Income Tax in India: Comprehensive Guide for FY 2026-27
Under the Income-tax Act, 1961, every resident Indian earning income above the basic exemption threshold is subject to income tax. The Finance Act established the New Tax Regime (Section 115BAC) as the default regime for all individuals, offering wider tax brackets and lower tax rates in exchange for removing most exemptions and deductions.
New Tax Regime Slabs for FY 2026-27 (AY 2027-28)
Salaried taxpayers benefit from an increased standard deduction of ₹75,000. The updated tax slabs are as follows:
| Net Taxable Income Slab | Income Tax Rate |
|---|---|
| Up to ₹3,00,000 | NIL |
| ₹3,00,001 to ₹7,00,000 | 5% |
| ₹7,00,001 to ₹10,00,000 | 10% |
| ₹10,00,001 to ₹12,00,000 | 15% |
| ₹12,00,001 to ₹15,00,000 | 20% |
| Above ₹15,00,000 | 30% |
The Zero-Tax Threshold: Section 87A Explained
One of the most attractive provisions of the New Tax Regime is the enhanced Section 87A tax rebate. Under Section 87A:
- If your Net Taxable Income does not exceed ₹7,00,000, you receive a full tax rebate of up to ₹25,000, reducing your tax payable to ₹0.
- For salaried individuals, because the ₹75,000 standard deduction is subtracted first, a gross salary of up to ₹7,75,000 attracts zero tax!
Which Regime Should You Choose?
To determine whether the Old or New Regime saves more money, calculate your total eligible deductions under the Old Regime:
- If your total eligible deductions (80C + 80D + HRA + Home Loan Interest + Standard Deduction) exceed approximately ₹3,75,000 to ₹4,25,000, the Old Regime may yield a lower tax liability.
- If you do not have significant rent payments or home loan EMIs, the New Tax Regime is almost always superior, offering lower rates and zero investment lock-in requirements.
Frequently Asked Questions
What is Health and Education Cess in India?
A mandatory 4% Health and Education Cess is levied on the total amount of income tax plus surcharge. It funds national healthcare and government educational initiatives.
Can I switch regimes when filing my ITR?
Yes. Salaried employees can select their preferred tax regime each financial year at the time of filing their Income Tax Return (ITR-1 or ITR-2) under Section 139(1), regardless of what was declared to their employer for TDS purposes.
What is marginal relief under Section 87A?
Marginal relief ensures that if your taxable income marginally exceeds ₹7,00,000 (e.g., ₹7,05,000), the tax you pay cannot exceed the excess amount earned over ₹7,00,000 (i.e., you cannot be taxed more than ₹5,000).