Understanding Your Income Tax: FY 2025-26
Disclaimer:
This application is for informational and illustrative purposes only. It does not constitute legal, tax, or financial advice. Tax laws are subject to change and individual interpretation. Taxpayers should consult a qualified professional or chartered accountant for advice specific to their situation before making any financial decisions. The information herein is based on interpretations of publicly available information and assumed provisions of the Finance Act 2025 and should be cross-verified with official government notifications and primary legal texts.
For the Financial Year (FY) 2025-26 (Assessment Year AY 2026-27), salaried individuals in India can choose between the Old Tax Regime and the New Tax Regime (default option under Sec 115BAC). The Finance Act 2025 has introduced significant amendments, particularly making the New Regime more attractive with revised slabs, a Rs. 4,00,000 basic exemption, an enhanced Rs. 60,000 rebate (for taxable income up to Rs. 12,00,000), and a Rs. 75,000 standard deduction.
Notably, under the New Regime, individuals with *only salary income* up to Rs. 12,75,000 may have nil tax liability. However, this is an oversimplification if other income sources exist. The New Regime suits those with limited deductions, while the Old Regime might benefit those with substantial claims (HRA, home loan interest, Chapter VI-A). This SPA helps you compare your tax liability under both regimes based on these updated rules.
Regimes At-a-Glance: Key Features (FY 2025-26)
This table provides a quick comparison of the primary features differentiating the Old and New Tax Regimes for salaried individuals for the Financial Year 2025-26.
| Feature | New Tax Regime (Default) | Old Tax Regime (Optional) |
|---|---|---|
| Basic Exemption Limit (Individual <60 yrs) | ₹4,00,000 | ₹2,50,000 |
| Standard Deduction (Salaried) | ₹75,000 (See note in New Regime section) | ₹50,000 |
| Max Rebate (Sec 87A) & Income for Nil Tax | ₹60,000 rebate for taxable income up to ₹12,00,000. Effective nil tax up to ₹12,75,000 gross salary (for salary-only income). | ₹12,500 rebate for taxable income up to ₹5,00,000. |
| Chapter VI-A Deductions (80C, 80D etc.) | Generally No (except Sec 80CCD(2), 80CCH(2), 57(iia)) | Yes |
| HRA Exemption (Sec 10(13A)) | No | Yes |
| LTA Exemption (Sec 10(5)) | No | Yes |
| Home Loan Interest (Self-Occupied) (Sec 24(b)) | No | Yes (up to ₹2,00,000) |
| Home Loan Interest (Let-Out) (Sec 24(b)) | Yes | Yes |
| Professional Tax (Sec 16(iii)) | No | Yes (up to ₹2,500) |
| Default Status | Yes | No (must be opted for) |
| Highest Surcharge Rate | 25% (on income > ₹2 Cr) | 37% (on income > ₹5 Cr) |
Interactive Tax Calculator (FY 2025-26)
Enter your financial details to compare your estimated tax liability. This calculator considers amendments from Finance Act 2025. Health & Education Cess (4%) and applicable Surcharge are included. Results are illustrative.
Your Financial Details:
Deductions (Primarily for Old Regime Calculation):
Deductions (Applicable in New Regime / Both):
Comparison Results:
Enter your details and click "Calculate Tax Liability" to see the comparison.
Net Tax Payable Comparison Chart:
New Tax Regime In-Depth (FY 2025-26)
The New Tax Regime (Sec 115BAC) is the default. It offers lower tax rates but fewer deductions.
A. Income Tax Slabs & Rates (New Regime)
| Income Slab (₹) | Tax Rate (%) |
|---|---|
| Up to 4,00,000 | Nil |
| 4,00,001 to 8,00,000 | 5% |
| 8,00,001 to 12,00,000 | 10% |
| 12,00,001 to 16,00,000 | 15% |
| 16,00,001 to 20,00,000 | 20% |
| 20,00,001 to 24,00,000 | 25% |
| Above 24,00,000 | 30% |
Basic Exemption Limit: ₹4,00,000. Applicable to all individuals irrespective of age.
B. Standard Deduction (Sec 16(ia))
A standard deduction of **₹75,000** is available from salary income.
Important Note on AY 2026-27 Applicability: There's a potential legislative drafting ambiguity regarding the Rs. 75,000 standard deduction's explicit extension to AY 2026-27. This tool assumes its availability based on legislative intent. Pending CBDT/Finance Ministry notification, taxpayers must monitor clarifications; current assumptions are not legally guaranteed for AY 2026-27.
C. Tax Rebate (Sec 87A)
A rebate of up to **₹60,000** is available if taxable income (after standard deduction) is up to ₹12,00,000. This makes gross salary up to **₹12,75,000 effectively tax-free if it's salary-only income**.
Caveats: This ₹12.75 lakh threshold assumes salary-only income. Other income (interest, capital gains) can alter taxable income and rebate eligibility. Rebate is not available against tax on certain special rate incomes (e.g., LTCG u/s 112A). Marginal relief applies if income slightly exceeds ₹12,00,000.
D. Permitted Deductions (New Regime)
- Employer's contribution to NPS (Sec 80CCD(2)) - 10% of salary (Basic+DA) for private sector, 14% for Central Govt. employees.
- Deduction for family pension (Sec 57(iia)) - ₹15,000 or 1/3rd, whichever is lower.
- Interest on home loan for let-out property (Sec 24(b)).
- Deduction for Agniveer Corpus Fund (Sec 80CCH(2)).
- Certain transport/conveyance/daily allowances for official duties.
- Exemptions for gratuity, leave encashment (Sec 10(10), 10(10AA)).
E. Major Deductions Forgone (New Regime)
- Most Chapter VI-A deductions: Sec 80C (LIC, PPF, ELSS), 80D (Mediclaim), 80E (Education Loan Interest), 80G (Donations), 80TTA/TTB (Savings Interest), employee's NPS (80CCD(1), 80CCD(1B)).
- House Rent Allowance (HRA) exemption (Sec 10(13A)).
- Leave Travel Allowance (LTA) exemption (Sec 10(5)).
- Interest on housing loan for self-occupied property (Sec 24(b) - up to ₹2L).
- Professional Tax deduction (Sec 16(iii)).
Old Tax Regime In-Depth (FY 2025-26)
The Old Tax Regime can be opted for. It has different slabs and allows various deductions.
A. Income Tax Slabs & Rates (Old Regime)
Individuals below 60 years:
| Income Slab (₹) | Tax Rate (%) |
|---|---|
| Up to 2,50,000 | Nil |
| 2,50,001 to 5,00,000 | 5% |
| 5,00,001 to 10,00,000 | 20% |
| Above 10,00,000 | 30% |
Senior Citizens (60 to <80 years):
| Income Slab (₹) | Tax Rate (%) |
|---|---|
| Up to 3,00,000 | Nil |
| 3,00,001 to 5,00,000 | 5% |
| 5,00,001 to 10,00,000 | 20% |
| Above 10,00,000 | 30% |
Super Senior Citizens (≥80 years):
| Income Slab (₹) | Tax Rate (%) |
|---|---|
| Up to 5,00,000 | Nil |
| 5,00,001 to 10,00,000 | 20% |
| Above 10,00,000 | 30% |
B. Standard Deduction (Sec 16(ia))
A standard deduction of **₹50,000** is available from salary income.
C. Tax Rebate (Sec 87A)
A rebate of up to **₹12,500** is available if taxable income (after all deductions) is up to ₹5,00,000.
D. Key Deductions Available (Old Regime)
- Chapter VI-A: Sec 80C, 80CCC, 80CCD(1) (Total ₹1.5L), Sec 80CCD(1B) (NPS employee - additional ₹50k), Sec 80D (Mediclaim), Sec 80E (Education Loan Interest), Sec 80G (Donations), 80TTA/TTB (Savings Interest), Employer's NPS (80CCD(2)).
- HRA Exemption (Sec 10(13A)): Based on rent paid, salary, and city.
- LTA Exemption (Sec 10(5)): For travel within India.
- Interest on Housing Loan (Sec 24(b)): Up to ₹2L for self-occupied property; full interest for let-out.
- Professional Tax (Sec 16(iii)): Up to ₹2,500.
Advanced Tax Concepts
A. Surcharge
An additional tax on higher incomes. Max surcharge under New Regime is 25% (for income > ₹2 Cr), while it's 37% under Old Regime (for income > ₹5 Cr). This cap is per Finance Act 2023, amending Sec 115BAC.
| Total Income Threshold (₹) | Surcharge (Old Regime) | Surcharge (New Regime) |
|---|---|---|
| > 50 Lakh to 1 Crore | 10% | 10% |
| > 1 Crore to 2 Crore | 15% | 15% |
| > 2 Crore to 5 Crore | 25% | 25% |
| > 5 Crore | 37% | 25% |
B. Health & Education Cess
A cess of **4%** is levied on income tax plus surcharge (if any) under both regimes.
C. Marginal Relief
Ensures that an increase in tax (due to crossing a surcharge threshold or rebate eligibility limit) does not exceed the income increase that caused it. For instance, if taxable income under New Regime slightly exceeds ₹12 lakh, losing the full ₹60,000 rebate, marginal relief would limit the additional tax payable to be not more than the income exceeding ₹12 lakh.
D. Alternative Minimum Tax (AMT)
AMT (Sec 115JC) generally doesn't apply under the New Regime. Under the Old Regime, it can apply at 18.5% (plus surcharge/cess) if certain deductions (e.g., Sec 10AA, 35AD, some Chapter VI-A like 80QQB/RRB) are claimed and adjusted total income exceeds ₹20 lakh. Less common for purely salaried individuals.
Making Your Choice: Old vs. New Regime
The New Tax Regime is default for FY 2025-26. Here’s how to decide:
A. For Salaried Individuals (Without Business/Professional Income)
- Annual Choice: Can choose between regimes each year when filing ITR.
- No Prior Form: No need to file Form 10-IEA beforehand.
- Calculation is Key: Use the calculator on this page for a personalized estimate.
B. For Individuals With Business/Professional Income
- Stricter Rules: To opt for Old Regime, must file Form 10-IEA by ITR due date (Sec 139(1)).
- One-Time Switchback (Sec 115BAC(6)): Once opted out of New Regime (to Old), can opt back into New Regime only once. If opted back, generally cannot revert to Old Regime again with business income.
C. When Might Each Regime Be Better?
- Old Regime: Potentially better with substantial deductions (HRA, home loan interest for SOP, high 80C/80D investments).
- New Regime: Often better with limited deductions, due to lower rates, higher basic exemption, enhanced rebate, and higher standard deduction. Gross salary up to ₹12.75 lakh can be tax-free (salary-only income).
D. Illustrative Break-Even Deductions (Old Regime) for FY 2025-26
This table gives a *very rough estimate* of total "other deductions" (beyond standard deduction difference, e.g., 80C, HRA, Home Loan Interest for SOP) needed under Old Regime to match New Regime. Actuals depend on specific mix of deductions. Use the calculator.
| Gross Annual Salary (₹) | Approx. Other Deductions Needed in Old Regime (₹) to Break-Even* |
|---|---|
| 10,00,000 | ~ ₹2,75,000 - ₹3,25,000 |
| 15,00,000 | ~ ₹5,00,000 - ₹5,75,000 |
| 20,00,000 | ~ ₹5,75,000 - ₹6,50,000 |
| 25,00,000 | ~ ₹6,25,000 - ₹7,00,000 |
*Illustrative for individual <60 yrs. New Regime's enhanced benefits mean significant deductions are needed in Old Regime to match it.
Legislative Context & Future Outlook
A. Finance Act 2025 Amendments (FY 2025-26)
Key changes effective April 1, 2025, making the New Regime more appealing:
- Revised tax slabs (New Regime).
- Increased basic exemption limit to ₹4,00,000 (New Regime).
- Enhanced rebate u/s 87A to ₹60,000 for taxable income up to ₹12,00,000 (New Regime).
- Standard Deduction: ₹75,000 (New Regime - subject to note), ₹50,000 (Old Regime).
B. The Income Tax Bill 2025: A Look Ahead
Introduced Feb 13, 2025, to replace Income Tax Act, 1961, aiming for simplification, transparency, and reduced litigation. Proposed effective date: April 1, 2026.
- Key features: Simplified language, consolidated TDS, VDA definitions, unified 'Tax Year' concept.
- **For FY 2025-26 (AY 2026-27):** Tax calculation is governed by Income Tax Act, 1961, as amended by Finance Act 2025. The Bill's structural changes are not yet applicable. The Bill retains the FY 2025-26 New Regime slabs.
Key Strategic Recommendations
Effective tax planning requires annual review. Consider these points:
- Personalized Calculation is Paramount: Use the calculator on this page with your actual income and potential deductions.
- Evaluate Deduction Profile: High deductions might favor Old Regime; low/moderate deductions often favor the New Regime.
- Consider Income Level & Surcharge: The New Regime’s 25% max surcharge benefits very high earners.
- Stay Updated on Clarifications: Especially regarding the Rs. 75,000 standard deduction (New Regime) for AY 2026-27.
- Factor in Future Financial Plans: Anticipate changes that might alter your deduction profile.
- Maintain Records: Useful for annual comparisons and informed financial decisions.
- Leverage Flexibility: Salaried individuals (no business income) can choose the most beneficial regime annually.
Consultation with a tax professional is advised for complex situations or personalized advice.