Understanding Income Tax in India for FY 2025-26: Key Changes and Slab Rates

Income Tax in India for FY 2025-26 (AY 2026-27)

Indian income tax is governed by the Union Government's Income Tax Act, 1961. Indian tax payers' tax imposition is structured on a slab basis with varying rates depending on age, income tax slabs, and the tax regime chosen. Following the alterations in the New Tax Regime, one needs to be familiar with the fresh slab rates, eligibility, and the selection process for AY 2026-27 (FY 2025-26).

Types of Individual Taxpayers

Individual taxpayers are classified on the basis of age into three broad categories under the Income Tax Act:

• Individuals: Less than 60 years, including residents as well as non-residents.
• Resident Senior Citizens: Between 60 to 79 years.
• Resident Super Senior Citizens: 80 years and above.

Latest Income Tax Slab Rates for FY 2025-26 (AY 2026-27)

New Tax Regime (Default from FY 2025-26)

Income (₹)	Tax Rate
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%

Key Points:

• Section 87A Rebate: Applicable for up to ₹12 lakh taxable income, making it practically zero tax for salaried taxpayers up to ₹12.75 lakh after normal deduction.
• Standard Deduction: ₹75,000 for salaried and pensioners.
• Default Regime: New Tax Regime is the default now; taxpayers must choose Old Regime if they wish.

Old Tax Regime

Income (₹)	<60 years	60–79 years	80+ years
Max. of 2,50,000	NIL	NIL	NIL
2,50,001 – 3,00,000	5%	NIL	NIL
3,00,001 – 5,00,000	5%	5%	NIL
5,00,001 – 10,00,000	20%	20%	20%
More than 10,00,000	30%	30%	30%

Key Points:

• Section 87A Rebate: May be claimed for taxable income of ₹5 lakh or less.
• Deductions: From Chapter VI-A (i.e., 80C, 80D) and exemptions (HRA, LTA).

Deductions and Exemptions: New vs Old Tax Regime

New Tax Regime (FY 2025-26 onwards)

Most exemptions and deductions are not permitted, including:

• Leave Travel Allowance (LTA)
• House Rent Allowance (HRA)
• Standard deduction (other than ₹75,000 for salaried/pensioners)
• Section 80C and 80D (e.g., PPF, ELSS, LIC)
• Interest on housing loan (Section 24)
• Professional Tax

Allowed under New Regime

• ₹75,000 normal deduction for salaried and pensioners.
• Employer's contribution to NPS (Section 80CCD(2)).
• Agniveer Corpus Fund (Section 80CCH).
• Family pension deduction.
• Transport allowance for specially-abled.
• Conveyance allowance for work-related travel.

Old Tax Regime

All major deductions and exemptions (80C, 80D, HRA, LTA, home loan interest) are permissible.

Capital Gains Tax: New Rules from July 23, 2024

• Short-Term Capital Gains (STCG) on equity: At 20% (increased from 15%).
• Long-Term Capital Gains (LTCG): All assets at 12.5%, with indexation only allowed for houses purchased prior to July 23, 2024.
• LTCG Exemption on Equity: Up to ₹1.25 lakh annually (increased from ₹1 lakh).

Choosing Between Old and New Regime

• New Regime: Best suited for those who have less deductions/investments or for individuals who desire simpler calculation of tax.
• Old Regime: Better suited for those who avail maximum deductions (such as 80C, 80D, HRA, and home loan interest).

When and How to Choose Your Tax Regime

For Salaried Individual:

• Tax regimes can be altered annually. Notification of employers is essential for TDS purposes, though alterations may be done while submitting income tax returns.

For Income from Business/Profession:

• The new regime may be utilized only once; a shift to the old regime is not allowed.

Important Points

• Surcharge and Cess: Surcharge is levied for higher income slabs, and there is a 4% health and education cess on tax plus surcharge.
• Residential Status: Impacts tax liability on global income.
• Agricultural Income: Although exempt, can be taken into consideration for tax slabs.
• Tax Filing Deadlines: Non-audit returns by July 31; audit returns by October 31.
• New Income Tax Bill: An easy-to-understand bill is expected, which might even change the tax system.

Quick Reference: Old vs New Regime

Feature	Old Regime	New Regime (FY 2025-26)
Default Regime	No	Yes
Deductions (80C, etc.)	Allowed	Mostly Not Allowed
Standard Deduction	₹50,000	₹75,000 (pensioners/salaried)
Section 87A Rebate	Income up to ₹5 lakh	Income up to ₹12 lakh
Capital Gains Tax	Previous rates	STCG 20%, LTCG 12.5% (w.e.f. 23/7/24)

1. Can I alternate between old and new regime annually?

   • Salaried taxpayers can switch every year when filing ITR; business taxpayers can switch once.

2. Is there a standard deduction in the new regime?

   • Yes, ₹75,000 for salaried taxpayers and pensioners from FY 2025-26.

3. What is the Section 87A rebate for FY 2025-26?

• Maximum of ₹12 lakh taxable income can avail of the rebate in the new regime, which results in a zero tax liability.

4. Have capital gains become taxable differently?

   • Yes, from 23rd July 2024: STCG on equity is 20% and LTCG is a uniform rate of 12.5% on all assets.

5. **Is there a default tax regime?

• The New Tax Regime is the standard; the Old Regime requires special choice.