What Changed in Budget 2026 for Taxpayers
The Union Budget 2026 did not alter income tax slabs or rates — the structure you see in this calculator is identical to FY 2025-26. What changed is largely structural and procedural, and it affects how you file and report income.
The most significant change is the Income Tax Act 2025, which replaces the Income Tax Act 1961 in its entirety from 1 April 2026. The new Act does not change your tax liability — it simplifies the language, removes obsolete provisions, and reorganises the structure into six schedules. If you were filing ITR under the old Act, the new Act works the same way for your purposes.
Two other practical changes: the revised return window has been extended from 31 December to 31 March of the assessment year, giving taxpayers an extra three months to correct mistakes. And Form 15G / 15H — the declaration to stop TDS on interest income — can now be submitted to depositories (NSDL, CDSL) in addition to banks and post offices, which matters if your fixed deposits are held through demat accounts.
Bottom line for FY 2026-27
Same slabs. Same rates. Same deductions. New Act number. File your return exactly as you would have under the old Act — just use the updated ITR forms when they are notified.
Income Tax Slabs FY 2026-27 (AY 2027-28)
India has two parallel tax regimes. You choose one every year at the time of filing (salaried employees) or at the start of the year (business income). Here are the applicable slabs for Financial Year 2026-27.
New Tax Regime — u/s 115BAC (All ages, all individuals)
Standard deduction of ₹75,000 applies for salaried employees and pensioners before applying these slabs.
| Income slab | Up to | Tax rate |
|---|---|---|
| ₹0 | ₹4,00,000 | 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% |
Old Tax Regime — Below 60 Years
Standard deduction of ₹50,000 for salaried employees before applying these slabs.
| Income slab | Up to | Tax rate |
|---|---|---|
| ₹0 | ₹2,50,000 | Nil |
| ₹2,50,001 | ₹5,00,000 | 5% |
| ₹5,00,001 | ₹10,00,000 | 20% |
| Above ₹10,00,000 | — | 30% |
Old Tax Regime — Senior Citizen (60–79 years)
| Income slab | Up to | Tax rate |
|---|---|---|
| ₹0 | ₹3,00,000 | Nil |
| ₹3,00,001 | ₹5,00,000 | 5% |
| ₹5,00,001 | ₹10,00,000 | 20% |
| Above ₹10,00,000 | — | 30% |
Old Tax Regime — Super Senior Citizen (80+ years)
| Income slab | Up to | Tax rate |
|---|---|---|
| ₹0 | ₹5,00,000 | Nil |
| ₹5,00,001 | ₹10,00,000 | 20% |
| Above ₹10,00,000 | — | 30% |
On top of the slab tax, a 4% Health and Education Cess applies on the total tax. Surcharge applies at higher income levels — see the surcharge section below.
Old vs New Tax Regime: Which Is Better for You?
There is no universal answer. The better regime depends entirely on how many deductions and exemptions you actually claim — not how many you could claim. Here is how to think through it.
Choose the New Regime if…
- ▸You have few or no investments in 80C instruments (PPF, ELSS, LIC). Perhaps you are early in your career and haven't built up these investments yet.
- ▸You do not have a home loan on a self-occupied property. The ₹2 lakh interest deduction under Section 24(b) is one of the biggest reasons to stay in the old regime — if you don't have it, you lose a major advantage.
- ▸Your total deductions (beyond the standard deduction) are less than roughly ₹3–4 lakh, depending on your income. Use the calculator above to find your exact break-even.
- ▸You want a simpler return with less paperwork — fewer receipts to collect, fewer declarations to sign.
New Regime example — ₹12 lakh salary
Salaried employee, no deductions beyond the standard deduction of ₹75,000. Taxable income = ₹11.25 lakh ≤ ₹12 lakh threshold.
Result: ₹0 tax under the New Regime thanks to Section 87A rebate. Old Regime would have charged ₹1,63,800 (after ₹50,000 standard deduction).
New Regime saves ₹1,63,800.
Choose the Old Regime if…
- ▸You are maximising 80C (₹1.5 lakh), paying EMIs on a home loan with significant interest component (Section 24(b), up to ₹2 lakh), and also have NPS contributions or health insurance premiums. At ₹10–15 lakh salary, this combination can still make the old regime competitive.
- ▸You are a senior citizen with substantial interest income (₹50,000 deduction under 80TTB) and high health insurance premiums (up to ₹50,000 under 80D).
- ▸You live in a rented house in a metro city and receive a high HRA. The HRA exemption can be substantial — up to 50% of basic salary — and the old regime is the only way to claim it.
Old Regime example — ₹15 lakh with deductions
Salary: ₹15 lakh. Deductions: 80C ₹1.5L + home loan interest ₹2L + standard deduction ₹0.5L = ₹4L total. Taxable income = ₹11 lakh.
Old Regime tax = ₹1,49,240. New Regime tax (no deductions benefit) = ₹97,500.
New Regime still wins here. But add NPS ₹50K + 80D ₹50K → total deductions ₹5L → Old taxable = ₹10L → Old tax ≈ ₹1,17,000 — still above New Regime's ₹97,500. The old regime rarely wins at ₹15 lakh unless deductions exceed ₹5.5 lakh.
How to Calculate Income Tax FY 2026-27: Step-by-Step
Whether you use the calculator above or do it on paper, the process is the same:
- 01
Determine gross income
Add up all income sources: salary (as per Form 16), rental income, interest income, capital gains, and any other income. For most salaried employees, this is the CTC (cost to company) minus employer PF contributions.
- 02
Subtract standard deduction
If you are salaried or a pensioner: deduct ₹75,000 (New Regime) or ₹50,000 (Old Regime) automatically. No proof required.
- 03
Subtract eligible deductions (Old Regime only)
List every deduction you can legitimately claim: 80C investments, 80D premiums, home loan interest under Section 24(b), HRA exemption, etc. Keep proofs.
- 04
Compute slab-wise tax
Apply the relevant tax slabs to your net taxable income. Each slab is taxed only on the income that falls within it — not your total income.
- 05
Apply rebate and relief
If taxable income ≤ ₹12 lakh (New) or ≤ ₹5 lakh (Old), the entire slab tax is waived under Section 87A. Apply marginal relief if you are just above ₹12 lakh (New Regime).
- 06
Add surcharge and cess
If income exceeds ₹50 lakh, a surcharge is added. Then 4% Health and Education Cess is levied on (tax + surcharge).
Worked Example: ₹15 Lakh Salary, ₹2.5 Lakh Deductions
Let's say you are salaried (below 60), earn ₹15 lakh gross, and have genuine deductions of ₹2.5 lakh (80C ₹1.5L + 80D ₹50K + NPS 80CCD(1B) ₹50K).
New Regime
Old Regime
Even with ₹2.5 lakh in genuine deductions, the New Regime saves ₹81,900. To break even at ₹15 lakh salary, you would need deductions of roughly ₹5.4 lakh beyond the standard deduction — achievable mainly if you have a large home loan and maximise every section.
Section 87A Rebate FY 2026-27: Zero Tax Up to ₹12 Lakh
Section 87A is a rebate — not an exemption or a deduction. It wipes out your entire income tax liability if your net taxable income does not exceed a threshold.
Under the New Regime for FY 2026-27: if your taxable income (after standard deduction and any allowed deductions) is ₹12 lakh or below, the Section 87A rebate cancels your slab tax entirely. Maximum rebate is ₹60,000. This is why a salaried employee earning ₹12.75 lakh gross pays zero tax — after the ₹75,000 standard deduction, taxable income is exactly ₹12 lakh, and the slab tax of ₹60,000 is fully offset by the rebate.
Under the Old Regime: the threshold is much lower at ₹5 lakh. Slab tax up to ₹12,500 is rebated. This benefits people with income up to ₹5.5 lakh (after standard deduction) in the old regime.
Important: rebate does not apply to special-rate income
Short-term capital gains (STCG u/s 111A) and long-term capital gains (LTCG u/s 112A) are taxed at flat rates (20% and 12.5% respectively). The 87A rebate does not reduce this special-rate tax — even if your total income is below ₹12 lakh. Only the regular slab tax component is rebated.
Standard Deduction in New Regime: ₹75,000 for FY 2026-27
The standard deduction is a flat deduction available to all salaried employees and pensioners — no bills, no proofs, no declarations. It simply reduces your gross salary before slabs are applied.
When the New Regime was introduced in FY 2020-21, it did not allow a standard deduction. Budget 2023 added it at ₹50,000. Budget 2024 raised it to ₹75,000 — the figure that applies for FY 2026-27. The Old Regime retains the ₹50,000 standard deduction.
The practical effect: the effective zero-tax threshold under the New Regime for a salaried employee is not ₹12 lakh but ₹12 lakh + ₹75,000 = ₹12.75 lakh gross salary. This is a significant real-world benefit that many people overlook when comparing the two regimes.
Family pensioners
If you receive family pension (pension received by family after the death of an employee), you can claim a deduction of ₹25,000 under Section 57(iia) in the New Regime, in addition to other allowed deductions.
Marginal Relief: Why ₹12,76,000 Earners Pay Almost Nothing
Here is a counterintuitive situation: an employee earning ₹12,76,000 gross pays far less tax than the slab calculation would suggest — and much less than someone earning ₹13,50,000.
This happens because of marginal relief. Once your taxable income exceeds ₹12 lakh (where Section 87A gives you zero tax), every extra rupee of income above ₹12 lakh would otherwise trigger a sudden tax liability of ₹60,000+ — the previously-rebated slab tax instantly becoming payable. That is an absurd cliff.
Marginal relief caps your tax at the excess income above ₹12 lakh. In other words:
Tax payable ≤ (Taxable income − ₹12,00,000)
At gross salary ₹12,76,000 → taxable income = ₹12,01,000 → excess = ₹1,000. Slab tax would be ₹60,150 — but marginal relief caps it at ₹1,000. After 4% cess: total tax is just ₹1,040.
The break-even point — where marginal relief disappears and you pay the full slab tax — is around ₹13,50,000 gross (approximately ₹12,75,000 taxable). Beyond that, you simply pay the slab tax without any relief.
Surcharge on Income Tax FY 2026-27
Surcharge is an additional tax levied on high-income earners — it is calculated as a percentage of your income tax (not your income). The rates differ significantly between the two regimes at the highest income levels.
| Total income | New Regime surcharge | Old Regime surcharge |
|---|---|---|
| Up to ₹50 lakh | Nil | Nil |
| ₹50 lakh – ₹1 crore | 10% | 10% |
| ₹1 crore – ₹2 crore | 15% | 15% |
| ₹2 crore – ₹5 crore | 25% | 25% |
| Above ₹5 crore | 25% (capped) | 37% |
The key difference: the Old Regime allows a 37% surcharge on income above ₹5 crore, which means the effective marginal tax rate in the old regime at very high incomes can exceed 42%. The New Regime caps surcharge at 25%, resulting in a maximum effective rate of about 39%. This makes the New Regime particularly attractive for very high earners, regardless of deductions.
Note: for capital gains income (STCG, LTCG, dividends), surcharge is capped at 15% in both regimes.
Can I Switch Regimes Every Year?
The answer depends on your income source:
Salaried employees
Yes — every year. You choose your regime when filing your ITR. You can also inform your employer at the start of the year to adjust TDS accordingly. You are not locked in.
Business / freelance income
Restricted. Once you opt out of the New Regime, you can re-enter it only once in your lifetime. Choose carefully — consult a CA before switching if you have business income.
The default regime for FY 2026-27 is the New Regime. If you do not explicitly choose the Old Regime, you will be assessed under the New Regime.
Frequently Asked Questions
What is the income tax slab for ₹7 lakh in FY 2026-27?
Under the New Regime, a salaried employee with ₹7 lakh gross salary has a taxable income of ₹6.25 lakh (after ₹75,000 standard deduction). The slab tax on ₹6.25 lakh is ₹11,250 (5% on ₹2.25 lakh). Since taxable income is below ₹12 lakh, the Section 87A rebate fully cancels this — resulting in zero tax payable.
Is there really zero tax on ₹12 lakh income in FY 2026-27?
For salaried employees under the New Regime: yes. Gross salary of ₹12,75,000 → taxable income of ₹12,00,000 (after ₹75,000 standard deduction) → slab tax of ₹60,000 → Section 87A rebate of ₹60,000 → total tax = ₹0. If your gross salary is below ₹12,75,000, the result is the same.
What happens if my income is ₹12,76,000 — do I suddenly pay ₹60,000 in tax?
No. Marginal relief prevents this cliff. At ₹12,76,000 gross (taxable = ₹12,01,000 after std deduction), your tax is capped at the excess above ₹12 lakh, which is just ₹1,000. After 4% cess, you pay approximately ₹1,040.
Which ITR form should I use for FY 2026-27?
Most salaried employees with one employer and no business income use ITR-1 (Sahaj) or ITR-2 if they have capital gains. The CBDT will notify the exact forms and their availability on the income tax portal (incometax.gov.in) well before the July 2027 filing deadline.
Can I claim HRA in the New Regime?
No. HRA exemption is not available under the New Regime. This is one of the most significant drawbacks for people living in rented accommodation in metro cities. If your HRA exemption is substantial, factor this in before choosing the New Regime.
What deductions are allowed in the New Regime?
Very few: the ₹75,000 standard deduction (salaried/pensioners), employer's NPS contribution u/s 80CCD(2) up to 14% of salary, family pension deduction of ₹25,000 u/s 57(iia), and the Agniveer Corpus Fund u/s 80CCH. All other deductions — 80C, 80D, 80E, HRA, LTA, home loan interest — are not available.
Is NPS investment useful in the New Regime?
Partially. Your own NPS contributions under 80CCD(1B) (the additional ₹50,000 deduction) are not available in the New Regime. However, your employer's NPS contributions under 80CCD(2) are deductible up to 14% of your basic salary — even under the New Regime. If your employer offers NPS contributions, this is worth maximising.
I earn ₹50 lakh salary — which regime should I choose?
At ₹50 lakh, the New Regime is almost certainly better unless you have extraordinary deductions — a very large home loan interest (close to ₹2 lakh cap) plus maximum 80C, NPS, 80D simultaneously — and even then you'd need to verify with the calculator. The New Regime's lower effective rates and the surcharge cap make it superior for most high earners.
What is the last date to file ITR for FY 2026-27?
The standard due date for salaried individuals (without tax audit) is 31 July 2027. With the new revised return window, you can file a revised return up to 31 March 2028 if you discover a mistake.
Does this calculator account for the new Income Tax Act 2025?
Yes — the tax rules are identical between the old Act 1961 and the new Act 2025 for FY 2026-27. The Act 2025 is a structural reorganisation with no changes to rates, slabs, or deductions. This calculator's results are fully accurate for FY 2026-27 under both the old and new Act.
How is tax calculated on capital gains in FY 2026-27?
Short-term capital gains on equity (STCG u/s 111A) are taxed at 20% flat. Long-term capital gains on equity above ₹1.25 lakh (LTCG u/s 112A) are taxed at 12.5% flat. These are taxed at special rates in both regimes and the Section 87A rebate does not apply to this portion of tax.
Disclaimer: This content is for general information only and does not constitute tax advice. Tax laws are subject to change. Please consult a qualified Chartered Accountant before filing your income tax return. Last updated: April 2026.