Indian Income Tax Guide — Tax Year 2026/27
The Income Tax Act 2025 replaces the Income Tax Act 1961. Effective from April 1, 2026, it introduces a single "Tax Year" concept (replacing Financial Year + Assessment Year), simplified slabs under the New Regime, and a substantially higher Section 87A rebate.
New Regime vs Old Regime — At a Glance
New Tax Regime (Default)
- ✓ Simpler — fewer slabs, no paperwork
- ✓ Standard Deduction: ₹75,000
- ✓ Section 87A rebate up to ₹12L taxable income (zero tax)
- ✓ Effective tax-free limit: ₹12,75,000 CTC
- ✗ No HRA, 80C, 80D, Home Loan deductions
Old Tax Regime (Optional)
- ✓ Section 80C up to ₹1,50,000 (EPF + ELSS + PPF etc.)
- ✓ HRA exemption (Section 10(13A))
- ✓ Section 80D: health insurance up to ₹25,000–₹1,00,000
- ✓ Home Loan Interest (Section 24b) up to ₹2,00,000
- ✓ NPS (Section 80CCD(1B)) up to ₹50,000 extra
- ✗ Higher base rates, Section 87A rebate only up to ₹5L
New Regime Tax Slabs (Tax Year 2026-27)
Applied on taxable income after ₹75,000 Standard Deduction.
| Taxable Income Slab | Tax Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹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% |
Section 87A Rebate (New Regime): If your taxable income is ₹12,00,000 or less, the entire income tax is waived. This makes the effective tax-free limit ₹12,75,000 gross (₹12L + ₹75,000 standard deduction).
Old Regime Tax Slabs (Tax Year 2026-27)
Applied on taxable income after all eligible deductions.
| Taxable Income Slab | Tax Rate |
|---|---|
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
Section 87A Rebate (Old Regime): If taxable income is ₹5,00,000 or less, the tax is fully waived. Effective tax-free gross limit is ~₹5,50,000 (₹5L + ₹50,000 standard deduction).
Surcharge & Health and Education Cess
Health & Education Cess: 4% on (income tax + surcharge). Applied to everyone.
Surcharge (10%): If taxable income exceeds ₹50,00,000.
Surcharge (15%): If taxable income exceeds ₹1,00,00,000 (₹1 crore).
Example: ₹10L tax at 30% slab + 10% surcharge = ₹11L, then 4% cess = ₹11,44,000 total tax liability.
Key Deductions Under the Old Regime
Standard Deduction
₹50,000
Flat deduction for all salaried employees. No proof needed.
Section 80C
Up to ₹1,50,000
EPF, ELSS, PPF, Life Insurance premium, NSC, ULIP, home loan principal, children's tuition fee.
Section 80D
Up to ₹25,000 (₹50,000 for senior citizens)
Health insurance premiums for self, spouse, children. Additional ₹25,000 for parents' insurance.
Section 24b
Up to ₹2,00,000
Interest on home loan for self-occupied property.
Section 80CCD(1B)
Up to ₹50,000
Additional NPS contribution over and above 80C limit.
HRA Exemption (10(13A))
min(HRA received, 50%/40% of Basic, Rent−10% of Basic)
Only if you actually pay rent. Not available under New Regime.
How TDS Works for Salaried Employees
- 1Your employer estimates your annual taxable income at the start of the year based on your declarations (Form 12BB).
- 2Monthly TDS (Tax Deducted at Source) is deducted from your salary as advance tax.
- 3At year end, if actual income differs (bonus, etc.), TDS is adjusted in Jan–Mar salary.
- 4You file ITR by July 31 to claim refunds or pay any remaining tax.