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Guide: FY 2025-26 Tax Regime
The Union Budget has introduced significant changes for the Financial Year 2025-26 (Assessment Year 2026-27). The New Tax Regime is now the default choice, offering lower slab rates but requiring taxpayers to forego most exemptions like 80C, 80D, and HRA.
Key Benefits
- Standard Deduction increased to ₹75,000.
- Nil tax for income up to ₹12 Lakhs (with rebate).
- Simplified slabs for easier financial planning.
- No need to maintain complex investment proofs.
What You Give Up
- Section 80C (PPF, LIC, ELSS) up to ₹1.5L.
- Section 80D (Health Insurance).
- House Rent Allowance (HRA) exemptions.
- LTA and Other Allowances.
Understanding the New Tax Regime Slabs
The FY 2025-26 New Tax Regime introduces a progressive slab structure designed to reduce the tax burden for middle-income earners. Unlike the Old Regime, you do not need to make any investments or maintain proofs to claim deductions. The only allowed deductions are the Standard Deduction of ₹75,000 and Professional Tax (up to ₹2,500 in Maharashtra).
| Income Range | Tax Rate |
|---|---|
| Up to ₹4,00,000 | 0% (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: If your total taxable income (after standard deduction) is ₹12 Lakh or less, you receive a full rebate and pay zero income tax. For incomes marginally above ₹12 Lakh (up to ₹12.75 Lakh), marginal relief ensures your tax does not exceed the amount by which your income exceeds the ₹12 Lakh threshold.
How Surcharge Works for High Earners
An additional surcharge is levied on high-income individuals in India. This surcharge is calculated as a percentage of the base income tax and applies at the following thresholds under the New Tax Regime:
- 10% surcharge on income tax when taxable income exceeds ₹50 Lakh but is below ₹1 Crore.
- 15% surcharge on income tax when taxable income exceeds ₹1 Crore but is below ₹2 Crore.
- 25% surcharge on income tax when taxable income exceeds ₹2 Crore.
Marginal Relief on Surcharge: The government provides marginal relief at each surcharge threshold. This means if your income just crosses a surcharge boundary, the total tax + surcharge cannot exceed the tax at the previous boundary plus the excess income above that boundary. Our calculator automatically applies marginal relief calculations to ensure accuracy.
Frequently Asked Questions
Is the New Tax Regime mandatory for FY 2025-26?
No, it is the default regime. You can still opt for the Old Tax Regime if it offers better savings due to high deductions (like home loan interest and large 80C investments). Salaried employees can switch regimes every year.
How does the Tax Rebate work up to ₹12 Lakhs?
Under the New Regime for FY 2025-26, if your taxable income (after standard deduction of ₹75,000) does not exceed ₹12 Lakhs, you get a full rebate under Section 87A, making your effective tax zero. This means salaried individuals earning up to approximately ₹12.75 Lakh gross salary pay no income tax.
What is Marginal Relief?
Marginal relief ensures that the tax you pay does not exceed the amount by which your income exceeds the rebate threshold (₹12 Lakhs). For example, if your taxable income is ₹12.5 Lakh, your tax is capped at ₹50,000 (the excess over ₹12L), even though the slab-calculated tax would be higher. Our calculator automatically applies this logic.
What is Professional Tax and who pays it?
Professional Tax is a state-level tax on salaried and self-employed individuals. In Maharashtra, it is capped at ₹2,500 per year. It is deducted by your employer and is allowed as a deduction from gross salary for computing taxable income under both Old and New Regimes.
How is Health and Education Cess calculated?
A 4% Health and Education Cess is levied on the total of your base income tax plus any applicable surcharge. This cess funds public health and education initiatives across India. It is the final component added to your tax computation.
Which regime should I choose if I have a home loan?
If you have a home loan, the Old Regime may be beneficial as it allows deduction of up to ₹2 Lakh for interest paid (under Section 24b) and up to ₹1.5 Lakh for principal repayment (under Section 80C). These deductions are not available in the New Regime. Use our calculator to compare both scenarios for your specific salary.