Income Tax Slabs FY 2025-26 (AY 2026-27): New Tax Regime & Old Regime Rates

The Indian government has made the new tax regime the default option from FY 2025-26, with significant tax relief for middle-income earners. But before you switch, understand that the old regime might still save you more tax if you claim substantial deductions.

Income Tax Slabs FY 2025-26

Key Highlights You Need to Know

• The new tax regime is now the default from FY 2025-26

• Income up to Rs 12 lakh can become tax-free under the new regime due to the enhanced rebate

• Salaried individuals get tax-free salary income up to Rs 12.75 lakh after the Rs 75,000 standard deduction

• NRIs cannot claim rebate under Section 87A in either regime

• The old regime remains beneficial if your deductions exceed Rs 5–7 lakh

• Senior citizen slab benefits are NOT available under the new regime

What's the Difference Between Old and New Tax Regime?

The old regime lets you claim multiple deductions like HRA, home loan interest, Section 80C investments, and medical insurance. The new regime offers lower slab rates but removes most of these deductions.

Don't choose based only on slab rates. Compare the total tax payable after considering all your eligible deductions.

Income Tax Slabs Under New Tax Regime FY 2025-26

Budget 2025 revised the slab rates to provide relief to middle-income taxpayers:

Key Features of the New Regime

Higher Rebate Under Section 87A
The rebate increased to Rs 60,000 from FY 2025-26. This means taxable income up to Rs 12 lakh becomes tax-free for residents. But remember: NRIs cannot claim this rebate, and it doesn't apply to capital gains or special rate income.

Standard Deduction
Salaried employees and pensioners get Rs 75,000 standard deduction, significantly reducing taxable salary income.

Lower Surcharge Rate
The maximum surcharge is capped at 25% under the new regime (vs 37% under old), benefiting high-income taxpayers.

Simplified Taxation
Most exemptions and deductions are removed, making tax filing simpler.

Income Tax Slabs Under Old Tax Regime FY 2025-26

The old regime remains beneficial for taxpayers claiming substantial deductions.

For Individuals Below 60 Years, HUFs & NRIs

For Senior Citizens (60–80 Years)

For Super Senior Citizens Above 80 Years

Important Note: Senior citizen slab benefits apply only under the old regime. The new regime has a uniform Rs 4 lakh exemption for all ages.

Major Deductions Available Under Old Tax Regime

You can reduce taxable income using:

• Section 80C investments (PPF, ELSS, NSC, etc.)

• Section 80D medical insurance

• HRA exemption

• LTA exemption

• Home loan interest deduction under Section 24

• NPS deduction under Section 80CCD(1B)

• Education loan interest under Section 80E

If you have substantial deductions, the old regime may still lead to lower overall tax.

Major Changes Introduced in Budget 2025

• Basic exemption limit increased to Rs 4 lakh (new regime)

• Rebate under Section 87A increased to Rs 60,000

• Revised slab structure with more middle slabs (5%, 10%, 15%, 20%, 25%)

• Standard deduction increased to Rs 75,000

• Tax-free income threshold significantly increased

Tax experts say these changes aim to boost disposable income and consumption among middle-class taxpayers.

Which Tax Regime Is Better for You?

The right regime depends entirely on your deductions and salary structure. In our experience, many individuals choose the new regime without properly comparing their deductions under the old regime. Salaried taxpayers with home loans and HRA often save more tax under the old regime.

Choose New Tax Regime If:

• You have limited deductions

• You don't claim HRA exemption

• You don't have a home loan

• You prefer simpler tax filing

• Your salary structure is straightforward

• Your deductions are below Rs 5–7 lakh

Choose Old Tax Regime If:

• You claim HRA exemption

• You pay home loan EMI

• You invest heavily under Section 80C

• You claim medical insurance deductions

• Your deductions exceed the break-even threshold

Break-Even Deduction Analysis

This table shows the approximate deduction level where the old regime becomes more beneficial:

If your deductions exceed these amounts, the old regime likely provides better tax savings.

Are Income Tax Slabs Different for NRIs?

Slab rates remain the same for NRIs and resident taxpayers under both regimes. However, NRIs should not assume their final tax liability will be the same because several benefits don't apply:

• NRIs cannot claim rebate under Section 87A (both regimes)

• NRIs cannot claim senior citizen exemption limits

• Certain deductions may not apply to NRIs

This is a common mistake NRIs make while calculating taxes in India.

What Income Is Taxable for NRIs in India?

Only income earned, accrued, received, or deemed to accrue in India is taxable for NRIs:

• Salary for services rendered in India

• Rental income from Indian property

• Capital gains from Indian shares, mutual funds, or property

• Interest from NRO accounts

• Business/professional income arising in India

Income earned and received outside India is generally non-taxable in India for NRIs.

Tax-Free Income Under Both Regimes

For Resident Individuals

New Regime:

• Income up to Rs 12 lakh tax-free (due to rebate)

• Salaried individuals: Rs 12.75 lakh tax-free (after standard deduction)

Old Regime:

• Income up to Rs 5 lakh tax-free (due to rebate)

For NRIs

New Regime:

• Tax starts at 5% above Rs 4 lakh

• No Section 87A rebate

Old Regime:

• Tax starts at 5% above Rs 2.5 lakh

• No senior citizen benefits

Common Mistakes Taxpayers Make

Based on practical experience handling tax filings:

1. Assuming the new regime is always better

2. Ignoring HRA and home loan deductions

3. Failing to compare both regimes before filing

4. Assuming NRIs can claim Section 87A rebate

5. Overlooking surcharge applicability

6. Ignoring capital gains taxation

7. Not estimating total deductions before choosing

Always do a proper comparison before filing your income tax return.

Income Tax Calculation Examples

Example 1: Salaried Employee With Limited Deductions

Mr Arjun earns Rs 12 lakh annually.

• Invests Rs 1.5 lakh under Section 80C

• Invests Rs 30,000 under Section 80D

New regime is significantly more beneficial.

Example 2: Salaried Employee With Home Loan & HRA

Mr Shri earns Rs 25 lakh annually.

• Claims HRA exemption

• Claims home loan benefits

• Rs 1.5 lakh under Section 80C

• Rs 50,000 under Section 80D

• Rs 50,000 under Section 80CCD(1B)

Old regime is more beneficial due to substantial deductions. This is common among metro-city salaried professionals with high rent and home loan obligations.

Special Tax Rates Not Covered Under Normal Slabs

Normal slabs don't apply to:

• Capital gains

• Crypto income

• Lottery winnings

• Online gaming income

• Certain dividend income

These are taxed at special rates under the Income Tax Act. Rebate under Section 87A generally doesn't apply to these categories.

Surcharge Rates for FY 2025-26

Surcharge is an additional tax levied when taxable income exceeds specified thresholds:

For certain capital gains under Sections 111A, 112, and 112A, surcharge is capped at 15%.

Health and Education Cess

A 4% health and education cess applies on:

• Income tax

• Surcharge amount (if applicable)

This applies under both regimes whenever income tax becomes payable.

Rebate Under Section 87A FY 2025-26

Important Points:

• NRIs cannot claim rebate under Section 87A

• Rebate doesn't apply to capital gains and special rate income

• Marginal relief on rebate is available under the new regime

Expert Insight

For salaried taxpayers with minimal deductions, the new tax regime has become more attractive after Budget 2025 due to revised slab rates and higher rebate limits.

Meanwhile, taxpayers with home loans, HRA exemptions, large 80C investments, or medical insurance deductions should still compare both regimes carefully. In practice, many metro-city salaried employees continue to save more tax under the old regime despite lower slab rates under the new regime.

The Bottom Line

The best tax regime for FY 2025-26 depends entirely on your:

• Income level

• Deductions

• Exemptions

• Investments

• Financial goals

• NRI status

The new regime is simpler and beneficial for taxpayers with limited deductions. The old regime may provide better tax savings for individuals with substantial exemptions and investments.

For NRIs, tax planning becomes even more important because several resident benefits including Section 87A rebate and senior citizen exemptions are not available.

Disclaimer: This guide is for informational purposes only. Tax laws can change, and individual circumstances vary. Consult a qualified tax professional before making decisions about your tax regime.