Understanding Income Tax in India for FY 2025-26
The Union Budget 2025 brought the most significant personal income tax reform in years. The New Tax Regime now offers zero tax for income up to ₹12 lakh (effective ₹12.75 lakh for salaried employees after standard deduction) through an enhanced Section 87A rebate. This makes choosing the right regime more important — and more nuanced — than ever before.
New Tax Regime Slabs for FY 2025-26
The revised New Regime slabs (effective from April 1, 2025) are designed to benefit the salaried middle class:
| Taxable Income | Tax Rate | Tax on Slab |
|---|---|---|
| ₹0 – ₹4,00,000 | 0% | Nil (+ 87A rebate covers up to ₹12L) |
| ₹4,00,001 – ₹8,00,000 | 5% | ₹20,000 |
| ₹8,00,001 – ₹12,00,000 | 10% | ₹40,000 |
| ₹12,00,001 – ₹16,00,000 | 15% | ₹60,000 |
| ₹16,00,001 – ₹20,00,000 | 20% | ₹80,000 |
| ₹20,00,001 – ₹24,00,000 | 25% | ₹1,00,000 |
| Above ₹24,00,000 | 30% | 30% on excess |
Plus: 4% Health & Education Cess on total tax. For income above ₹50L, surcharge applies (10%–25%).
Old Tax Regime Slabs for FY 2025-26
The Old Regime retains the same slabs as previous years but allows a rich set of deductions:
| Taxable Income | Tax Rate |
|---|---|
| ₹0 – ₹2,50,000 | 0% |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
Section 87A rebate under Old Regime: up to ₹12,500 for taxable income up to ₹5 lakh.
How to Choose Between New and Old Regime
The decision hinges entirely on your total deductions. Use this quick rule of thumb:
- New Regime wins if your total deductions (80C + 80D + HRA + home loan) are below ~₹3.75 lakh
- Old Regime wins if you consistently max out 80C (₹1.5L), have significant HRA or home loan interest, and invest in health insurance
- Income ≤ ₹12.75L (salaried): New Regime almost always gives ₹0 tax — hard to beat
- Income ₹15L–₹25L: This is the grey zone — use the calculator above to check your exact numbers
Key Deductions Available Under Old Regime
- Section 80C (₹1.5L limit): PPF, ELSS mutual funds, LIC premium, EPF, NSC, 5-year FD, children's tuition fees, home loan principal
- Section 80D: Health insurance premium — ₹25,000 (self/family), ₹50,000 if parents are senior citizens
- Section 24(b): Home loan interest — up to ₹2,00,000 per year for self-occupied property
- HRA Exemption (Sec 10(13A)): Rent paid minus 10% of basic salary, subject to metro/non-metro limits. Use our HRA Calculator.
- Section 80CCD(1B): NPS contribution — additional ₹50,000 over and above 80C limit
What Is Section 87A Rebate?
Section 87A is a rebate (not a deduction) that directly reduces your tax to zero if your taxable income is within the threshold. For FY 2025-26 under the New Regime, the rebate is ₹60,000 — meaning if your slab tax works out to ₹52,500 on a ₹12L income, the government cancels it entirely. Your final tax is ₹0. This is entirely legal and intentional per Budget 2025.
Marginal Relief: If your income slightly exceeds ₹12L (say ₹12.2L), the regular tax could be disproportionately high. Marginal relief ensures your tax never exceeds the income above the ₹12L threshold. So on ₹12.2L, your tax is capped at ₹20,000 — not ₹72,000.
Frequently Asked Questions
Everything you need to know about income tax for FY 2025-26.
It depends on your total deductions. If your combined 80C, 80D, HRA, and home loan deductions exceed ₹3.75 lakh, the Old Regime likely saves more. Below that threshold, the New Regime wins — especially since income up to ₹12.75L (salaried) pays ₹0 tax. Enter your actual numbers in the calculator above to see your exact saving.
Section 87A provides a full rebate for taxable income up to ₹12 lakh under the New Regime. On a ₹12L salary, after ₹75,000 standard deduction, taxable income is ₹11.25L. The slab tax computes to ₹52,500 — but Section 87A cancels it entirely. ₹0 is correct. This is legal, deliberate, and a highlight of Budget 2025.
₹0–4L: 0% · ₹4–8L: 5% · ₹8–12L: 10% · ₹12–16L: 15% · ₹16–20L: 20% · ₹20–24L: 25% · Above ₹24L: 30%. Plus 4% Health & Education Cess on the total tax. Section 87A gives a full rebate (zero tax) for taxable income up to ₹12 lakh.
Marginal relief applies when your taxable income slightly exceeds ₹12 lakh under the New Regime. Without it, a jump from ₹12L to ₹12.5L could spike your tax from ₹0 to ₹67,500+ — which is absurd. Marginal relief ensures your tax never exceeds the income above ₹12L. So on ₹12.5L, your tax is capped at ₹50,000 (the excess), not the full slab amount.
Yes. From FY 2024-25 onwards, salaried employees get a ₹75,000 standard deduction under the New Regime (up from ₹50,000). This is applied automatically — no proofs or declarations needed. The Old Regime continues to give ₹50,000 standard deduction. This means a salaried person earning ₹12.75L gross effectively pays zero tax under the New Regime.