The Income Tax Act, 2025 replaces the Income Tax Act, 1961 as India's governing income tax law starting April 1, 2026, the beginning of FY 2026-27. Despite being described as a full rewrite, the government has been explicit that it's designed to be revenue neutral — the new-regime slab rates and thresholds for this filing year were already set before the Act's rollout and don't change again because of it. What the Act mainly does is consolidate and simplify decades of amendments into one restructured law.
The short version: the new tax regime's slabs for FY 2026-27 stay as previously announced — nil up to ₹4 lakh, then rising in steps to 30% above ₹24 lakh. A ₹75,000 standard deduction plus the Section 87A rebate combine to make salaried income up to ₹12.75 lakh effectively tax-free under the new regime. The old regime, with its deductions and exemptions, is still available if it works out cheaper for your situation.
What the Income Tax Act 2025 actually is
Rather than a new set of tax rates, this is a structural rewrite of the law itself — India's income tax framework had accumulated more than six decades of amendments layered onto the original 1961 Act, and the new Act reorganizes that into a cleaner, more consolidated structure. The government's stated intent is simplification, not raising revenue: the slabs and major thresholds in force for FY 2026-27 are the same ones already announced ahead of this transition.
The FY 2026-27 slabs under the new regime
| Taxable income | Rate |
|---|---|
| ₹0 – ₹4,00,000 | Nil |
| ₹4,00,000 – ₹8,00,000 | 5% |
| ₹8,00,000 – ₹12,00,000 | 10% |
| ₹12,00,000 – ₹16,00,000 | 15% |
| ₹16,00,000 – ₹20,00,000 | 20% |
| ₹20,00,000 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
These are marginal rates applied slab by slab, the same structure the tax calculator on this site already uses — only the income in each band is taxed at that band's rate, not your whole income at your top rate.
How the ₹12.75 lakh "tax-free" threshold actually works
Two things stack together for salaried taxpayers under the new regime: a flat ₹75,000 standard deduction applied to gross salary before the slabs, and a Section 87A rebate of up to ₹60,000 that zeroes out tax entirely if your taxable income (after the deduction) doesn't exceed ₹12,00,000. Combine the two and a gross salary up to ₹12,75,000 ends up owing nothing.
Here's the arithmetic for a salary right at that line, and just above it:
| Gross salary | Taxable income (after ₹75,000 deduction) | Tax before rebate | Final tax due |
|---|---|---|---|
| ₹12,75,000 | ₹12,00,000 | ₹60,000 | ₹0 (rebate covers it) |
| ₹13,00,000 | ₹12,25,000 | ₹63,750 | ₹63,750 (rebate no longer applies) |
That second row is the part worth planning around: the 87A rebate is a threshold, not something that phases out gradually. Taxable income at exactly ₹12,00,000 owes nothing; taxable income at ₹12,25,000 owes the full ₹63,750, calculated normally across the slabs with no rebate cushioning it. A raise or bonus that pushes you just over the line can cost far more in tax than the extra income itself.
Is the old regime still worth choosing?
Yes — the Income Tax Act 2025 didn't remove the choice between the new regime (lower rates, few deductions) and the old regime (higher rates, but HRA exemption, Section 80C investments, home loan interest, and other deductions all still apply). Someone with a large home loan, significant 80C investments, and HRA to claim can still come out ahead on the old regime despite its higher headline rates — it depends entirely on how much you can actually deduct, which is worth calculating both ways rather than assuming the newer, simpler option automatically wins.
What this means for your filing
- Salaried and under ₹12.75 lakh gross: the new regime likely owes you nothing — confirm with your actual numbers rather than assuming.
- Just above that threshold: double-check whether timing a bonus or additional income into next year avoids tipping you past the rebate cliff.
- Significant deductions available (HRA, 80C, home loan): run the comparison against the old regime before defaulting to the new one.