Table of Contents
Introduction
Income tax slabs are the primary mechanism for determining tax liabilities in India’s progressive taxation system. By applying higher rates to higher income brackets, the government ensures a fair distribution of the tax burden. For the Financial Year (FY) 2025-26 (Assessment Year 2026-27), the government has overhauled the slabs to provide extensive relief to the middle class, making the New Tax Regime more attractive for the majority of taxpayers.
Structure of Income Tax Slabs (FY 2025-26)
Taxpayers can choose between two systems. However, the New Tax Regime is now the default option and has been significantly revised with wider slabs and a higher zero-tax limit.
1. New Tax Regime (Default):
This regime offers lower tax rates but restricts most exemptions such as Section 80C and HRA. For FY 2025–26, the basic exemption limit has been increased to ₹4 lakh.
Income Tax Slabs (New Tax Regime – FY 2025–26):
Income up to ₹4,00,000: Nil
Income from ₹4,00,001 to ₹8,00,000: 5%
Income from ₹8,00,001 to ₹12,00,000: 10%
Income from ₹12,00,001 to ₹16,00,000: 15%
Income from ₹16,00,001 to ₹20,00,000: 20%
Income from ₹20,00,001 to ₹24,00,000: 25%
Income above ₹24,00,000: 30%
2. Old Tax Regime (Optional)
The Old Tax Regime remains unchanged, allowing taxpayers to claim various deductions (Section 80C, 80D, HRA, Home Loan Interest).
Up to ₹2.5 Lakh: Nil (Basic exemption for those below 60 years)
₹2.5 – ₹5 Lakh: 5%
₹5 – ₹10 Lakh: 20%
Above ₹10 Lakh: 30%
Applicability of Income Tax Slabs:
The 2025 Budget introduced a landmark shift in effective tax-free income for resident individuals:
Zero Tax up to ₹12 Lakh: Under the New Tax Regime, a full tax rebate under Section 87A is now available for taxable income up to ₹12,00,000. This means if your total income is 12 lakhs or less, your net tax liability is zero.
Salaried Advantage: Salaried individuals and pensioners get an additional Standard Deduction of ₹75,000. Effectively, a salaried person earning up to ₹12.75 Lakh will pay Nil income tax under the new regime.
Senior Citizens: While the New Regime slabs are uniform for all ages, the Old Regime still offers higher basic exemptions of ₹3 Lakh for Senior Citizens (60–80 years) and ₹5 Lakh for Super Senior Citizens (80+ years).
Implications for Taxpayers:
The restructuring of the slabs for FY 2025-26 represents one of the most significant tax reliefs in recent years. By pushing the 30% tax bracket to income above ₹24 Lakh (up from ₹15 Lakh previously), the government has ensured that a vast majority of middle-income earners stay in lower tax brackets.
Furthermore, the introduction of Marginal Relief ensures that individuals whose income slightly exceeds the ₹12 Lakh limit are not penalized with a disproportionately high tax jump.
Conclusion
The income tax slabs for FY 2025-26 mark a decisive shift toward a simpler, low-rate tax structure. With a tax-free window of up to ₹12.75 Lakh for salaried employees, the new regime is expected to become the go-to choice for most Indians. Staying updated with these changes is essential for accurate financial planning and ensuring you don’t pay more than your fair share.
Disclaimer: The views expressed here are of the author and do not reflect those of Dhanvantree. Mutual funds are subject to market risks, please read the scheme documents carefully before investing.