From, FY 2023-24 onwards, the New Tax Regime is the default tax regime. If you are a salaried person and intend to opt for the New Tax Regime in FY 2025-26, then this blog is for you. This blog covers only the slab rates and related provisions under the New Tax Regime. The slab rates under the Old Tax Regime are not discussed here.
What are Income tax slab rates?
In India, under the Income Tax Act, tax on income is levied by the Government in a progressive manner. As your income increases, the applicable tax rate also increases, slab by slab. The Government of India has classified the taxpayers in to different range of income (say tax brackets). Each income range has a different rate of income tax. These rates are referred to as income tax slab rates.
Income tax Slab rates for FY 2025-26
The Union Budget 2025 was presented on February 01, 2025, by the finance minister — Nirmala Sitharaman in the Lok Sabha. In her budget speech, the finance minister had provided benefit to low- and middle-income group by relaxing the provisions related to slab rates of income tax. These changes are effective from April 01, 2025, which are explained below:
| Income Tax Slab Rates (FY 2025-26/ AY 2026-27) | |
| Income Slab | Income Tax Rates |
| Rs. 0 to Rs. 4,00,000 | Nil |
| Rs. 4,00,001 to Rs. 8,00,000 | 5% |
| Rs. 8,00,001 to Rs. 12,00,000 | 10% |
| Rs. 12,00,001 to Rs. 16,00,000 | 15% |
| Rs. 16,00,001 to Rs. 20,00,000 | 20% |
| Rs. 20,00,001 to Rs. 24,00,000 | 25% |
| More than Rs. 24,00,000 | 30% |
Special Notes:
- The above slab rates are regardless of the age of the individual.
- There is no separate income slab available for senior citizens or super senior citizens in the new tax regime.
Standard deduction under section 16(ia) of the Income Tax Act 1961
Standard deduction means a fixed amount that the taxpayers can deduct from their Gross Total Income so that they can lower their taxable income. This deduction is available to the salaried income earners, pensioners and, family pensioners regardless of providing any proof of expenses. In the new tax regime, the standard deduction amount is Rs. 75,000.
Rebate Under Section 87A of the Income Tax Act 1961 (Tax Rebate)
In addition to the standard deduction under Section 16(ia) discussed above, resident individual taxpayers also get a rebate under Section 87A. This tax rebate has been provided by the government to the low- and middle-income earning individuals so that they can reduce their tax liability to Rs. 0.
If, in the FY 2025-26, your total income is up to Rs. 12,00,000 then in the New Tax Regime, the tax rebate under section 87A will be Rs. 60,000/-. However, if your total income exceeds Rs. 12,00,000/-, this tax relief will not be available.
Now, you may be thinking — If my total income is slightly exceeding Rs. 12,00,000 because of receiving bank interest, dividend income or any other income under the head other source, then will I lose the benefit of section 87A and end up paying income tax as per slab rates?
Your concern is valid and yes, we have addressed this situation too.
In such cases, the Government, has also provided the benefit of Marginal Relief that impacts the amount of rebate u/s 87A. We have explained this in the following paragraph.
Marginal Tax Relief
For easy understanding, we have explained the provision in a simple Question-and-Answer format as under:
1: When is Marginal tax relief applicable for FY 2025-26?
Marginal Tax Relief is applicable if your total income exceeds Rs. 12,00,000.
2: Up to what level does the Marginal Tax Relief apply for FY 2025-26?
Marginal Tax Relief applies till the point where the additional income over Rs. 12,00,000 is equal to or lower than the additional tax payable.
3: How is Marginal Tax Relief calculated for FY 2025-26?
Marginal Tax Relief is calculated in the following steps:
- Step 1: Calculate the additional income over Rs. 12,00,000. — (A)
- Step 2: Calculate total tax liability on the Total Income — (B)
- Step 3: Compare (A) and (B).
- Step 4: If (B) is greater than (A), Rebate marginal tax relief would be = (B-A)
Let’s understand with an example as under:
Suppose, you are a resident individual having total income of Rs. 13,20,000 for the FY 2025-26, which consists of salary income of Rs. 12,75,000 and interest income from fixed deposit of Rs. 45,000. The following section shows how we calculate your tax liability under the new tax regime.
| Income tax computation- As per New Tax Regime | ||||
| Particulars | Amount ( Rs.) | |||
| Salary Income | 12,75,000 | |||
| Less: Standard Deduction u/s 16(ia) | 75,000 | |||
| Net Salary Income | 12,00,000 | |||
| Add other income: | ||||
| Interest Received from Fixed Deposits | 45,000 | |||
| Net Taxable Income | 12,45,000 | |||
| Computation of Tax Payable | ||||
| Income Slabs | Differential Income | Tax Rate | Tax Amount | |
| Income up to Rs. 4,00,000 | Rs. 400000 | 0% | Rs. 0 | |
| Income from Rs. 4,00,001 to Rs. 8,00,000 | Rs. 4,00,000 | 5% | Rs. 20,000 | |
| Income from Rs. 8,00,001 to Rs. 12,00,000 | Rs. 4,00,000 | 10% | Rs. 40,000 | |
| Income from Rs. 12,00,001 to Rs. 16,00,000 | Rs. 45,000 | 15% | Rs. 6,750 | |
| Total | Rs. 12,45,000 | Rs. 66,750 | ||
| * Since the total income ( Rs. 12,45,000) exceeds Rs. 12,00,000, provision related to Marginal Tax Relief become applicable. | ||||
| Computation of Marginal Tax Relief | ||||
| Step 1 : Calculate the additional income over Rs. 12,00,000— A | Total Income | Threshold Income | Additional Income | |
| Rs. 12,45,000 | Rs. 12,00,000 | Rs. 45,000 | ||
| Step 2 : Calculate the total tax liability on the Total Income— B | ||||
| Total Tax liability on Total income of Rs. 12,45,000 ( As computed in above table) | Rs. 66,750 | |||
| Step 3 : Compare (A) and (B) | ||||
| Additional Income | Rs. 45,000 | |||
| Total Tax liability on Total income | Rs. 66,750 | |||
| Difference ( 66750-45000) | Rs. 21,750 | |||
| Step 4 : Since the total tax liability (Rs. 66,750) exceeds the additional income by (Rs. 21,750) (i.e., total tax Rs. 66,750 minus additional income Rs. 45,000), the Marginal Tax Relief would be Rs. 21,750 | ||||
| Total Tax liability on Total income | Rs. 66,750 | |||
| Less: Rebate u/s 87A (Considering Marginal Relief) | Rs. 21,750 | |||
| Tax Liability after Rebate u/s 87A | Rs. 45,000 | |||
| Add : Health and Education Cess @4% | Rs. 1,800 | |||
| Net Tax Payable | Rs. 46,800 | |||
| ** Saving in tax due to Marginal Tax Relief = Rs. 21,750 | ||||
Deductions for salaried person Under New Tax Regime
- Standard Deduction under section 16(ia) — As discussed above.
- Deduction under section 10(14(i) viz Transport Allowance, Daily Allowance, Conveyance Allowance and, Travel/Tour Allowance.
For the above expenditures, you can claim a deduction equal to the lower of:
- (a) the amount your employer actually pays you as part of your salary, or
- (b) the amount you actually spend.
3. Deduction under section 80CCD(2) — Employer’s contribution to NPS. Maximum deduction under section 80CCD(2) is 14% of { Basic salary + Dearness Allowance}
4. Deduction under section 80CCH — Contribution to Agni path Scheme
5. All Retirement benefits are allowed as per their respective sections.
- Gratuity under section 10(10)
- Pension under section 10(10A)
- Voluntary Retirement under section 10(10C)
- Leave Encashment under section 10(10AA)
Frequently Asked Question
1. Is New Tax Regime available to Non-Resident Individuals?
No, The New Tax Regime is only available to resident Individuals.
2. Are separate slab rates available for senior citizens or super senior citizens under the New Tax Regime?
No, There are no separate slab rates available for senior citizens or super senior citizens in the New Tax Regime.
3. Are deductions like HRA under section 10(13A) and deduction under section 80C allowed under the New Tax Regime?
No, The deductions like HRA under section 10(13A) and deduction under section 80C are not allowed under the New Tax Regime.
4. Is Marginal Tax Relief available in the New Tax Regime for FY 2025-26?
Yes, In the New Tax Regime, Marginal Tax Relief applies if the total income exceeds Rs. 12,00,000
