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, 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
From 1 April 2026 the Income-tax Act 2025 governs your income — it calls FY 2026-27 the "tax year 2026-27" and drops the separate assessment year. The slab structure it inherits is the one the Finance Act 2025 introduced, and it is what most proprietors and salaried people will pay under this year.
New regime slabs — 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.
Rebate: a resident individual with total income up to ₹12 lakh gets a rebate of up to ₹60,000 — exactly the slab tax on ₹12 lakh — so pays nothing. Marginal relief means someone just above ₹12 lakh never pays more tax than the excess over ₹12 lakh.
Standard deduction: ₹75,000 for salary and pension income under the new regime, which makes salary up to ₹12.75 lakh tax-free.
What the new regime gives up
No deduction for 80C investments, 80D health insurance, HRA, LTA, home-loan interest on a self-occupied house, or most other Chapter VI-A items. Employer NPS contribution (80CCD(2)), the standard deduction and family-pension deduction survive.
Old regime — unchanged
| 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% |
With the ₹12,500 rebate for income up to ₹5 lakh, a ₹50,000 standard deduction, and all the usual deductions.
Which regime for a business owner?
The old regime wins only when deductions are large. Rough test for a proprietor with ₹15 lakh of income:
- New regime: ₹20,000 (5% on 4L) + ₹40,000 (10% on 4L) + ₹45,000 (15% on 3L) = ₹1,05,000 + cess = ₹1,09,200.
- Old regime with ₹1.5 lakh 80C, ₹50,000 NPS (80CCD(1B)), ₹25,000 80D and ₹2 lakh home-loan interest = ₹4.25 lakh of deductions → taxable ₹10.75 lakh → ₹12,500 + ₹1,00,000 + ₹22,500 = ₹1,35,000 + cess = ₹1,40,400.
Even with generous deductions the new regime is cheaper here. The old regime tends to win only above roughly ₹4.5–5 lakh of deductions at this income level, or for taxpayers with large HRA claims. 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 is lost entirely once total income crosses the threshold, subject to marginal relief. A ₹12.5 lakh income does not pay tax on ₹12.5 lakh — it pays the lower of the slab tax and ₹50,000.
- Special-rate income — short-term capital gains on shares at 20%, long-term gains above the exemption at 12.5%, lottery winnings — is taxed at its own rate and the rebate does not apply to it.
- Firms and LLPs pay 30% flat plus surcharge and cess. Companies pay 22% (plus 10% surcharge and cess, 25.17% effective) if they opted for the concessional regime, or 25%/30% otherwise. The slabs above are for individuals and HUFs.
- Form 10-IEA for opting out with business income must be filed before the due date of the return, not with it.
FY 2025-26 (the return you file by July 2026)
The same slab structure applied for FY 2025-26 under the 1961 Act — the Finance Act 2025 introduced it — so the numbers above are also the ones for the return you are about to file. The difference is the law cited on the form.
Our income tax services include an old-versus-new comparison on your actual figures and handle the Form 10-IEA timing.
Frequently asked questions
Is income up to ₹12 lakh really tax-free?
Under the new regime, yes, for resident individuals: the slab tax on ₹12 lakh is ₹60,000 and the rebate cancels it. Salaried taxpayers get a further ₹75,000 standard deduction, so ₹12.75 lakh of salary is tax-free. The rebate does not apply to special-rate income such as short-term capital gains on shares.
Which regime is the default?
The new regime. If you want the old regime and have business or professional income, you must file Form 10-IEA before the return due date — and you can switch back to the new regime only once in your lifetime.
What about the surcharge?
Surcharge applies above ₹50 lakh of total income (10%), ₹1 crore (15%) and ₹2 crore (25%); under the new regime the top rate is capped 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.
Not sure which schemes fit your business?
Two minutes, no sign-up. See your matches across central and state schemes.