Income Tax Slab FY 2025-26: Old vs New Regime | ITR 2025 Guide by CA Devesh Thakur

Complete Income Tax Calculation Guide FY 2025-26 (Old vs New Regime, Deductions, Rebate, Surcharge & Relief)

By CA Devesh Thakur — Simplified for Students, Taxpayers & Accountants

This is your ultimate Income Tax blueprint for FY 2025-26 (Assessment Year 2026-27). Instead of memorising slabs and formulas, this blog explains the logic, flow and computation — step by step — so you understand how tax is really calculated, not just what the numbers are.

Introduction – Why This Guide Matters

Every year, taxpayers ask the same questions:

• When do I pay income tax?
• How is taxable income calculated?
• Should I choose the old or new regime?
• What deductions can I claim?
• How do rebate, surcharge and relief work?

This guide covers every step — from head-wise income to final tax payable or refund.
It’s structured so that even beginners can follow, and advanced learners can use it as a reference.

When Do You Pay Income Tax?

Income tax is computed based on income earned during the financial year (April 1 – March 31).
But tax doesn’t wait till filing time — government ensures you pay as you earn during the year itself.

Taxes get collected in multiple ways:

1. Advance Tax – If your estimated tax liability in a year is ₹10,000 or more, you must pay tax in instalments during the year. The idea is to prevent year-end bulk payment and ensure steady revenue. (eTaxSave)
2. TDS (Tax Deducted at Source) – Employer, banks and other payers deduct tax at source on your behalf.
3. TCS (Tax Collected at Source) – Seller collects tax on certain transactions.
4. Self-Assessment Tax – If after accounting for advance tax and TDS there is remaining tax due, you pay it before filing your return.
5. Equalisation Levy – A special levy on certain digital transactions with non-resident entities.

Step 1 — Five Heads of Income

Under Section 14 of the Income Tax Act, all income must be classified under one of five heads:

If income doesn’t fit the first four heads, it falls under “Other Sources”.

🧮 Step 2 — What is Gross Total Income (GTI)?

Gross Total Income (GTI) is the sum of income under all five heads after adjusting losses.

Loss adjustments can include:
• Inter-source losses
• Inter-head losses
• Brought forward losses
• Unabsorbed depreciation

After these adjustments, the remaining amount is your GTI — the foundation for computing tax.

📊 Step 3 — GTI vs Total Income

Many students confuse GTI with Total Income.

• GTI = Income from all heads after losses.
• Total Income = GTI − Deductions under Chapter VI-A (80C to 80U).

Formula:
Total Income (Taxable Income) = GTI − Deductions (80C to 80U)

Total Income is the amount on which your final tax liability is computed.

ITR FY 2025-26: Complete Comparison of Old vs New Tax Regime (Below 60, 60–80 & 80+ Individuals)

By CA Devesh Thakur

If you are filing ITR for FY 2025-26 (AY 2026-27), the biggest question is:

You can download them below:

• 📘 Individual (Below 60 Years) – Old vs New Regime Comparison
Download here: income tax slab applicable for …

• 📘 Individual (Age 60–80 Years) – Tax Comparison (AY 2026-27)
Download here: Individual_60_to_80_Tax_Compari…

• 📘 Super Senior Citizen (80+ Years) – Detailed Comparison
Download here: Super_Senior_80Plus_Tax_Compari…

• 📘 Complete Income Tax Slab Guide – FY 2025-26 (With Amendments)
Download here: income tax slab applicable for …

Old Tax Regime or New Tax Regime — which is better?

With the updated slabs, ₹12 lakh rebate in new regime, and surcharge caps, the answer is no longer emotional. It is mathematical.

This detailed guide covers:

• Slab rates
• Rebate u/s 87A
• Surcharge structure
• Deductions impact
• Age-wise comparison
• Strategic decision guide

1️⃣ Basic Exemption Limit – Age Wise Comparison

🔎 Important:
The new regime does NOT give any age-based higher exemption.

2️⃣ Tax Slab Structure – Detailed Comparison

A. Old Tax Regime

Old Tax Regime

Applicable if you choose the old regime and claim deductions/exemptions.

(a) Below 60 Years

(b) 60–80 Years (Senior Citizens)

(c) 80+ Years (Super Senior Citizens)

B. New Tax Regime (Same for All Ages)

New Tax Regime — Section 115BAC(1A)

Default regime for FY 2025-26. It has lower slab rates but limited deductions.

Rule of thumb:

• If you have significant deductions (80C, 80D, HRA, home loan interest), old regime can be better.

If you don’t claim many deductions, new regime usually gives lower tax

3️⃣ Rebate Under Section 87A (Major Change)

Effective Zero Tax Limit

• Old regime → ₹5 lakh
• New regime → ₹12 lakh (normal slab income)

This is the biggest structural shift.

4️⃣ Surcharge Comparison

Special Cap (Both Regimes)

🔎 High income earners above ₹5 crore benefit significantly under new regime due to surcharge cap.

5️⃣ Deductions & Exemptions Comparison

If you have significant deductions, old regime may still be beneficial.

If you have minimal deductions, new regime usually wins.

6️⃣ Health & Education Cess

Applicable in both regimes:

4% on tax + surcharge

7️⃣ Practical Decision Guide (Strategic View)

8️⃣ Common Mistakes Taxpayers Make

1. Choosing old regime emotionally because “age exemption is higher.”
2. Ignoring surcharge impact at higher income levels.
3. Assuming ₹12L means zero tax without checking special rate income.
4. Not calculating both regimes before filing ITR.

Tax planning is not about assumptions. It is about computation.

Conclusion: Which Tax Regime is Better for FY 2025-26?

There is no universal answer.

The new regime dominates for:

• Salaried individuals with fewer deductions
• Income up to ₹12 lakh
• Very high income earners due to surcharge cap

The old regime may still benefit:

• Senior citizens with high medical expenses
• Individuals claiming substantial deductions
• Housing loan interest cases

The correct regime must be chosen after calculation.

🔹 Section 86 – Income from AOP / BOI

If you’re a member of an Association of Persons (AOP) or Body of Individuals (BOI), your share of income may or may not be taxed in your hands depending on how the AOP is taxed. Relief prevents double taxation.

🔹 Section 89 – Salary Arrears Relief

If salary is paid in arrears/advance causing higher tax slab in one year, Section 89 redistributes the impact over relevant years to avoid excessive tax.

🔹 Section 90 / 90A – DTAA & Treaty Relief

India enters tax treaties with foreign countries to prevent double taxation. If the treaty benefits you more than domestic law, you can choose the beneficial provision. Non-residents require a Tax Residency Certificate (TRC) to claim treaty benefits.

🔹 Section 91 – Unilateral Relief (No Treaty)

If there’s no tax treaty with a country but tax is paid there on foreign income, you may get relief in India by comparing Indian and foreign tax rates and choosing the lower.

Completed Tax Computation Format

Here is the structured format you should follow:

Amendments to the Income-Tax Act: The Finance Bill, 2025 (AY 2026-27)

This briefing document provides a comprehensive synthesis of the tax rate structures, surcharges, rebates, and specific amendments introduced by the Finance Bill, 2025, for the Assessment Year (AY) 2026-27. It outlines the transition toward the New Tax Regime as the default framework and details the fiscal implications for individuals, corporations, and other legal entities.

Executive Summary

The Finance Bill, 2025, signals a significant shift in the Indian tax landscape, primarily by incentivizing the New Tax Regime (Section 115BAC(1A)) through expanded tax slabs and substantially higher rebate limits. Key takeaways include:

• New Tax Regime Dominance: The New Tax Regime is now the default tax framework. It features revised, wider tax slabs with a top rate of 30% applicable only above ₹24,00,000.
• Substantial Rebate Expansion: Under Section 87A, the total income limit for tax rebates under the New Regime has been increased from ₹7,00,000 to ₹12,00,000, with the maximum rebate amount rising to ₹60,000.
• Corporate Tax Rationalization: Foreign company tax rates have been reduced to 35% (down from 40%). For domestic companies, preferential rates of 15% and 22% remain available under specific sections (115BAB and 115BAA).
• Surcharge Caps: Surcharges under the New Tax Regime are capped at 25%, a reduction from the 37% maximum applicable under the Old Regime. Additionally, surcharges on dividends and specific capital gains are capped at 15%.
• Special Rate Exclusions: A critical clarification maintains that Section 87A rebates do not apply to incomes chargeable at special rates, such as capital gains under sections 111A and 112.

1. Individual Taxation: New vs. Old Regime

The Finance Bill, 2025, maintains the coexistence of two tax regimes but clearly positions the New Tax Regime as the primary vehicle for individual taxation.

1.1 New Tax Regime (Section 115BAC(1A))

This is the default regime for Individuals, Hindu Undivided Families (HUF), Association of Persons (AOP), Body of Individuals (BOI), and Artificial Juridical Persons (AJP).

1.2 Old Tax Regime

No changes have been made to the basic exemption limits or slab rates for those opting out of the New Regime.

• Standard Category:
  • 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%
• Senior Citizens (60 to 80 years): Exemption limit is ₹3,00,000.
• Super Senior Citizens (80+ years): Exemption limit is ₹5,00,000.

2. Enhanced Rebate under Section 87A

The Finance Bill, 2025, introduces pivotal amendments to the rebate available to resident individuals under the New Tax Regime.

• Threshold Increase: For AY 2026-27, the income threshold for the rebate under the New Tax Regime increases from ₹7,00,000 to ₹12,00,000.
• Rebate Amount: The maximum rebate is enhanced from ₹25,000 to ₹60,000.
• Marginal Relief: Marginal relief is provided where the total income exceeds ₹12,00,000, ensuring the tax payable does not exceed the amount by which the income exceeds the threshold.
• Restriction on Special Incomes: The rebate under Section 87A is explicitly not available on tax calculated for incomes chargeable at special rates, including capital gains under sections 111A and 112.
• Old Regime Comparison: Under the old regime, the rebate remains restricted to individuals with total income not exceeding ₹5,00,000.

3. Surcharges, Cess, and Marginal Relief

Surcharges are applied as an additional percentage on the income tax amount, subject to specific caps and relief measures.

3.1 Surcharge Rates for Individuals/HUF/AOP/BOI/AJP

• Income > ₹50 Lakhs to ₹1 Crore: 10%
• Income > ₹1 Crore to ₹2 Crores: 15%
• Income > ₹2 Crores to ₹5 Crores: 25%
• Income > ₹5 Crores: 37% (Note: This 37% rate does not apply under the New Tax Regime; the maximum is capped at 25%).
• Specific Income Caps: Surcharge on dividend income and capital gains (Sections 111A, 112, 112A) is capped at 15%.

3.2 Marginal Relief

Marginal relief is provided across all categories to ensure that the increase in tax (including surcharge) does not exceed the increase in income beyond the specified thresholds (₹50L, ₹1Cr, ₹2Cr, ₹5Cr).

3.3 Health and Education Cess

A uniform ‘Health and Education Cess’ of 4% is levied on the total amount of income tax plus surcharge across all categories of taxpayers.

4. Corporate and Institutional Taxation

Tax rates for companies and other entities vary based on their nature, turnover, and the specific regulatory sections they opt into.

4.1 Domestic Companies

• Surcharge for Domestic Companies:
  • Income > ₹1 Crore to ₹10 Crores: 7% (reduced to 10% flat for sections 115BAA/115BAB regardless of income).
  • Income > ₹10 Crores: 12%.

4.2 Foreign Companies

• Tax Rate: Reduced to 35% (from the previous 40%).
• Surcharge: 2% if income exceeds ₹1 Crore; 5% if income exceeds ₹10 Crores.

4.3 Other Entities

• Co-operative Societies: Taxed at 10%/20%/30% slabs unless opting for Section 115BAD (22%) or Section 115BAE (15% for new manufacturing). Surcharge is 7% (>₹1Cr) or 12% (>₹10Cr); however, if opting for special sections, surcharge is a flat 10%.
• Firms (including LLP): Taxed at a flat 30%. Surcharge of 12% applies if income exceeds ₹1 Crore.
• Local Authorities: Taxed at a flat 30%. Surcharge of 12% applies if income exceeds ₹1 Crore.

5. Summary Table: Surcharge Caps and Specifics