How to Calculate Income Tax in India (FY 2025-26)
Income tax in India is governed by the Income Tax Act, 1961, and administered by the Central Board of Direct Taxes (CBDT). For the financial year 2025-26 (Assessment Year 2026-27), individual taxpayers must choose between the new tax regime under Section 115BAC and the old tax regime with Chapter VI-A deductions. This choice must be made each year and communicated to your employer for TDS purposes.
Default regime: From FY 2024-25, the new tax regime is the default for salaried employees unless they specifically opt for the old regime by submitting a declaration to their employer.
New Tax Regime — Slabs & Benefits (FY 2025-26)
The new tax regime was introduced in Budget 2020 and significantly revised in Budget 2023 and 2024. Key features for FY 2025-26:
- Six income slabs with rates from 0% to 30%
- Standard deduction of ₹75,000 for salaried individuals
- Section 87A rebate: zero tax if taxable income ≤ ₹7 lakh
- No deductions under 80C, 80D, HRA, or home loan interest (Section 24)
- Simpler compliance — fewer documents needed at filing
| Income Slab (Annual) | Tax Rate | Cumulative Tax |
|---|---|---|
| Up to ₹3,00,000 | Nil | ₹0 |
| ₹3,00,001 – ₹7,00,000 | 5% | ₹20,000 |
| ₹7,00,001 – ₹10,00,000 | 10% | ₹50,000 |
| ₹10,00,001 – ₹12,00,000 | 15% | ₹80,000 |
| ₹12,00,001 – ₹15,00,000 | 20% | ₹1,40,000 |
| Above ₹15,00,000 | 30% | ₹1,40,000 + 30% of excess |
Old Tax Regime — Slabs & Deductions
The old regime remains available for taxpayers who benefit from deductions. Common deductions include:
- Section 80C: PPF, ELSS mutual funds, LIC premium, NSC, home loan principal, EPF — max ₹1,50,000
- Section 80CCD(1B): Additional NPS contribution — max ₹50,000 (over and above 80C)
- Section 80D: Health insurance — up to ₹25,000 (self) + ₹50,000 (senior citizen parents)
- HRA Exemption: House Rent Allowance based on salary structure and city of residence
- Section 24(b): Home loan interest — up to ₹2,00,000 on self-occupied property
- Standard Deduction: ₹50,000 for salaried individuals
| Income Slab (Annual) | 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 Explained
Section 87A provides relief to lower and middle-income taxpayers by reducing their tax liability:
- New regime: If taxable income ≤ ₹7,00,000, rebate up to ₹25,000 (making effective tax zero)
- Old regime: If taxable income ≤ ₹5,00,000, rebate up to ₹12,500
This is why many taxpayers with income up to ₹7 lakh pay zero tax under the new regime after standard deduction and rebate.
Health & Education Cess
After calculating tax and applying rebates, a 4% Health and Education Cess is added to the total tax payable. This cess funds government health and education initiatives. Our calculator includes cess automatically in the final amount.
Surcharge on High Income (Not Included)
If your total income exceeds certain thresholds, surcharge applies on top of regular tax:
| Total Income | Surcharge Rate |
|---|---|
| ₹50 lakh – ₹1 crore | 10% |
| ₹1 crore – ₹2 crore | 15% |
| ₹2 crore – ₹5 crore | 25% |
| Above ₹5 crore | 37% |
Old vs New Regime — Decision Guide
Choose New Regime If:
- Your total deductions are less than ₹3–4 lakh
- You don't pay rent (no HRA to claim)
- You don't invest in 80C instruments (PPF, ELSS, LIC)
- You prefer simplicity over tax planning
Choose Old Regime If:
- You claim HRA exemption (metro city renters)
- You max out Section 80C (₹1.5 lakh) and 80D
- You have home loan interest deduction (Section 24)
- Your total deductions exceed ₹4–5 lakh annually
Important Dates for FY 2025-26
- Financial Year: April 1, 2025 – March 31, 2026
- Assessment Year: 2026-27
- ITR Filing (typical): July 31, 2026 for individuals
- Regime Selection: Inform employer at start of FY or before opting