Updated Income Tax Slabs in India — FY 2025-26 (AY 2026-27)

India’s income tax system now offers a more progressive and taxpayer-friendly structure under the latest tax regime, introduced through the Budget 2025 and Finance Act. The revisions aim to reduce tax burdens for middle-income earners while simplifying tax computations. This article explains the updated income tax slabs, the differences between old and new regimes, and how the changes impact taxpayers.

1. Overview of Tax Regimes

India continues to offer two parallel income tax regimes for individuals:

2. New Tax Regime – Slab Rates for FY 2025-26

Under the revised tax structure for FY 2025-26 (AY 2026-27), the new tax slabs and rates are:

Key Benefits:

• Higher basic exemption: ₹4 lakh vs ₹2.5 lakh under old regime.

• Effective tax relief: Due to enhanced rebate under Section 87A, income up to ₹12 lakh can be effectively tax-free for many taxpayers. Note: rebate not applicable on special income taxed at special rates such as capital gains, lottery, crypto incomes, etc.

3. Old Tax Regime – Unchanged Slabs

The old tax regime slabs continue to follow the traditional brackets:

Individuals (Below 60 years / NRIs / HUF)

Senior Citizens (60-80 years)

Super Senior Citizens (Above 80 years)

4. Visual Comparison – Old vs New Regime

5. Practical Impact on Taxpayers

Tax Free Income Threshold

Under the new regime:

• With rebate, taxable income up to ₹12 lakh can yield zero net tax, especially for salaried individuals with standard deductions.

Which Regime to Choose?

• New regime favours taxpayers with limited deductions or incomes in middle brackets.

• Old regime is beneficial where significant deductions (80C, 80D, HRA) are claimed.

Note: Taxpayers can opt between regimes each year based on what yields a lower tax liability.

6. Regulatory & Legal Backdrop

• The updated slab rates and thresholds are implemented through the Finance Act 2025 and align with the policy push for a simplified tax code.

• Proposals to modernize India’s Income Tax law include drafting a new, consolidated code to replace the legacy Income Tax Act, 1961, aiming for reduced litigation and clarity in tax provisions.

7. Conclusion

The latest tax slab revisions mark a significant stride toward progressive taxation and simplification. Middle-income earners stand to benefit from an enhanced basic exemption and potentially lower tax liabilities under the new tax regime. However, careful computation under both regimes is essential to determine the optimal tax strategy for individual circumstances.