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India Income Tax Guide — New vs Old Regime
By Utilix Editorial Team · Published May 8, 2026
India Income Tax Guide — New vs Old Regime, FY vs AY
India's personal income tax is administered by the Income Tax Department under the Ministry of Finance. Rates and rules are updated each year in the Union Budget presented on 1 February.
Estimate only — not tax advice. Verify current slabs at incometax.gov.in and consult a chartered accountant for your actual liability.
FY vs AY — a common source of confusion
| Term | Meaning | Example |
|---|---|---|
| FY (Financial Year) | Year income is earned | FY 2025–26 = 1 Apr 2025 – 31 Mar 2026 |
| AY (Assessment Year) | Year you file the ITR | AY 2026–27 = 1 Apr 2026 – 31 Mar 2027 |
When someone asks "which AY is FY 2025–26?" — the answer is AY 2026–27. The ITR for income earned in FY 2025–26 is filed in AY 2026–27 (typically by 31 July 2026 for salaried individuals without audit).
New regime vs old regime
From FY 2023–24, the new tax regime became the default. You must explicitly opt out to use the old regime.
| New Regime | Old Regime | |
|---|---|---|
| Slab rates | Lower rates across more bands | Higher rates, fewer bands |
| Standard deduction | ₹75,000 (salaried, FY 2025–26) | ₹50,000 (salaried) |
| 80C deduction | Not available | Up to ₹1,50,000 |
| HRA exemption | Not available | Available if rent paid |
| Home loan interest (24b) | Not available | Up to ₹2,00,000 |
| Section 87A rebate (FY 2025–26) | Tax nil up to ₹12L income | Tax nil up to ₹5L income |
Which is better? If your total deductions (80C + HRA + home loan + NPS, etc.) exceed roughly ₹3–3.75 lakh, the old regime often saves more tax. Below that threshold, the new regime is typically better. Use the India Income Tax Calculator to compare both regimes side-by-side.
FY 2026–27 update: The Union Budget 2026 left the new-regime slab structure, standard deduction, and Section 87A rebate introduced in Budget 2025 unchanged for FY 2026–27 (AY 2027–28). Everything below still applies.
New regime slabs — FY 2025–26 and FY 2026–27 (unchanged)
| Income (annual) | Tax rate |
|---|---|
| Up to ₹4,00,000 | 0% |
| ₹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% |
Standard deduction (salaried): ₹75,000 is subtracted before applying slabs.
Section 87A rebate (FY 2025–26 new regime): if taxable income (after deductions) ≤ ₹12,00,000, the entire tax liability is rebated — effectively zero tax for salaried individuals earning up to ₹12,75,000 gross.
Old regime slabs — unchanged
| Income (annual) | Tax rate |
|---|---|
| Up to ₹2,50,000 | 0% |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
Standard deduction (salaried): ₹50,000.
Section 87A rebate: tax rebated to nil for taxable income ≤ ₹5,00,000 (max rebate ₹12,500).
Health & Education Cess
A 4% cess on income tax is mandatory for all taxpayers. It is applied after the 87A rebate:
Tax after rebate × 1.04 = Total liability (tax + cess)
Surcharge (not modelled)
High earners pay an additional surcharge on their income tax:
| Income | Surcharge |
|---|---|
| ₹50L – ₹1Cr | 10% on tax |
| ₹1Cr – ₹2Cr | 15% on tax |
| ₹2Cr – ₹5Cr | 25% on tax |
| Above ₹5Cr | 37% (old) / 25% (new regime cap) |
If your income exceeds ₹50 lakh, your actual liability will be higher than what the calculator shows.
Peak search periods
India income tax queries surge March–July — driven by advance tax deadlines (March 15), ITR filing season (June–July), and "new vs old regime" decisions at the start of the financial year.
FAQ
Which financial year should I use to plan for the current year?
Use the FY that matches when you're earning the income, not filing the return. If you're planning income for April 2026 onward, that's FY 2026–27 (assessed in AY 2027–28).
Can I switch between the new and old regime every year?
Salaried individuals without business income can choose either regime each year when filing their ITR. Those with business or professional income face restrictions on switching back to the new regime after opting for the old regime.
Do I need to file an ITR if my tax is nil due to the 87A rebate?
Filing requirements depend on gross income thresholds, not final tax payable. Even if your rebate brings tax to zero, you may still be required to file if your gross income exceeds the basic exemption limit — check current ITR filing rules.
Does this guide cover capital gains tax?
No. Capital gains (from stocks, mutual funds, or property) are taxed under separate rules with their own rates and holding-period definitions, distinct from the salary slab rates covered here.