Synopsis: It’s essential to learn about income tax slabs to understand how much of your earnings will be taxed and how much you will get after tax. This information is crucial in everyone’s financial planning journey. This article explains what tax slabs are, old as well as the new tax regime, how to calculate your tax and which regime is right for you.
What is a Tax Slab?
Tax slabs are income ranges set by the government where each range is taxed at a different rate. In India, income tax slabs are progressive in nature, which means the tax slabs rise with the rise in income ranges. These income tax slabs ensure fair taxation at each level of income by reducing the tax burden on low-income earners by making high-income earners contribute more.
New Tax Regime v/s Old Tax Regime
Income tax can be calculated using two different regimes- the Old Tax Regime and the New Tax Regime. Taxpayers get to choose which regime they want to follow. Salaried employees can choose each financial year, whereas professional or business income taxpayers can only choose once. Hence, understanding the income tax slabs under both regimes is crucial to making sound decisions.
Income tax slabs for FY 2025-26
Note: Income up to ₹12 lakh is tax-free due to the applicable rebate.
Also read: ETFs vs Mutual Funds: Where Should You Invest Your Money in 2026?
How much will you pay in new Tax Slabs FY 2025-26?
- Under the New Tax Regime, income up to ₹4 lakh is tax-free. This increases the basic exemption limit from ₹2.5 lakh to ₹4 lakh.
- If your taxable income is between ₹4 lakh and ₹8 lakh, then the income tax slab applicable would be 5%.
Example: If an individual has a taxable income of ₹6 lakh, no tax is payable on the first ₹4 lakh, while the remaining ₹2 lakh is taxed at 5%. This results in a total tax liability of ₹10,000 before applying any rebate or health and education cess. Similarly, for individuals with taxable income between ₹8 lakh and ₹12 lakh, the applicable income tax rate under the new regime is 10% on the income falling within this slab.
Example: If an individual has a taxable income of ₹10 lakh, no tax is payable on the first ₹4 lakh. The next ₹4 lakh is taxed at 5%, and the remaining ₹2 lakh is taxed at 10%. As a result, the total income tax liability comes to ₹40,000 before applying any rebate under Section 87A and the health and education cess.
When a rebate under Section 87A is applied, taxable income up to ₹12 lakh would be tax-free under the New Tax Regime. For salaried employees, this can be extended up to ₹12.75 lakh with the standard deduction.
Income Tax Slabs under the Old Tax Regime
Differentiation between Old and New Regimes
The major criteria for differentiation between Old and New Tax Regimes are not just the difference in the income tax slabs, but also the variations in deductions and exemptions included.
Under the Old Tax Regime, there were numerous deductions for investments such as ELSS, PPF, NPS, etc. But in the New Tax Regime, fewer deductions and exemptions can be claimed. Additionally, a potential rebate of up to ₹60,000 can be claimed under the new regime.
Which Tax regime should you choose?
For individuals who have invested in tax-saving instruments such as EPF, PPF, ELSS or NSC, the old tax regime is suitable, as this regime has a lot of deductions and exemptions that would benefit investors. However, the tax rates in this regime are also higher and involve more documentation and planning.
The New tax regime is simpler as it has fewer deductions, and hence, tax planning is easier with this regime. This regime is ideal for young professionals or freelancers who don’t have many investments and want higher take-home pay. The documentation and planning involved is also less compared to the old income tax regime.
Conclusion
Knowing how different portions of your income are taxed helps you accurately estimate your tax liability, plan investments better, and choose the tax regime that aligns with your financial goals. By staying informed about the applicable income tax slabs for FY 2025–26, you can take control of your finances, plan, and make smarter choices that maximise your take-home income.
FAQs
Yes. Due to the rebate under Section 87A, under the New Tax Regime, individuals with taxable income up to ₹12 lakh won’t have to pay tax.
Yes. 4% Health and Education Cess is applicable on the income tax payable under both the Old and New Regime.
Under the Old Tax Regime, senior citizens enjoy higher basic exemption limits. However, under the New Tax Regime, the slab rates and exemption limits are the same for all individuals, regardless of age.
Written by Nila Maria Jacob
