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In summary
What Is Indexation in Mutual Funds
Income tax slabs determine the rate at which different portions of your taxable income are taxed. For FY 2026-27, the new tax regime has a nil rate up to Rs. 4 lakh and a maximum slab rate of 30% above Rs. 24 lakh.
The key points to remember are:
- Under the new tax regime, eligible resident individuals with taxable income up to Rs. 12 lakh can get a rebate of up to Rs. 60,000 under Section 87A.
- Salaried individuals can claim a standard deduction of Rs. 75,000 under the new regime, subject to applicable conditions.
- The old tax regime has a basic exemption limit of Rs. 2.5 lakh for individuals below 60 years.
- The old regime allows several deductions and exemptions that are restricted or unavailable under the new regime.
- Capital gains and certain other income can be taxed under separate rules rather than ordinary slab rates.
The right regime depends on your taxable income, eligible deductions and other income details. You should compare the tax payable under both regimes before making a choice.
What is an income tax slab?
An income tax slab is an income range to which a particular tax rate applies. India uses a progressive slab system, which means different portions of your taxable income can be taxed at different rates.
For example, under the new tax regime for FY 2026-27, the first Rs. 4 lakh of taxable income is taxed at 0%. The next portion is taxed at 5%, followed by higher rates for higher income ranges.
This does not mean that your entire income is taxed at the highest rate that applies to you. The applicable rate is applied to each relevant portion of your taxable income.
What are the income tax slabs for FY 2026-27?
For FY 2026-27, the new tax regime has seven slabs. The following table shows the applicable rates for individual taxpayers.
| Taxable income | Tax rate |
|---|---|
| Up to Rs. 4 lakh | Nil |
| Rs. 4 lakh to Rs. 8 lakh | 5% |
| Rs. 8 lakh to Rs. 12 lakh | 10% |
| Rs. 12 lakh to Rs. 16 lakh | 15% |
| Rs. 16 lakh to Rs. 20 lakh | 20% |
| Rs. 20 lakh to Rs. 24 lakh | 25% |
| Above Rs. 24 lakh | 30% |
These are slab rates. The rate applies only to the portion of taxable income that falls within the relevant slab.
How does the new tax regime work?
The new tax regime is the default regime for eligible taxpayers. It has lower slab rates than the old regime at several income levels but allows fewer deductions and exemptions.
For FY 2026-27, eligible resident individuals with taxable income up to Rs. 12 lakh can claim a rebate of up to Rs. 60,000 under Section 87A. This can reduce their income tax liability to nil, subject to the applicable conditions.
For a salaried individual, the Rs. 75,000 standard deduction can reduce taxable income. For example, a salary of Rs. 12.75 lakh, with no other income or adjustments, can result in taxable income of Rs. 12 lakh after the standard deduction.
Why can taxable income up to Rs. 12 lakh have zero tax?
Tax is first calculated using the applicable slab rates. Under the new regime, tax on taxable income of Rs. 12 lakh is Rs. 60,000 before the rebate.
An eligible resident individual can claim a Section 87A rebate of up to Rs. 60,000. This can reduce the final tax liability to nil when the applicable conditions are met.
The Rs. 12 lakh figure should not be confused with the basic exemption limit. The basic exemption limit under the new regime is Rs. 4 lakh.
The rebate also does not apply to tax payable on income that is taxed at special rates, such as certain capital gains.
How does marginal relief work above Rs. 12 lakh?
Marginal relief can apply when an eligible taxpayer's income is slightly above Rs. 12 lakh. It is designed to limit the additional tax burden when the increase in tax would otherwise be greater than the additional income above the threshold.
For example, if taxable income is Rs. 12.10 lakh, the income is Rs. 10,000 above Rs. 12 lakh. Marginal relief can limit the tax payable to the applicable excess income, subject to the relevant conditions.
The calculation of marginal relief can be more complex at higher income levels. A tax calculator can help estimate the applicable liability.
What is the old tax regime?
The old tax regime has higher slab rates but allows a wider range of deductions and exemptions, subject to the applicable conditions.
For individual taxpayers below 60 years of age, the basic old-regime slabs for FY 2026-27 are shown below.
| Taxable income | Tax rate |
|---|---|
| Up to Rs. 2.5 lakh | Nil |
| Rs. 2.5 lakh to Rs. 5 lakh | 5% |
| Rs. 5 lakh to Rs. 10 lakh | 20% |
| Above Rs. 10 lakh | 30% |
The old regime also provides a rebate under Section 87A for eligible taxpayers with taxable income up to Rs. 5 lakh, subject to applicable conditions.
H3: What deductions are available under the old tax regime?
The old regime allows several deductions and exemptions that can reduce taxable income when you meet the relevant conditions.
Common examples include Section 80C investments, certain health insurance deductions, House Rent Allowance (HRA), Leave Travel Allowance (LTA), and eligible home loan interest deductions.
For example, eligible investments in Equity Linked Savings Schemes can qualify for a deduction under Section 80C under the old regime, subject to the applicable conditions and overall limits.
Some exemptions and deductions have specific rules. For example, Leave Travel Allowance is subject to conditions under the Income Tax Act. You can read more about Section 10(5) before claiming an applicable exemption.
What is the difference between the old and new tax regimes?
The main difference is how each regime combines tax rates with deductions and exemptions. The new regime has lower slab rates and fewer deductions, while the old regime has more deductions and exemptions but higher slab rates.
The key differences are shown below.
| Feature | New tax regime | Old tax regime |
|---|---|---|
| Basic exemption for individuals below 60 years | Rs. 4 lakh | Rs. 2.5 lakh |
| Highest slab rate | 30% | 30% |
| Deductions and exemptions | Limited | Wider range |
| Section 80C deduction | Generally unavailable | Available subject to conditions |
| Section 87A rebate | Available up to Rs. 12 lakh taxable income, subject to conditions | Available up to Rs. 5 lakh taxable income, subject to conditions |
| Standard deduction for salaried individuals | Rs. 75,000 | Rs. 50,000 |
The figures in the table apply to the respective rules for FY 2026-27 and should be read with the applicable conditions.
How do you calculate income tax?
Calculating income tax involves identifying your income, working out your taxable income, applying the relevant slab rates and then considering rebates, surcharge and cess where applicable.
The basic calculation process is as follows:
- Calculate your total income: Add your taxable income from the relevant sources.
- Identify applicable deductions and exemptions: Apply those available under your chosen tax regime.
- Calculate taxable income: Subtract eligible deductions and exemptions from the relevant income.
- Apply the slab rates: Calculate tax on each applicable portion of your taxable income.
- Apply eligible rebates: Reduce the tax liability by any rebate for which you qualify.
- Add applicable surcharge and cess: Apply these charges where relevant.
- Adjust tax already paid: Consider Tax Deducted at Source (TDS) and other eligible tax payments when determining the final amount payable or refundable.
How is taxable income different from total income?
Total income refers to the income considered for tax purposes after applying the relevant provisions. Taxable income is the amount on which the applicable tax calculation is made after eligible deductions and exemptions.
For example, a salaried individual may receive Rs. 12.75 lakh as salary but have a lower taxable income after applying the applicable standard deduction.
The exact calculation depends on the person's income sources, regime and eligible deductions.
How is tax calculated under the new regime?
Suppose your taxable income is Rs. 15 lakh under the new regime.
The tax calculation before any applicable rebate or other adjustments is:
- The first Rs. 4 lakh is taxed at 0%.
- The next Rs. 4 lakh is taxed at 5%, giving Rs. 20,000.
- The next Rs. 4 lakh is taxed at 10%, giving Rs. 40,000.
- The remaining Rs. 3 lakh is taxed at 15%, giving Rs. 45,000.
The total tax before cess and other applicable adjustments is therefore Rs. 1,05,000.
This is an illustration based on taxable income of Rs. 15 lakh. Your actual liability can differ depending on your income, deductions, rebates, surcharge and other applicable provisions.
How is tax calculated under the old regime?
Under the old regime, you first determine your taxable income after applying eligible exemptions and deductions.
You then apply the relevant slab rates. For an individual below 60 years, the first Rs. 2.5 lakh is taxed at 0%, the next Rs. 2.5 lakh at 5%, the next Rs. 5 lakh at 20%, and income above Rs. 10 lakh at 30%.
Eligible rebates, surcharge and Health and Education Cess must then be considered where applicable.
What are surcharge and Health and Education Cess?
Surcharge is an additional charge on income tax that applies when income crosses specified thresholds. The rate depends on the taxpayer's income and applicable tax regime.
Health and Education Cess is an additional 4% charged on the income tax and applicable surcharge.
These charges are calculated after determining the applicable income tax. They are separate from the slab rates shown in the income tax tables.
Do senior citizens have different income tax slabs?
The new tax regime uses the same slab structure for individuals regardless of age. The old tax regime, however, provides different basic exemption limits based on age.
For individuals aged 60 years or more but below 80 years, the old-regime basic exemption limit is Rs. 3 lakh.
For individuals aged 80 years or more, the old-regime basic exemption limit is Rs. 5 lakh.
The following table summarises the old-regime slabs by age group.
| Age group | Basic exemption limit under old regime | Higher slab rates |
|---|---|---|
| Below 60 years | Rs. 2.5 lakh | 5%, 20% and 30% |
| 60 to below 80 years | Rs. 3 lakh | 5%, 20% and 30% |
| 80 years and above | Rs. 5 lakh | 20% and 30% |
The new regime does not use these age-based slab differences.
Which income is not taxed through normal slab rates?
Not every type of income is taxed using the ordinary income tax slab rates. Certain income is subject to separate tax provisions.
Capital gains are one example. Short-term capital gains and long-term capital gains can have different tax treatment depending on the type of asset, holding period and applicable provisions.
For example, gains from mutual funds can be subject to capital gains tax rules rather than simply being added to your normal slab-taxed income.
Income from certain specified sources can also have separate tax rates. You should check the applicable rules for the particular type of income.
What is the financial year and assessment year?
The financial year is the 12-month period from 1 April to 31 March during which you earn income.
The assessment year follows the financial year. It is the year in which the income earned during the previous financial year is assessed and the relevant income tax return is filed.
For example, FY 2026-27 runs from 1 April 2026 to 31 March 2027. The corresponding assessment year is AY 2027-28.
Using the correct financial year is important because income tax rules and rates can change from one year to another.
What changed for income tax in FY 2026-27?
For FY 2026-27, the new-regime slab structure introduced earlier continues to apply. The slabs remain at 0%, 5%, 10%, 15%, 20%, 25% and 30%, with the highest rate applying above Rs. 24 lakh.
The Section 87A rebate of up to Rs. 60,000 for eligible resident individuals with taxable income up to Rs. 12 lakh also continues under the new regime, subject to applicable conditions.
The standard deduction for eligible salaried individuals under the new regime is Rs. 75,000.
The old tax regime remains available to eligible taxpayers. Its deductions, exemptions and age-based slab structure continue to differ from those under the new regime.
How do you choose between the old and new tax regimes?
There is no single regime that is suitable for every taxpayer. Your choice depends on your income, eligible deductions, exemptions and the resulting tax liability under each regime.
Consider the following points before making a decision:
- Compare your taxable income under both regimes.
- Check whether you can claim deductions such as Section 80C or Section 80D under the old regime.
- Consider the standard deduction available under the relevant regime.
- Check whether your income includes capital gains or other income taxed separately.
- Compare the final tax liability after applicable rebates, surcharge and cess.
If you are unsure how the rules apply to your circumstances, consider obtaining advice from a qualified tax professional.
Conclusion
Income tax slabs determine the rate applied to different portions of your taxable income. For FY 2026-27, the new tax regime starts with a nil rate up to Rs. 4 lakh and reaches 30% above Rs. 24 lakh.
The new regime also provides a Section 87A rebate of up to Rs. 60,000 for eligible resident individuals with taxable income up to Rs. 12 lakh. The old regime has different slabs and allows a wider range of deductions and exemptions.
Before choosing a regime, compare your taxable income and final tax liability under both options.
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Frequently Asked Questions
Overview
What is the previous year and assessment year?
In income-tax law, the "Previous Year" is the period from April 1st to March 31st when income is earned. The following year is the "Assessment Year," where this income is evaluated for tax purposes. For instance, FY 2023-24 is assessed in AY 2024-25.
Is 7 lakh income tax free?
An income of Rs 7 lakh may be tax-free under the new tax regime if you meet the applicable conditions and claim eligible deductions or rebates. However, the actual tax liability depends on your total taxable income and the tax regime you choose. It is important to calculate your taxable income before deciding whether you need to pay income tax.
Can I claim 80C deductions and opt for a new income tax slab regime?
No. Under the new income tax regime, you generally cannot claim deductions under Section 80C. These deductions are available under the old tax regime, subject to applicable rules. If you want to claim benefits such as deductions for eligible investments and expenses under Section 80C, you may need to choose the old tax regime while filing your income tax return.
Who should now opt for a new income tax regime?
The new income tax regime may suit taxpayers who prefer simpler tax calculations and fewer deductions and exemptions. It can be a good choice for salaried individuals who do not claim many tax-saving benefits, such as deductions on investments, insurance or home loans. Before choosing, compare your tax liability under both regimes to see which option works better for your income and financial situation.
What is the meaning of rebate under section 87A under the IT Act?
Rebate under Section 87A of the Income Tax Act is a tax benefit available to eligible individual taxpayers with income up to a specified limit. It reduces the income tax payable, subject to applicable conditions and limits. The rebate is deducted from the calculated tax liability, helping eligible taxpayers reduce their overall tax burden.
Is the new income tax regime not inflation adjusted?
No, the new income tax regime is not directly adjusted for inflation. The tax slabs and rates are set by the government and may be revised through the Union Budget. While changes can be made to provide relief as living costs rise, there is no automatic inflation-linked adjustment to the new income tax regime.
Who is eligible for rebate under section 87A of the Income-tax Act, 1961?
An individual can claim a rebate under Section 87A if they are a resident individual and their total income falls within the prescribed limit. The rebate is available under the applicable tax regime, subject to the conditions and income limits in force for the relevant financial year.
How to calculate surcharge on income tax?
Surcharge on income tax is calculated on the income tax payable when your total taxable income crosses the prescribed threshold. First, calculate your income tax based on the applicable tax regime and slab rates. Then, apply the relevant surcharge rate to the income tax amount. The surcharge rate varies based on your taxable income.
Which is better old regime or new regime?
Neither tax regime is better for everyone. The old regime may suit you if you claim deductions and exemptions such as those for investments, insurance, or home loans. The new regime offers lower tax rates with fewer deductions and exemptions. Compare your taxable income and available deductions before choosing the option that saves you more tax.
What are the higher tax rebates for middle-class earners?
Higher tax rebates can help middle-class earners reduce their overall tax burden. Under the new tax regime, eligible taxpayers can benefit from a higher rebate under Section 87A, subject to the applicable income limits and conditions. This can lower the tax payable and leave more income available for regular expenses, savings, and investments.
What is the maximum total income for which tax liability for individual taxpayers is NIL?
For individual taxpayers, the maximum total income on which tax liability can be NIL depends on the applicable tax regime and available rebates. Under the new tax regime, individuals with total income up to Rs 12 lakh can have zero tax liability due to the Section 87A rebate, subject to applicable conditions.
Is 80C applicable in the new tax regime?
No. Section 80C deductions are generally not available under the new tax regime. This means you cannot claim deductions for investments such as PPF, ELSS or life insurance premiums under Section 80C. However, the new tax regime offers lower tax rates and some deductions are still allowed. Check the latest tax rules before choosing a regime.
Can I claim deductions under section 80C and choose a new income tax slab regime?
Yes, you can choose the new income tax regime, but Section 80C deductions are generally not available under it. Deductions such as those under Section 80C are mainly available under the old tax regime. So, if you want to claim deductions under Section 80C, you may need to opt for the old tax regime, subject to the applicable tax rules.
How much income tax will salaried taxpayers save?
Salaried taxpayers can save income tax by using eligible deductions and exemptions under the applicable tax regime. The actual savings depend on their salary, investments, deductions, and the tax regime they choose. By planning expenses and eligible investments carefully, salaried individuals can reduce their taxable income and, in turn, lower their overall tax liability.
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