Income Tax Slabs for FY 2025-26 Explained: New Regime, Rebate, Deduction, Surcharge & Cess

The Government has continued the New Tax Regime as the default option and revised the income tax slabs to give relief to middle-income taxpayers. For Financial Year 2025-26 (Assessment Year 2026-27), the tax system mainly focuses on a higher basic exemption limit, increased rebate, and standard deduction for salaried taxpayers.

This article explains, in simple terms, the latest income tax slab rates, rebate under Section 87A, standard deduction, health and education cess, surcharge, and who can benefit from these provisions.

1. Revised Income Tax Slab Structure under the New Tax Regime (FY 2025-26)

Under the New Tax Regime, income tax is charged based on the following slabs:

Total Income	Tax Rate
Up to ₹4,00,000	No tax
₹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%

Important: Your income is taxed in parts according to each slab. The tax rate does not apply to your entire income at one single rate.

2. Complete Tax Exemption for Income up to ₹4,00,000

Under the New Tax Regime for FY 2025-26, income up to ₹4,00,000 is completely tax-free. This means if your total taxable income does not exceed ₹4 lakh, no income tax is payable.

3. Section 87A Rebate: Full Tax Relief up to ₹12 Lakh

Who can claim this rebate?

·         Only resident individual taxpayers

·         Available only under the New Tax Regime

Rebate details:

·         If your taxable income is up to ₹12,00,000

·         You get a 100% tax rebate

·         The maximum rebate allowed is ₹60,000

      This means income up to ₹12 lakh becomes effectively tax-free.

Important practical point:

·         First, tax is calculated as per the applicable slabs

·         If the calculated tax is ₹60,000 or less, the rebate reduces the tax to zero

4. Standard Deduction of ₹75,000 for Salaried Employees & Pensioners

Who can claim it?

·         Salaried employees

·         Pensioners

Amount allowed:

·         A standard deduction of ₹75,000 is available under the New Tax Regime

Impact: Because of this deduction:

·         A salaried person earning up to ₹12,75,000 per year

·         After deducting ₹75,000, taxable income becomes ₹12,00,000

·         No income tax is payable

This makes the New Tax Regime very beneficial for salaried taxpayers who do not have large deductions to claim.

5. Health and Education Cess @ 4% – Mandatory Levy

·         Health and Education Cess is charged at 4%

·         It is calculated on income tax plus surcharge (if applicable)

·         This cess applies to all taxpayers without any exception

6. Surcharge on High-Income Earners and Marginal Relief

A surcharge is an extra tax charged when a person’s total income is more than ₹50 lakh.

Total Income	Surcharge Rate
₹50 lakh – ₹1 crore	10%
₹1 crore – ₹2 crore	15%
₹2 crore – ₹5 crore	25%
Above ₹5 crore	37%

Marginal Relief: Marginal relief ensures that the additional tax payable because of surcharge is not more than the income that exceeds the surcharge limit.

7. Eligibility and Suitability of the New Tax Regime

These slabs are suitable for:

·         Resident individuals

·         Salaried employees

·         Pensioners

·         Professionals and business owners who choose the New Tax Regime

Not suitable / use with caution for:

·         Non-resident individuals (as rebate is not available)

·         Taxpayers earning income taxed at special rates (such as certain capital gains or lottery income)

·         Taxpayers who claim large deductions under the old regime (like 80C, HRA, home loan interest, etc.)

8. New Tax Regime vs Old Tax Regime – Which One Should You Choose?

The New Tax Regime is a better option if:

·         You have very few deductions

·         You are a salaried employee with a simple salary structure

·         Your annual income is up to ₹12–13 lakh

The Old Tax Regime may be better if:

·         You claim high deductions such as 80C, 80D, HRA, or home loan interest

·         You have made significant tax-saving investments

Always compare tax payable under both regimes before filing your Income Tax Return (ITR).