Income Tax Slab Rates for FY 2025–26: New Regime vs Old Regime Explained

Understanding income tax can sometimes feel difficult because terms such as taxable income, rebate, deductions and tax slabs are often confusing. The infographic explains the income-tax rates applicable for Financial Year 2025–26, which corresponds to Assessment Year 2026–27. It compares the new tax regime with the old tax regime and also shows how tax may be calculated on a salary of ₹20 lakh.

The most important point is that the new tax regime is now the default regime. However, eligible taxpayers can still choose the old regime when filing their income-tax return. People without business or professional income can generally select their preferred regime each year in their return. Different rules apply to taxpayers earning income from business or profession.

New tax regime slabs for FY 2025–26

Under the new tax regime, the tax rates are:

Annual taxable incomeTax rate

Up to ₹4 lakh - Nil

₹4 lakh to ₹8 lakh -5%

₹8 lakh to ₹12 lakh - 10%

₹12 lakh to ₹16 lakh - 15%

₹16 lakh to ₹20 lakh - 20%

₹20 lakh to ₹24 lakh - 25%

Above ₹24 lakh - 30%

These rates are applied slab by slab. This means that a person with taxable income of ₹18 lakh does not pay 20% tax on the entire amount. The first ₹4 lakh is tax-free, the next ₹4 lakh is taxed at 5%, the following ₹4 lakh at 10%, another ₹4 lakh at 15%, and only the remaining ₹2 lakh is taxed at 20%.

This progressive method helps ensure that moving into a higher tax slab does not suddenly make the entire income taxable at the higher rate.

Is income up to ₹12 lakh completely tax-free?

Under the new tax regime, a resident individual earning normal taxable income of up to ₹12 lakh may have no income tax payable because of the rebate available under Section 87A. The tax calculated through the slabs is reduced through the rebate.

For salaried taxpayers, the ₹75,000 standard deduction can make a gross salary of up to ₹12.75 lakh effectively tax-free, provided the person meets the applicable conditions and does not have income taxed at special rates.

This benefit should not be misunderstood as a basic exemption limit of ₹12 lakh. The actual nil-rate slab is only up to ₹4 lakh. The zero-tax benefit up to ₹12 lakh is achieved through the tax rebate.

The rebate may not cover income taxed at special rates, such as certain capital gains. Therefore, a person earning a salary below ₹12 lakh but also having taxable capital gains could still have some tax liability. Marginal relief may also apply when normal income is slightly above ₹12 lakh.

How does the old tax regime work?

For most individuals below 60 years, the old-regime slabs are:

Annual taxable incomeTax rate

Up to ₹2.5 lakh - Nil

₹2.5 lakh to ₹5 lakh - 5%

₹5 lakh to ₹10 lakh - 20%

Above ₹10 lakh - 30%

Senior and super-senior citizens may receive higher basic exemption limits under the old regime, subject to their age and residential status.

The old regime has higher slab rates, but it allows taxpayers to claim several eligible deductions and exemptions. These may include investments under Section 80C, health-insurance premiums under Section 80D, house rent allowance, eligible home-loan interest, certain donations and other approved deductions.

Therefore, the old regime can still be useful for someone who pays substantial rent, has a housing loan, makes tax-saving investments, contributes to eligible retirement schemes or claims several deductions.

Tax calculation on a ₹20 lakh salary

The infographic provides a useful example of a salaried person earning ₹20 lakh under the new regime.

Gross annual salary: ₹20,00,000

Standard deduction: ₹75,000

Taxable income: ₹19,25,000

The tax is calculated as follows:

• Up to ₹4 lakh: Nil
• ₹4 lakh to ₹8 lakh: ₹4 lakh × 5% = ₹20,000
• ₹8 lakh to ₹12 lakh: ₹4 lakh × 10% = ₹40,000
• ₹12 lakh to ₹16 lakh: ₹4 lakh × 15% = ₹60,000
• ₹16 lakh to ₹19.25 lakh: ₹3.25 lakh × 20% = ₹65,000

The total income tax before cess is ₹1,85,000. A 4% health and education cess of ₹7,400 is then added, bringing the final tax liability to ₹1,92,400. The 4% cess is calculated on income tax plus any applicable surcharge.

This calculation assumes normal salary income, no surcharge, no special-rate income and no additional tax adjustments.

Which tax regime is better?

There is no single regime that is best for everyone. The new regime may suit people who do not claim many deductions and want a simpler method with lower slab rates. It can also be attractive to younger employees who do not have a home loan or large tax-saving investments.

The old regime may be more beneficial for taxpayers claiming substantial HRA exemption, home-loan interest, Section 80C investments, health-insurance deductions and other eligible benefits.

Before selecting a regime, calculate your tax under both options using your actual salary, deductions, exemptions, investments and other income. Do not choose only by looking at the highest tax rate. The correct choice is the regime that legally reduces your final tax liability while matching your financial situation.

This content is for general educational purposes and should not be treated as personalised tax advice.