How income tax is calculated for FY 2026-27
Budget 2026 made no changes to income tax slabs — the structure introduced in Budget 2025 continues for FY 2026-27 (AY 2027-28), now under the new Income Tax Act, 2025, effective 1 April 2026. The new regime remains the default: lower rates, a ₹75,000 standard deduction for salaried taxpayers, and a Section 87A-style rebate of up to ₹60,000 that makes taxable income up to ₹12 lakh effectively tax-free (₹12.75 lakh gross for salaried, after standard deduction). The old regime keeps higher rates but allows deductions such as 80C, 80D, HRA and home-loan interest — you must actively opt into it.
Worked example: ₹12.75 lakh salary, new regime
Gross salary ₹12,75,000 → minus standard deduction ₹75,000 → taxable income ₹12,00,000. Slab tax: nil on the first ₹4L, 5% on the next ₹4L (₹20,000), 10% on the next ₹4L (₹40,000) = ₹60,000. The rebate wipes out the full ₹60,000, so final tax is zero. The same salary under the old regime with ₹2 lakh of total deductions would still owe about ₹1.25 lakh — which is why most people without large deductions are better off in the new regime.
| Gross income | New regime tax* | Old regime tax* (₹2L deductions) |
|---|---|---|
| ₹8,00,000 | ₹0 | ₹23,400 |
| ₹12,75,000 | ₹0 | ₹1,24,800 |
| ₹15,00,000 | ₹97,500 | ₹1,95,000 |
| ₹20,00,000 | ₹1,92,400 | ₹3,51,000 |
| ₹30,00,000 | ₹4,75,800 | ₹6,63,000 |
*Including 4% cess, salaried standard deduction applied; old-regime column assumes ₹2,00,000 of total deductions. Use the calculator above with your own numbers — the crossover point depends entirely on your deductions.
Frequently asked questions
Did Budget 2026 change the income tax slabs?
No. Budget 2026 retained the slab structure introduced in Budget 2025 for both regimes. The main procedural change is the Income Tax Act, 2025 taking effect from 1 April 2026, which simplifies terminology (like "tax year") without changing your rates or rebate.
Is income up to ₹12 lakh really tax-free in the new regime?
Yes, for taxable income up to ₹12 lakh — the rebate of up to ₹60,000 fully offsets the slab tax. For salaried taxpayers, the ₹75,000 standard deduction extends this to ₹12.75 lakh of gross salary. Marginal relief applies just above the limit so a small raise cannot leave you worse off after tax.
Which regime should I choose?
If your total old-regime deductions (80C + 80D + HRA + home-loan interest and others) are small, the new regime almost always wins. With large deductions — typically ₹3.5 lakh or more at mid incomes — the old regime can still be better. Run both in the calculator above; the verdict line tells you the exact difference.
Do 80C investments give any benefit in the new regime?
No. Deductions like 80C (PPF, ELSS, insurance) and 80D are only available in the old regime. The new regime allows very few deductions — the salaried standard deduction of ₹75,000 and employer NPS contribution under 80CCD(2) are the main ones.
What is the 4% cess?
A Health and Education cess of 4% is added to your computed income tax (after rebate) in both regimes, regardless of income level. Surcharge applies additionally only above ₹50 lakh of income.
Is the new regime the default?
Yes. Since FY 2023-24 the new regime is the default. Salaried taxpayers can pick either regime each year when filing; if you want the old regime, you must actively select it in your ITR.
Sources & methodology
Formulas on this page are shown in full above and verified against official sources.
Results are estimates for education and planning — not financial, tax or investment advice. Verify important decisions with a qualified professional.