Understanding Income Tax Slabs

Understanding Income Tax Slabs

Introduction: Your Guide to How India Taxes Your Income

Welcome to this lesson on understanding India's income tax slabs! If you've ever looked at your salary slip and wondered how much tax you actually pay, or if you're planning your investments to save tax, you're in the right place.

By the end of this lesson, you will understand:

• How India's progressive tax system works
• The difference between the old and new tax regimes
• How to work out your tax with real examples
• How to compare the two regimes on your own figures
• Common deductions available to Indian taxpayers

Every rate, limit and worked example on this page is filled in from the BullTimes tax engine for FY 2026-27 (Tax Year 2026-27), the same one the income tax calculator uses. When a Budget changes the numbers, this lesson changes with them.

What Are Income Tax Slabs?

Income tax slabs are the bands of income to which different rates of tax apply. India follows a progressive tax system: the more you earn, the higher the rate on each additional rupee. Income in a lower slab is always taxed at that slab's rate, so moving into a higher slab never makes you worse off overall.

The Two Tax Regimes: Old vs. New

Since Budget 2020, Indian taxpayers have had a choice between two tax regimes:

Old Tax Regime

• Allows various deductions and exemptions (Section 123 (formerly 80C), Section 126 (formerly 80D), HRA and others)
• Has fewer, steeper slabs

New Tax Regime

• Lower rates and more slabs, but most deductions are not available
• The default since FY 2023-24: you are on it unless you choose the old one
• Keeps the standard deduction and the employer's NPS contribution (Section 124 (formerly 80CCD(2)))

Income Tax Slabs for FY 2026-27

New Tax Regime (Default)

• Standard deduction for salaried people and pensioners: ₹75,000.
• Rebate under s.87A: if your taxable income is up to ₹12,00,000, a rebate of up to ₹60,000 cancels the tax. Just above that limit, marginal relief stops you paying more in tax than the income you earned above it.
• Health and education cess of 4% is added to the tax.

Old Tax Regime (Optional)

• Standard deduction: ₹50,000.
• Basic exemption by age: ₹2,50,000 below 60, ₹3,00,000 from 60 to 79, and ₹5,00,000 at 80 or over.
• Rebate under s.87A: up to ₹12,500 if taxable income is up to ₹5,00,000.

Practical Examples, Worked Out

Example 1: Rohan, ₹12 lakh salary, new regime

Rohan is 28 and earns a salary of ₹12,00,000. He has few investments and stays on the new regime.

• Gross salary: ₹12,00,000
• Less standard deduction: ₹75,000
• Taxable income: ₹11,25,000
  • 0% on ₹4,00,000: ₹0
  • 5% on ₹4,00,000: ₹20,000
  • 10% on ₹3,25,000: ₹32,500
• Tax on the slabs: ₹52,500
• Less s.87A rebate: ₹52,500
• Plus 4% cess: ₹0
• Tax for the year: ₹0 (0.0% of gross)

The slabs produce some tax, but the s.87A rebate cancels it. This is why a salary of this size can owe nothing under the new regime.

Example 2: Neha, ₹18 lakh salary, new regime

Neha earns ₹18,00,000 and has no deductions to claim.

• Gross salary: ₹18,00,000
• Less standard deduction: ₹75,000
• Taxable income: ₹17,25,000
  • 0% on ₹4,00,000: ₹0
  • 5% on ₹4,00,000: ₹20,000
  • 10% on ₹4,00,000: ₹40,000
  • 15% on ₹4,00,000: ₹60,000
  • 20% on ₹1,25,000: ₹25,000
• Tax on the slabs: ₹1,45,000
• Plus 4% cess: ₹5,800
• Tax for the year: ₹1,50,800 (8.4% of gross)

Example 3: Priya, ₹15 lakh salary, old regime

Priya is 35 and earns ₹15,00,000. She invests ₹1,50,000 in ELSS funds (Section 123 (formerly 80C)), pays ₹25,000 for her family's health insurance (Section 126 (formerly 80D)) and has an HRA exemption of ₹2,00,000: ₹3,75,000 in all.

• Gross salary: ₹15,00,000
• Less standard deduction: ₹50,000
• Less deductions: ₹3,75,000
• Taxable income: ₹10,75,000
  • 0% on ₹2,50,000: ₹0
  • 5% on ₹2,50,000: ₹12,500
  • 20% on ₹5,00,000: ₹1,00,000
  • 30% on ₹75,000 above ₹10,00,000: ₹22,500
• Tax on the slabs: ₹1,35,000
• Plus 4% cess: ₹5,400
• Tax for the year: ₹1,40,400 (9.4% of gross)

On the same salary with none of those deductions, the new regime would come to ₹97,500. Which is lower depends entirely on how much you can claim, so compare the two on your own figures.

Key Deductions Under the Old Regime

Section 123 (formerly 80C): the most used deduction

• Limit: ₹1,50,000 a year, shared by everything below
• What counts: EPF and PPF contributions, ELSS mutual funds, life insurance premiums, NSC, 5-year tax-saving deposits, home loan principal, children's tuition fees

Section 126 (formerly 80D): health insurance

• Self, spouse and children: ₹25,000 (₹50,000 if you are 60 or over)
• Parents: a further ₹25,000 (₹50,000 if either is 60 or over)

Other sections

• Section 22 (formerly 24(b)): interest on a home loan for a house you live in, up to ₹2,00,000
• HRA: exemption for rent paid, worked out from your salary, HRA and rent (the HRA calculator does it)
• Section 124 (formerly 80CCD(1B)): a further ₹50,000 for your own NPS contributions, on top of Section 123 (formerly 80C)

Comparing the Two Regimes

There is no single income at which one regime wins. It depends on how much you can genuinely claim under the old regime, and since the new regime's slabs were widened, the deductions needed to make the old regime come out lower have grown.

Real-life scenario: Ankit earns ₹18,00,000. Under the old regime he can claim ₹1,50,000 under Section 123 (formerly 80C), ₹50,000 of health insurance for his senior-citizen parents and ₹1,80,000 of HRA: ₹3,80,000 in all. On those figures the old regime comes to ₹2,32,440 and the new regime to ₹1,50,800.

The quickest way to see your own answer is the income tax calculator, or My tax year if you want to keep your figures through the year.

Actionable Takeaways

This week

1. Work out your tax under both regimes on your own figures
2. List what you already claim: EPF, insurance premiums and rent often add up to more than people expect
3. Check your Form 16 to see which regime your employer has applied

This quarter

1. Consult a CA if your situation is complex: several income sources, capital gains, or a business
2. Declare your investments to your employer so the right TDS is deducted
3. Review your health insurance: it is protection first, and a deduction under the old regime

This year

1. Choose your regime before you file. Salaried people can switch every year
2. Keep proofs of every deduction you claim
3. Remember NPS: Section 124 (formerly 80CCD(1B)) adds ₹50,000 on top of Section 123 (formerly 80C) under the old regime

Common Mistakes to Avoid

❌ Missing deadlines: old-regime investments count for the year they are made in, so they must be made by 31 March

❌ Not comparing both regimes: work out both before deciding

❌ Forgetting the standard deduction: ₹75,000 under the new regime and ₹50,000 under the old

❌ Not declaring investments to your employer, then finding too much TDS deducted

❌ Ignoring advance tax: due when your tax for the year, after TDS, is ₹10,000 or more

Conclusion

Understanding the slabs is the first step to sensible tax planning. Tax saving should follow from good financial planning, not drive it: an investment is worth making if it fits your goals, with the deduction as a bonus.

Key points:

• India taxes income progressively, under a choice of two regimes
• The new regime has lower rates and a large rebate; the old regime keeps the deductions
• Always work out both before deciding
• Tax planning is one part of your overall financial plan

In the next lesson we look at Section 123 (formerly 80C) in detail: what counts, how the one limit is shared, and how much it can save.

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Disclaimer: This content is for educational purposes only. Please consult a qualified tax adviser for advice on your own situation.