New tax regime slabs for AY 2026-27: nil up to Rs 4 lakh, and how the ladder to 30 percent works

The new tax regime under Section 115BAC of the Income-tax Act, 1961 is the default regime for the financial year 2025-26, which is assessment year 2026-27. The Finance Act 2025 rebuilt its rate ladder so that no tax is payable up to Rs 4,00,000, and the top rate of 30% now begins only above Rs 24,00,000 — a threshold that sat at Rs 15,00,000 for the previous year. This guide walks through every band, a full worked example on a Rs 16,00,000 salary, and the errors that surface most often when the Centralised Processing Centre (CPC) checks a return.

What the Section Says

Section 115BAC(1A), as substituted by the Finance Act 2025, fixes seven income bands for resident and non-resident individuals, Hindu Undivided Families (HUFs) and most other non-corporate taxpayers for assessment year 2026-27. Because it is the default, you are taxed under these rates unless you actively opt for the old regime (individuals with business income use Form 10-IEA to opt out, per the Income Tax Department's return-applicability guidance at incometax.gov.in).

The ladder is genuinely progressive: each rate applies only to the slice of income that falls inside its band, not to the whole income. The table below shows the marginal rate for each band and the cumulative tax you have paid by the time you reach the top of it.

Two figures sit on top of this ladder. Salaried employees and pensioners deduct a standard deduction of Rs 75,000 from salary before the slabs apply — Rs 25,000 more than the Rs 50,000 allowed in the old regime. And the Section 87A tax rebate in the new regime now wipes out the entire liability where taxable income does not exceed Rs 12,00,000, with a maximum rebate of Rs 60,000. Together these mean a salaried person with a gross salary up to Rs 12,75,000 pays no income tax at all in AY 2026-27.

Above that, a health and education cess of 4% applies to the tax plus any surcharge. Surcharge kicks in only once total income crosses Rs 50,00,000: 10% between Rs 50,00,000 and Rs 1 crore, 15% up to Rs 2 crore, 25% up to Rs 5 crore, and 25% above Rs 5 crore. That top figure matters — the new regime caps surcharge at 25%, so the higher top surcharge rate that the old regime still imposes above Rs 5 crore does not exist here.

Worked Example

Consider Meera, a salaried professional in Pune with a gross salary of Rs 16,00,000 for FY 2025-26 and no other income. She stays in the default new regime.

First, her standard deduction of Rs 75,000 reduces her gross total income to a taxable Rs 15,25,000. Applying the Section 115BAC(1A) ladder slice by slice gives the following.

Her taxable income of Rs 15,25,000 is above the Rs 12,00,000 rebate ceiling, so no Section 87A rebate applies. Adding the 4% cess of Rs 4,350 to the base tax of Rs 1,08,750 gives a total tax of Rs 1,13,100. Against her gross salary of Rs 16,00,000 that is an effective rate of just 7.07%, which shows how far the nil and 5% bands pull the average rate below the 15% marginal rate she actually faces on her top rupee.

You can reproduce this for any salary with the new regime income tax calculator, and check whether the old regime still beats it for your deductions using the old vs new regime comparison.

There is one subtlety just above Rs 12,00,000. A taxpayer with taxable income of Rs 12,10,000 would, on the raw ladder, owe Rs 61,500 — a jump of Rs 61,500 for Rs 10,000 of extra income. Section 87A's marginal relief prevents this: the tax payable is capped at the amount by which income exceeds Rs 12,00,000, so the liability falls to Rs 10,000 plus 4% cess of Rs 400, that is Rs 10,400. Marginal relief tapers off completely by roughly Rs 12,70,000, after which the full ladder applies.

Common Mistakes

The single most common error in ITR scrutiny for AY 2026-27 is confusing gross salary with taxable income when applying the Rs 12,00,000 rebate. The Rs 60,000 rebate is tested against income after the Rs 75,000 standard deduction, so the true break-even for a salaried filer is Rs 12,75,000 of salary, not Rs 12,00,000. Filers who read "no tax up to Rs 12 lakh" as gross pay under-report their liability.

A second recurring mistake is claiming deductions that the new regime disallows. Section 80C (Rs 1,50,000), Section 80D health insurance, Section 80CCD(1B) for the extra Rs 50,000 NPS contribution, HRA under Section 10(13A) and the Section 24(b) housing-loan interest on a self-occupied property are all unavailable under Section 115BAC. In particular, the Section 80CCD(1B) NPS deduction is not available in the new regime — it can only be claimed under the old regime. What the new regime does keep is the employer's NPS contribution under Section 80CCD(2) (up to 14% of basic salary) and the Section 80JJAA deduction for new employment.

Third, taxpayers frequently forget marginal relief just above Rs 12,00,000, either overpaying by not claiming it or triggering a CPC adjustment by mis-stating the relief figure. Fourth, some carry over the old rebate of Rs 12,500 and old slabs (nil only up to Rs 2,50,000) by picking the wrong regime in the utility. Fifth, a handful of high-income filers still apply the old regime's higher top surcharge above Rs 5 crore; the new regime caps the surcharge at 25%, so quoting the older, higher rate overstates the tax.

If CPC does flag a difference, it issues a prima facie adjustment before finalising the demand — our guide on responding to a Section 143(1)(a) intimation explains the 30-day window to reply. For a fuller build-up of the arithmetic across both regimes, the income tax calculator shows the slab-by-slab split.

FAQ

What are the new tax regime slabs for AY 2026-27?

For FY 2025-26 (AY 2026-27) under Section 115BAC(1A): nil up to Rs 4,00,000; 5% from Rs 4,00,001 to Rs 8,00,000; 10% from Rs 8,00,001 to Rs 12,00,000; 15% from Rs 12,00,001 to Rs 16,00,000; 20% from Rs 16,00,001 to Rs 20,00,000; 25% from Rs 20,00,001 to Rs 24,00,000; and 30% above Rs 24,00,000. These are legislated by the Finance Act 2025.

Is income up to Rs 12 lakh really tax-free?

Yes, but the Rs 12,00,000 test applies to taxable income, not gross salary. The Section 87A rebate of up to Rs 60,000 reduces the liability to nil where taxable income does not exceed Rs 12,00,000. A salaried person also gets the Rs 75,000 standard deduction, so a gross salary up to Rs 12,75,000 can be fully tax-free in AY 2026-27.

Can I claim 80C or 80CCD(1B) under the new regime?

No. Section 80C, Section 80D, Section 80CCD(1B) and most other Chapter VI-A deductions are not allowed under Section 115BAC. The 80CCD(1B) additional NPS deduction of Rs 50,000 is available only in the old regime. The new regime retains the employer NPS contribution under Section 80CCD(2) and the Section 80JJAA deduction.

Do I have to choose the new regime, or is it automatic?

It is automatic. Since FY 2023-24 the new regime is the default under Section 115BAC. A taxpayer without business income can simply choose the old regime while filing the ITR; a taxpayer with business or professional income must file Form 10-IEA to opt out, and the option can be exercised only once for such taxpayers, per incometax.gov.in.

What is the standard deduction in the new regime for AY 2026-27?

The standard deduction for salaried employees and pensioners is Rs 75,000 in the new regime for FY 2025-26, compared with Rs 50,000 in the old regime. It is deducted from salary income before the Section 115BAC slabs are applied.

How does marginal relief work just above Rs 12 lakh?

If taxable income is slightly above Rs 12,00,000, the tax payable is limited to the amount by which income exceeds Rs 12,00,000. For example, at Rs 12,10,000 the raw tax would be Rs 61,500, but marginal relief caps it at Rs 10,000 plus 4% cess. The relief fades out at around Rs 12,70,000, after which the normal ladder applies in full.

Is the surcharge really capped at 25% in the new regime?

Yes. Under the new regime the highest surcharge is 25%, applying to total income above Rs 2 crore, including above Rs 5 crore. The higher surcharge slab that exists in the old regime for income above Rs 5 crore does not apply under Section 115BAC. A 4% health and education cess is then levied on tax plus surcharge.