.

Step 4: total tax liability = 1,12,500 + 4,500 = ₹1,17,000.

Net payable (approx) = ₹1,17,000.

Figures above are illustrative and based on taxable income after deductions; actual liability may vary with exact deductions, exemptions, IDCW treatment, capital gains special rates and applicable section-specific rules.

Surcharge rules, special rates for certain incomes and marginal relief provisions may affect the final amount; refer to the income tax department guidance for precise thresholds and rules.

Tax savings due to new income tax slabs for FY 2025-26 (AY 2026-27)

The revised income tax slabs under the new tax regime aim to simplify taxation and reduce tax liability for certain income ranges. The new regime continues as the default tax system, featuring lower slab rates along with limited deductions and exemptions. Any tax savings depend on income level, eligibility for deductions, and overall financial structure.

Tax savings should therefore be evaluated through comparison rather than assumption, since outcomes may vary across individuals.

Key features influencing tax savings under the new regime

• Basic exemption limit increased to ₹4,00,000.
• Section 87A rebate increased to ₹60,000.
• Individuals with taxable income up to ₹12,00,000 may have zero tax liability due to rebate eligibility (excluding special rate income).
• Standard deduction of ₹75,000 available for salaried individuals and pensioners.
• Simplified tax calculation with fewer exemptions.

These structural changes may reduce tax outgo for taxpayers who do not claim substantial eductions under the old regime.

Income Tax Benefits of ELSS Funds in Budget 2026

Here are some benefits of investing in ELSS mutual funds:

• Shortest lock-in period: ELSS funds come with a lock-in period of three years, the shortest among tax-saving instruments under Section 80C of the Income Tax Act, 1961.
• High growth potential: Since ELSS invests predominantly in equities, they have the potential to deliver higher returns in long term compared to fixed-income instruments.
• Flexible investment modes: You can invest in ELSS through lump sum or SIP, offering flexibility based on your financial goals and cash flow.
• Dual benefit of tax saving and wealth creation: ELSS helps you save taxes while simultaneously building wealth over the long term.
• Tax deductions under Section 80C of the Income Tax Act, 1961: Investments up to Rs. 1.5 lakh in ELSS can be claimed as deductions, reducing your taxable income.
• LTCG gains from ELSS funds are exempted up to Rs. 1.25 lakh annually and taxed at a rate of 12.5% subsequently.
• Ease of Investing: Mutual funds are easy to invest in. Today, many online platforms make the process quick and hassle-free.
• No limit on investment amount: While the tax benefit is capped at Rs. 1.5 lakh, there’s no upper limit on the amount you can invest in ELSS.
• Liquidity post lock-in period: After the three-year lock-in, you can redeem your investment, providing liquidity.
• Professional management: Fund managers with expertise in equity markets handle ELSS funds, increasing the chances of better returns.

Conclusion

Understanding income tax slabs and using tax-saving mutual funds like ELSS can help you save a lot on taxes. ELSS not only helps you reduce your tax burden but also helps you grow your money over time. However, it is prudent to align your investment with your unique objectives and risk appetite before making any investment decisions. When in doubt, always consult a financial expert of tax advisor for tailored solutions.

FAQs:

How do mutual funds help save tax?

Mutual funds, particularly ELSS, offer deductions under Section 80C of the Income Tax Act, 1961, allowing you to reduce your taxable income.

What is ELSS, and how does it provide tax benefits?

ELSS, or Equity Linked Savings Scheme, is a mutual fund eligible for deductions under Section 80C of the Income Tax Act, 1961. It combines tax-saving benefits with equity market returns.

Are mutual fund returns taxable?

Yes, returns on mutual funds are subject to tax and the taxation rates are based on the type of mutual fund (equity oriented or debt) and the investment holding period.

How can SIPs aid in tax planning?

SIPs allow you to invest regularly in ELSS, spreading the tax-saving benefit over the year and making the process more manageable and disciplined.

What are the current Income Tax Slabs for FY 2025-26?

• New tax regime (default): Up to ₹4,00,000: Nil; ₹4,00,001 to ₹8,00,000: 5%; ₹8,00,001 to ₹12,00,000: 10%; ₹12,00,001 to ₹16,00,000: 15%; ₹16,00,001 to ₹20,00,000: 20%; ₹20,00,001 – ₹24,00,000: 25%; Above ₹24,00,000: 30%.
• Old tax regime (individuals below 60): Up to ₹2,50,000: Nil; ₹2,50,001 to ₹5,00,000: 5%; ₹5,00,001 to ₹10,00,000: 20%; Above ₹10,00,000: 30%.
• Old tax regime (senior citizens 60–80): Up to ₹3,00,000: Nil; ₹3,00,001 to ₹5,00,000: 5%; ₹5,00,001 to ₹10,00,000: 20%; Above ₹10,00,000: 30%.

How to calculate income tax under the new vs old tax regime?

Under the new regime, tax is computed using its reduced slab rates without most deductions. Under the old regime, tax is calculated using earlier rates after claiming eligible deductions and exemptions (if applicable). Individuals may compute taxable income under both structures and choose the one resulting in lower overall liability based on their situation.

What is the benefit of rebate under Section 87A?

Section 87a offers a rebate that reduces tax liability for resident individuals with taxable income within the prescribed limit. Under the new regime, the rebate may reduce liability to zero if taxable income does not exceed ₹7 lakh. The old regime provides a lower rebate threshold. No rebate applies above those limits.

For FY 2025-26 (AY 2026-27), the Union Budget 2025 has increased the income limit for Section 87A rebate from Rs 7 lakh to Rs 12 lakh under the new tax regime. Resident individuals with taxable income up to Rs 12 lakh are now eligible for a rebate of up to Rs 60,000.

Are there different slabs for senior citizens?

Under the new regime, senior citizens and other individuals follow the same slab structure. Under the old regime, senior citizens receive higher basic exemption limits compared to non-senior individuals.

Can I switch between old and new tax regimes?

Individuals with salary income may choose a regime every financial year while filing returns. Those with business or professional income may switch with restrictions and must follow prescribed rules. However, those with business or professional income face significant restrictions. They must file Form 10-IEA before the ITR filing due date to opt for the old regime. If they later wish to return to the new regime, they can do so only once in their lifetime by filing Form 10-IEA again in a subsequent year. After this one-time switch back to the new regime, they permanently lose the option to choose the old regime.

Is 7 lakh income tax free?

For a resident individual with no special-rate income, under the new regime: Yes, ₹7 lakh is effectively tax-free in both FY 2024-25 and FY 2025-26. This is due to the Section 87A rebate. The Budget 2025 further raised the 87A rebate to ₹60,000, making net tax liability nil for incomes up to ₹12 lakh. So ₹7 lakh is comfortably within the zero-tax zone for resident individuals with no special-rate incomes.

What is the current income tax slab?

India currently offers two systems: the old tax regime and the new tax regime. The new regime applies lower tax rates with limited deductions, while the old regime permits deductions and exemptions. Tax liability depends on the regime selected, taxable income, and applicable rebates.

What is the new regime tax slab for FY 2025-26?

Under the new tax regime for FY 2025-26: up to ₹4 lakh – nil tax; ₹4–8 lakh – 5%; ₹8–12 lakh – 10%; ₹12–16 lakh – 15%; ₹16–20 lakh – 20%; ₹20–24 lakh – 25%; above ₹24 lakh – 30%. Applicable rebate provisions may reduce tax liability.

Which is better, old or new tax regime?

The choice depends on individual income structure and eligible deductions. The old regime may suit taxpayers claiming higher deductions, while the new regime may suit those preferring simplified taxation with fewer exemptions. Comparing tax outcomes under both regimes before filing may support informed decision-making.

What is the exemption limit for FY 2025-26?

Under FY 2025-26 rules, the basic exemption limit in the new tax regime is ₹4 lakh. Additionally, Section 87A rebate may reduce tax liability for taxable income up to ₹12 lakh, subject to eligibility conditions and income composition.

How much income tax will I pay in 2025-26?

Income tax payable depends on taxable income, regime chosen, deductions claimed, and rebate eligibility. Under the new regime, slab rates apply progressively, and eligible individuals may receive rebate relief.