As the Union Budget 2026 approaches, understanding the current income tax slabs is crucial for effective financial planning. This guide provides an overview of the existing tax structure to help taxpayers navigate their obligations.

Current Income Tax Slabs (FY 2025-26/AY 2026-27)

India's income tax system offers two options: the old regime and the new regime. The new tax regime is the default option, but taxpayers can choose to opt-out and be taxed under the old tax regime.

New Tax Regime:

The new tax regime, effective from April 1, 2025, brings significant changes to income tax slabs. The slabs and rates are as follows:

• Up to ₹4 lakh: Nil
• ₹4 lakh to ₹8 lakh: 5%
• ₹8 lakh to ₹12 lakh: 10%
• ₹12 lakh to ₹16 lakh: 15%
• ₹16 lakh to ₹20 lakh: 20%
• ₹20 lakh to ₹24 lakh: 25%
• Above ₹24 lakh: 30%

Key features of the new regime:

• Rebate: Increased to ₹60,000. However, the rebate isn't applicable for special tax income like capital gains.
• Standard Deduction: ₹75,000 standard deduction is available against salary income.
• Surcharge: The maximum surcharge rate is 25% for income above ₹2 crore.

Old Tax Regime:

For those who prefer to continue with the old tax regime, the income tax slabs remain unchanged. The rates are as follows:

• Up to ₹2.5 lakh: Nil
• ₹2.5 lakh to ₹5 lakh: 5%
• ₹5 lakh to ₹10 lakh: 20%
• Above ₹10 lakh: 30%

Surcharge:

The surcharge rates under the old regime are:

• Up to ₹50 lakhs: Nil
• ₹50 lakhs to ₹1 crore: 5%
• ₹1 crore to ₹2 crore: 15%
• ₹2 crore to ₹5 crore: 25%
• More than ₹5 crore: 37%

Health and Education Cess: A health and education cess of 4% is applied to the income tax plus surcharge (if applicable) under both regimes.

Budget 2026 Expectations

Ahead of the Budget 2026, several expectations are circulating among taxpayers and experts. These include:

• Increase in Standard Deduction: There are demands to increase the standard deduction limit under both regimes, possibly to ₹1 lakh, to offset inflation and rising living costs.
• NPS Deduction: An additional ₹50,000 NPS deduction may be explicitly allowed under the new regime, outside the 80C limit, to encourage long-term retirement savings.
• Tax-free Income: It is anticipated that the government may address the tax rebate under Section 87A of the Income-Tax Act 1961, which currently doesn't apply to income from equity shares and mutual funds, even when a taxpayer's total income is not over ₹12 lakh.
• Clarity on NPS withdrawals: Budget 2026 could clarify the tax treatment of higher NPS lump-sum withdrawals introduced under recent PFRDA rule changes.
• Simplifying Regime Selection: Experts expect a built-in regime selection option within the ITR form to simplify the choice and reduce mistakes.

Other Key Expectations:

• Focus on Food Security: Budget 2026–27 should enhance incentives for millet procurement, establish processing units, and create market linkages.
• Climate-Resilient Agriculture: Scaling climate-smart practices and expanding digital agriculture initiatives is also expected.

Understanding these current income tax slabs and keeping an eye on the upcoming budget announcements will enable taxpayers to optimize their financial planning and make informed decisions.