Income Tax Slabs for FY 2026-27 (Tax Year 2026-27): New Regime Rates, ₹12 Lakh Rebate and Who Should Stay in the Old Regime
The new regime slabs under section 202 of the Income-tax Act 2025, the rebate that makes income up to ₹12 lakh tax-free, the ₹75,000 standard deduction, and the cases where the old regime still wins for business owners.
In this article
For FY 2026-27 (tax year 2026-27 under the Income-tax Act 2025) the default new regime charges nil up to ₹4 lakh, then 5%, 10%, 15%, 20% and 25% in ₹4 lakh steps, and 30% above ₹24 lakh. A resident individual with total income up to ₹12 lakh pays no tax because of the ₹60,000 rebate, and salaried people also get a ₹75,000 standard deduction. The old regime is optional and pays only when deductions are large — at ₹15 lakh of income, roughly ₹5.4 lakh of deductions.
Sources checked: 20 October 2026
Facts checked on 20 October 2026 against the Income-tax Act 2025 (sections 19, 156 and 202 on incometaxindia.gov.in) and the Finance Act 2026.
Key facts
| Item | Tax year 2026-27 |
|---|---|
| Default regime | New regime, section 202(1) |
| Tax-free income (new regime) | Up to ₹12 lakh with the rebate (₹12.75 lakh of salary) |
| Rebate | Up to ₹60,000 for resident individuals, with marginal relief |
| Standard deduction (salary) | ₹75,000 new regime; ₹50,000 old regime |
| Surcharge cap (new regime) | 25% |
| Cess | 4% of tax plus surcharge |
| Opting out with business income | Section 202(4)(a), by the return due date; withdrawable once |
What are the new regime slabs for 2026-27?
The new regime rates are nil up to ₹4 lakh and rise by five points for every ₹4 lakh, reaching 30% above ₹24 lakh. The Finance Act 2026 did not change them for tax year 2026-27.
| Total income | Rate |
|---|---|
| Up to ₹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% |
Plus 4% health and education cess, and surcharge above ₹50 lakh.
Is income up to ₹12 lakh tax-free?
Yes, for a resident individual under the new regime: the slab tax on ₹12 lakh is ₹60,000 and the rebate (section 156) cancels it. Marginal relief means someone just above ₹12 lakh never pays more tax than the excess over ₹12 lakh. With the ₹75,000 standard deduction, salary up to ₹12.75 lakh is tax-free.
The new regime gives up most deductions and exemptions — the old investment, health-insurance, HRA and home-loan-interest deductions (formerly sections 80C, 80D, 10(13A) and 24(b) for a self-occupied house) among them. The standard deduction and a few items such as the employer's contribution to your NPS account remain.
What are the old regime rates?
| Total income | Rate |
|---|---|
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
The nil band is ₹3 lakh for residents aged 60–79 and ₹5 lakh for those 80 or older. The old regime keeps the ₹12,500 rebate for income up to ₹5 lakh, a ₹50,000 standard deduction and the usual deductions.
Should a business owner choose the old regime?
Only when deductions are large. Rough test for a proprietor with ₹15 lakh of income:
- New regime: ₹20,000 (5% on ₹4 lakh) + ₹40,000 (10% on ₹4 lakh) + ₹45,000 (15% on ₹3 lakh) = ₹1,05,000 + cess = ₹1,09,200.
- Old regime with ₹4.25 lakh of deductions (for example ₹1.5 lakh of investments, ₹50,000 of additional NPS, ₹25,000 of health insurance and ₹2 lakh of home-loan interest) → taxable ₹10.75 lakh → ₹12,500 + ₹1,00,000 + ₹22,500 = ₹1,35,000 + cess = ₹1,40,400.
The new regime is cheaper here. At this income the old regime starts to win only above about ₹5.4 lakh of deductions. Run both before you file — and remember that a business owner who opts out of the new regime can come back only once.
Points that catch people out
- The rebate stops at ₹12 lakh, softened by marginal relief: a ₹12.5 lakh income pays the lower of the slab tax and the ₹50,000 excess.
- Special-rate income (certain capital gains, winnings) is taxed at its own rate, and the rebate does not cover it. Check the rate for your asset before you assume it is tax-free.
- Firms and LLPs pay 30% plus 12% surcharge above ₹1 crore and cess. Companies pay 22% plus 10% surcharge and cess (25.17% effective) if they opt for section 200 (formerly 115BAA), or 25% (turnover up to ₹400 crore) or 30% otherwise. The slabs above are for individuals and HUFs.
- The opt-out date matters: with business income, the choice of the old regime must be made by the return due date, not after.
What about the FY 2025-26 return?
The same slab structure applied for FY 2025-26 under the 1961 Act (the Finance Act 2025 introduced it); the opt-out was made in Form 10-IEA. The FY 2025-26 return for non-audit business cases was due on 31 August 2026 under the Finance Act 2026, and in audit cases is due on 21 November 2026 after the CBDT extension.
For the instalments that follow from your estimate, see advance tax for 2026-27; if you declare presumptive income, see section 58. Our income tax services compare both regimes on your actual figures — or ask our expert team which one suits you.
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Frequently asked questions
What are the new regime income tax slabs for FY 2026-27?
Nil up to ₹4 lakh; 5% from ₹4 to 8 lakh; 10% from ₹8 to 12 lakh; 15% from ₹12 to 16 lakh; 20% from ₹16 to 20 lakh; 25% from ₹20 to 24 lakh; 30% above ₹24 lakh (section 202(1) of the Income-tax Act 2025), plus 4% cess and any surcharge.
Is income up to ₹12 lakh really tax-free in 2026-27?
Under the new regime, yes, for resident individuals: the slab tax on ₹12 lakh is ₹60,000 and the rebate cancels it, with marginal relief just above ₹12 lakh. Salaried taxpayers also get a ₹75,000 standard deduction, so ₹12.75 lakh of salary is tax-free. The rebate does not cover income taxed at special rates, such as certain capital gains.
How does a business owner choose the old regime for tax year 2026-27?
By exercising the option under section 202(4)(a) on or before the due date of the return for that tax year. The choice continues for later years, can be withdrawn only once, and after withdrawal cannot be made again while there is business or professional income. For FY 2025-26 the same choice was made in Form 10-IEA.
What surcharge applies under the new regime?
Surcharge applies above ₹50 lakh of total income (10%), ₹1 crore (15%) and ₹2 crore (25%); under the new regime it stops at 25%. Health and education cess of 4% applies on tax plus surcharge in both regimes.
Sources
This article is general information for Indian MSMEs, not advice on your specific case. Scheme terms, tax rates and due dates change; the sources above were checked when the article was written or last updated. Speak to a professional before acting on it.
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