New vs old regime: Income tax slab rates for FY26 — know how slab-wise tax calculation works

With the income tax return (ITR) filing season underway, taxpayers need to decide whether to stay with the default new tax regime or opt for the old tax regime.

For FY 2025-26 (Assessment Year 2026-27), the new tax regime remains the default option and has wider tax slabs, a higher standard deduction, and a rebate that makes income up to ₹12 lakh effectively tax-free, subject to conditions.

The old regime continues to offer several deductions and exemptions, making it beneficial for taxpayers with substantial tax-saving investments and eligible deductions.

New tax regime: Income tax slabs for FY 2025-26 (AY 2026-27)

These income tax slab rates apply to individual taxpayers (resident or non-resident) who are below 60 years of age at any time during the financial year 2025-26.

How does the income tax slab system work?

Many taxpayers mistakenly believe that if their income falls into the highest tax bracket, their entire income is taxed at that rate.

However, India follows a slab-based taxation system, where different portions of income are taxed at different rates. Only the income falling within a particular slab is taxed at that slab rate.

For example, under the new tax regime, a taxpayer earning ₹20 lakh does not pay 20% tax on the entire income. Instead, different portions of income are taxed at the rates applicable to each slab. Only the income between ₹16 lakh and ₹20 lakh is taxed at 20%.

How to calculate tax on a ₹20 lakh salary under the new tax regime?

Assume a salaried individual has a gross annual income of ₹20 lakh.

• Standard deduction available under the new regime: ₹75,000
• Taxable income = ₹20 lakh – ₹75,000 = ₹19.25 lakh

Tax is then calculated slab by slab:

• Income up to ₹4 lakh: Nil tax
• Next ₹4 lakh ( ₹4 lakh to ₹8 lakh): Taxed at 5% = ₹20,000
• Next ₹4 lakh ( ₹8 lakh to ₹12 lakh): Taxed at 10% = ₹40,000
• Next ₹4 lakh ( ₹12 lakh to ₹16 lakh): Taxed at 15% = ₹60,000
• Remaining ₹3.25 lakh ( ₹16 lakh to ₹19.25 lakh): Taxed at 20% = ₹65,000

Adding the tax payable across all the applicable slabs, the total income tax comes to ₹1,85,000.

After adding the 4% health and education cess of ₹7,400, the total tax liability works out to ₹1,92,400. This shows how the slab-based taxation system works. A taxpayer earning ₹20 lakh under the new tax regime does not pay a flat 20% tax on the entire income.

Disclaimer: This is only for informational and educational purposes. Please consult a qualified tax expert for the latest tax laws and regulations.