With the Income Tax Act, 2025 replacing the 1961 Act from April 1, 2026, taxpayers need clarity on which slabs apply. The good news: Budget 2026 did not change slab rates. The slabs introduced in Budget 2025 for FY 2025-26 carry forward unchanged into FY 2026-27 (Tax Year 2026-27 under the new Act).

New Regime Slabs (Default)

The new regime under Section 202 of the IT Act, 2025 applies automatically unless you opt out:

  • Up to Rs 4 lakh — Nil
  • Rs 4-8 lakh — 5%
  • Rs 8-12 lakh — 10%
  • Rs 12-16 lakh — 15%
  • Rs 16-20 lakh — 20%
  • Rs 20-24 lakh — 25%
  • Above Rs 24 lakh — 30%

Standard deduction: Rs 75,000. Section 87A rebate: Rs 60,000 — making income up to Rs 12 lakh effectively tax-free. For salaried taxpayers, the effective limit is Rs 12.75 lakh.

Old Regime Slabs

  • Up to Rs 2.5 lakh — Nil (Rs 3L for seniors, Rs 5L for super seniors)
  • Rs 2.5-5 lakh — 5%
  • Rs 5-10 lakh — 20%
  • Above Rs 10 lakh — 30%

Standard deduction: Rs 50,000. Section 87A rebate: Rs 12,500 (income up to Rs 5 lakh tax-free). All deductions available: 80C (Rs 1.5L), 80D, HRA, home loan interest.

Surcharge and Cess

Surcharge applies at 10% (Rs 50L-1Cr), 15% (Rs 1-2Cr), and 25% (above Rs 2Cr) under both regimes. The new regime caps surcharge at 25% even for the highest bracket — the old regime goes up to 37% above Rs 5 crore. Health and education cess: 4% on total tax plus surcharge.

Switching Between Regimes

Salaried taxpayers: Full flexibility — choose between old and new regime every year at the time of filing ITR.

Business/professional income: Can switch from new to old only once. After switching back, can revert to new only once more. Plan carefully.

For most salaried individuals without significant deductions, the new regime with its Rs 12 lakh tax-free threshold is clearly better. But if you have home loans, insurance premiums, and other deductions exceeding Rs 3-4 lakh, run the numbers for both regimes before deciding.