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FinCalc India

Guide · Updated 8 Sept 2026

Understanding Income Tax in India

Individuals in India can be taxed under two regimes. This guide explains how each works for FY 2025-26 (AY 2026-27) (per the Union Budget 2025 — Finance Act 2025) and how to choose. It is general information, not tax advice.

The two regimes

  • New regime (default): lower slab rates, a ₹75,000 standard deduction for salaried people, but almost no other exemptions or deductions.
  • Old regime: higher slab rates, a ₹50,000 standard deduction, but you can claim 80C, 80D, HRA, home-loan interest, NPS and more.

Key building blocks

  • Standard deduction: a flat reduction from salary/pension income.
  • Section 87A rebate: reduces tax to nil for lower incomes — up to ₹12,00,000 taxable income under the new regime, ₹5,00,000 under the old.
  • Health & education cess: 4% on tax (plus surcharge).
  • Surcharge: an extra levy at higher incomes (from 10% above ₹50 lakh).

Choosing a regime

Add up the deductions you can genuinely claim under the old regime — 80C, 80D, HRA, home-loan interest, NPS. If they are large, the old regime may tax you less. If they are small, the new regime's lower rates usually win. Compare the total tax both ways for your numbers.

Practical tips

  • You can switch regimes each year if you have only salary income; business income has stricter rules.
  • Employers ask for your regime choice at the start of the year for TDS; you can still change it when filing.
  • Keep proof for every deduction you claim under the old regime.

Frequently asked questions

Which regime is the default?

The new regime is the default. You must actively opt for the old regime if you want to claim its deductions and exemptions.

Can I claim 80C under the new regime?

No. The new regime removes most deductions including 80C, 80D and HRA. The main exception is the employer's contribution to NPS under Section 80CCD(2).

What is marginal relief at the rebate threshold?

Just above the income level where the 87A rebate stops, tax is capped so you never pay more extra tax than the extra income over the threshold. Our income tax calculator applies a basic version of this.

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