This guide was first written after Union Budget 2025. It has been checked against Budget 2026-27 and the Income-tax Act, 2025, which came into force on 1 April 2026. The headline: slab rates did not change in Budget 2026, but the law they sit in did. An earlier version of this page showed an incorrect slab table (it listed the older FY 2024-25 bands under the “₹12 lakh” heading); the table below has been corrected.
What changed, and what didn’t
- Budget 2025 (presented 1 February 2025) rebuilt the new-regime slabs and raised the Section 87A rebate so that resident individuals with taxable income up to ₹12 lakh pay no income tax under the new regime.
- Budget 2026 (presented 1 February 2026) kept those rates unchanged for FY 2026-27. The Finance Bill memorandum states that “there is no change proposed in tax rates”.
- The Income-tax Act, 2025 replaced the Income-tax Act, 1961 from 1 April 2026. It uses the single term “tax year” instead of “previous year” and “assessment year”. Section numbers you may know (such as 80C or 115BAC) have new numbers, but the familiar concepts largely carry over. New rules and forms are being notified by the CBDT.
Sources: Finance Bill 2026 memorandum (Income Tax Department), PIB release on the new Act.
New tax regime slabs (FY 2025-26 and tax year 2026-27)
| Taxable income | Rate (new regime) |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
A 4% health and education cess applies on top of tax, and surcharge applies at higher incomes.
Why ₹12 lakh (or ₹12.75 lakh for salaried) can mean zero tax
Under the new regime, a resident individual whose taxable income does not exceed ₹12 lakh gets a rebate of up to ₹60,000, which wipes out the tax on that income. Salaried employees and pensioners also get a standard deduction of ₹75,000 under the new regime, so a gross salary of up to ₹12.75 lakh (with no other income) typically results in nil tax.
Two important caveats:
- The rebate does not apply to income taxed at special rates, such as many capital gains. Someone with ₹10 lakh salary and large equity gains may still owe tax on the gains.
- Just above ₹12 lakh, marginal relief limits the tax so it does not exceed the amount by which income crosses ₹12 lakh. You won’t suddenly pay ₹60,000+ for earning ₹1,000 more.
Worked examples (new regime, salaried, no other income)
| Gross salary | After ₹75,000 standard deduction | Tax before rebate | Tax payable |
|---|---|---|---|
| ₹10,00,000 | ₹9,25,000 | ₹32,500 | Nil (rebate) |
| ₹12,75,000 | ₹12,00,000 | ₹60,000 | Nil (rebate) |
| ₹18,00,000 | ₹17,25,000 | ₹1,45,000 | ₹1,45,000 + 4% cess = ₹1,50,800 |
Calculation for ₹17.25 lakh: 5% of ₹4 lakh (₹20,000) + 10% of ₹4 lakh (₹40,000) + 15% of ₹4 lakh (₹60,000) + 20% of ₹1.25 lakh (₹25,000) = ₹1,45,000. With 4% cess, the total is ₹1,50,800. These examples ignore other income and deductions, so always run your own numbers on the official calculator before choosing a regime.
Old regime: still available, but you must opt in
The new regime is the default. You can still choose the old regime if it works out cheaper. Under the old regime the basic exemption is ₹2.5 lakh (higher for senior citizens), the standard deduction is ₹50,000, and you can claim deductions such as 80C investments (up to ₹1.5 lakh), HRA, home-loan interest and health insurance premiums (or their equivalents under the new Act).
| Choose the old regime if… | Choose the new regime if… |
|---|---|
| You pay significant rent and claim HRA | Your taxable income is around ₹12 lakh or less |
| You pay home-loan interest on a self-occupied home | You don’t make many tax-saving investments |
| You use the full 80C limit plus health insurance and NPS deductions | You want simpler paperwork and more flexibility with savings |
Salaried people without business income can generally switch between regimes each year when filing. Those with business income face tighter limits on switching.
Deductions that still work under the new regime
- Standard deduction of ₹75,000 for salary and pension.
- Employer contribution to NPS up to 14% of salary (basic + DA).
- Family pension deduction (up to ₹25,000).
Most other deductions, including 80C and 80D, are not available under the new regime.
Practical steps for salaried employees
- Tell your employer your regime choice early in the year so TDS is right.
- Check Form 16 and your Annual Information Statement (AIS) before filing.
- Compare both regimes using the Income Tax Department calculator.
- File and e-verify on time. A return not verified within the allowed window is treated as not filed. See our guide to missed e-verification.
- Watch for new forms. Returns for income earned from 1 April 2026 fall under the new Act, and the CBDT is notifying redesigned forms.
Pros and cons of the new regime
- Pros: lower rates, nil tax up to ₹12 lakh, less paperwork, no lock-in investments needed.
- Cons: loses most deductions; can cost more for people with high HRA, home-loan interest and full 80C use.
Disclaimer: This article is for general informational purposes only and does not constitute legal, financial, tax, investment or immigration advice. Rates, thresholds, benefit amounts and deadlines change and depend on your circumstances. Verify details with the official source (such as the IRS, HMRC, DWP, CRA, the Income Tax Department of India or the UAE Federal Tax Authority) and consult a qualified professional before acting. taxtotech.com is not affiliated with any government agency.
FAQ
Did Budget 2026 change the income tax slabs?
No. The new-regime slabs and rebate from Budget 2025 continue for FY 2026-27.
Is income up to ₹12 lakh fully tax-free?
Under the new regime, yes for normal-rate income, because of the rebate. Special-rate income such as capital gains is treated separately.
What is the Income-tax Act, 2025?
A rewritten income tax law that replaced the 1961 Act from 1 April 2026, using a single “tax year” concept and simpler language.
Can I switch back to the old regime?
Salaried individuals without business income can generally choose each year at the time of filing.
Is the cess included in the rebate?
With full rebate there is no tax, so no cess applies.
Bottom line
For most salaried people earning up to about ₹12.75 lakh, the new regime means no income tax. Above that, compare both regimes with your actual deductions, and keep an eye on the new forms issued under the 2025 Act.
Related posts:
$3,500 Child Tax Credit Claim Explained: What Families Actually Get in 2026
Beyond Data Entry: How AI in Tax Software Identifies Hidden Deductions You’re Missing
Zero Tax on ₹12 Lakh Income: New vs Old Regime Explained (FY 2026-27)
Missed ITR E-Verification Deadline? Step-by-Step Rescue Guide (Updated 2026)
