Latest Income Tax Slab Rates for FY 2025-26 (AY 2026-27)

Finance Minister Nirmala Sitharaman has introduced significant revisions to the income tax slabs under the new tax regime in the Union Budget 2025. These updated slabs will take effect from April 1, 2025, for the financial year 2025-26. The structure of the new tax regime has been completely revamped to provide better benefits to taxpayers.

What Are Income Tax Slab Rates?

In India, income tax is applied based on a slab system, where different income ranges are taxed at different rates. As income increases, the applicable tax rate also rises. This ensures a progressive tax structure where higher earners contribute more.

The government updates tax slabs periodically, usually during the annual Union Budget, to reflect economic changes. The tax slabs differ under the old tax regime, which allows exemptions and deductions, and the new tax regime, which offers lower tax rates but fewer deductions.

With each budget, taxpayers anticipate possible revisions in tax slabs that could impact their tax liability and savings.

No tax on income up to Rs 12 lakh

Income up to ₹12 lakh will now be tax-free under the new tax regime. Before Budget 2025, there was no tax on income up to ₹7 lakh due to a rebate of ₹25,000 under Income Tax Section 87A. The government has now increased the rebate amount to ₹60,000, making income up to ₹12 lakh exempt from tax. This change aims to provide more relief to taxpayers, allowing them to retain a higher portion of their income.

Income Tax Slabs for FY 2025-26 (New Tax Regime)

With these changes, taxpayers can save up to ₹1.14 lakh annually, making the new tax regime more beneficial for many individuals. Additionally, the government has confirmed that the new tax regime will remain the default option, while taxpayers still have the flexibility to opt for the old regime if it suits them better.

In addition to revising the income tax slabs, the government has also proposed an increase in the tax rebate under Section 87A. The rebate limit has been raised to ₹60,000, which means individuals with a net taxable income of up to ₹12 lakh will not have to pay any income tax under the new regime.

Tax Rates Under The Old Tax Regime

Under the old regime, income tax rates will remain same:

Comparison of Section 87A Rebate

Current rebate (FY 2024-25) – Taxable income up to ₹7 lakh qualifies for a rebate of ₹25,000, resulting in zero tax liability.

Proposed rebate (FY 2025-26) – Taxable income up to ₹12 lakh qualifies for a rebate of ₹60,000, ensuring zero tax for a larger section of taxpayers.

This change is aimed at providing relief to middle-income individuals and increasing their disposable income, thereby boosting overall economic growth.

Key Features of the New Tax Regime for Individual Taxpayers (Effective from April 1, 2025)

New Tax Regime as Default

• The new tax regime will continue to be the default option.
• Individuals without business income can still opt for the old tax regime if they find it more beneficial.

Increased Basic Exemption Limit

• Currently, the basic exemption limit is ₹3 lakh for all individuals, regardless of age.
• From FY 2025-26, the exemption limit will rise to ₹4 lakh, offering relief to lower-income groups.

Higher Tax Rebate Under Section 87A

• As of now, taxpayers with net taxable income up to ₹7 lakh pay zero tax due to a rebate of ₹25,000 under Section 87A.
• From April 1, 2025, this rebate will increase to ₹60,000, ensuring that individuals earning up to ₹12 lakh pay zero tax under the new tax regime.

Surcharge on High-Income Earners Unchanged

• The highest surcharge rate of 25% for individuals earning above ₹2 crore remains unchanged in Budget 2025.
• These changes aim to reduce tax liability, increase disposable income, and simplify the tax structure for individual taxpayers.

Surcharge on Income Tax

The surcharge is an extra charge applied to the income tax liability of those with higher incomes. In India, this additional levy comes into effect when an individual's taxable income exceeds ₹50 lakh, and it is calculated on the tax amount before any cess is added. The recent July Budget 2024 has kept the surcharge rates consistent across both the new and old tax regimes. Additionally, revised surcharge rates under the new tax regime were introduced for FY 2023-24, effective from April 1, 2023, ensuring that high-income earners contribute a bit more in line with the progressive nature of the tax system.

Surcharge rate (April 1, 2023)

Surcharge rate - old tax regime

Determining Your Income Tax Slab

To determine which income tax slab you fall into, start by calculating your total earnings from all income sources. This includes your salary, business profits, rental income, and any other form of earnings. Once you have your gross income, subtract all applicable exemptions and deductions. Under the old tax regime, for example, you can deduct amounts for House Rent Allowance (HRA), Leave Travel Allowance (LTA), the standard deduction, and other deductions available under Sections 80C through 80U. This process yields your net taxable income. Example - if your gross income is ₹11 lakh and you are eligible for deductions amounting to ₹1.5 lakh, your taxable income would come down to ₹9.50 lakh. With your taxable income in hand, you can refer to the income tax slab structure to identify the appropriate tax rate that applies to you. Depending on whether you opt for the old or the new tax regime—each with its own set of slabs and deductions—you can then decide which option minimizes your tax liability.

1. What are tax slabs?

Tax slabs are income ranges defined by the government, with each range having a specific tax rate. As your income increases, you move into higher slabs, resulting in a higher percentage of tax on the additional income.

2. What is a surcharge on income tax?

A surcharge is an additional charge applied to your income tax liability if your taxable income exceeds a specific threshold. It is levied on the tax amount before any cess is added, ensuring that higher earners contribute a bit more.

3.How do I know which tax slab I fall into?

To determine your applicable tax slab, calculate your gross income and subtract any allowable exemptions and deductions to arrive at your net taxable income. Then, refer to the current tax slab chart for the regime you choose to find the corresponding tax rate.

4. Is a ₹12 lakh salary subject to zero tax?

Yes, a ₹12 lakh salary can result in zero net tax liability. While the income falls under taxable brackets based on the slab rates, the rebate of ₹60,000 under Section 87A reduces the total tax calculated. After applying this rebate, the net tax payable becomes effectively zero.

5.How can I check my income tax refund status?

Yes, you can check the status of your tax refund on the Income Tax Department website by entering your PAN and assessment year.