This is Part 6 of Money Basics for Indians, our 12-part series on the everyday money systems every Indian should understand. New here? Start with Part 1: Bank Accounts and Deposit Insurance, or read the previous part, Part 5: Post Office Small Savings.
From 1 April 2026, the Income Tax Act, 2025 replaced the six-decade-old Income Tax Act of 1961. The tax rates for individuals did not change, but some familiar terms did.
What changed with the new Act
- The confusing "previous year" and "assessment year" are replaced by a single tax year, running from April to March. Income earned from April 2026 to March 2027 is tax year 2026-27.
- Section numbers have been reorganised, so deductions you know as 80C or 80D now sit under new section numbers. Many people and websites will keep using the old names for a while.
- The new regime remains the default; you can still choose the old one.
New regime slabs (tax year 2026-27)
- Up to ₹4 lakh: Nil
- ₹4 lakh to ₹8 lakh: 5%
- ₹8 lakh to ₹12 lakh: 10%
- ₹12 lakh to ₹16 lakh: 15%
- ₹16 lakh to ₹20 lakh: 20%
- ₹20 lakh to ₹24 lakh: 25%
- Above ₹24 lakh: 30%
A rebate of up to ₹60,000 means residents with taxable income up to ₹12 lakh pay no tax. Salaried people also get a ₹75,000 standard deduction, so salary up to ₹12.75 lakh is effectively tax-free. Marginal relief softens the jump for incomes just above the limit. A 4 percent health and education cess applies on tax.
The old regime
The old regime has higher rates (5% from ₹2.5 lakh, 20% from ₹5 lakh, 30% above ₹10 lakh, with higher exemption limits for senior citizens) and a ₹50,000 standard deduction, but allows deductions such as:
- Investments like PPF, ELSS, EPF and life insurance, up to ₹1.5 lakh.
- Health insurance premiums.
- House rent allowance (HRA) and home loan interest.
A worked example
Take a salaried person earning ₹15 lakh under the new regime. After the ₹75,000 standard deduction, taxable income is ₹14.25 lakh. Tax is ₹20,000 (the 5% slab) plus ₹40,000 (10%) plus ₹33,750 (15% on ₹2.25 lakh) = ₹93,750, plus cess of ₹3,750, for a total of ₹97,500.
Under the old regime, the same person gets a ₹50,000 standard deduction and would need further deductions of more than about ₹5.4 lakh, from investments, HRA and home loan interest combined, to pay less tax than under the new regime.
How to choose
- Add up the deductions you genuinely claim each year.
- Calculate tax both ways, using the Income Tax Department's calculator or your payroll tool.
- Salaried people can switch every year when filing. People with business income have limited chances to switch, so choose carefully.
- Do not buy products just to save tax. See tax planning through the year.
Your employer deducts tax based on the regime you declare. Learn how in Part 7: TDS, Advance Tax and AIS.
This article is for general information and education only. It is not financial, tax or legal advice. Rules, rates and limits change often, so check official sources such as the RBI, the Income Tax Department or India Post, or speak to a qualified adviser, before acting.
Next in the series: Part 7: TDS, Advance Tax and AIS.
