How to Calculate Your Income Tax for FY 2025-26 Step by Step
Published 29 June 2026 · Tax & Salary
Arjun works at a mid-size IT company in Chennai. When he got his Form 16, he simply filed his ITR using the TDS his employer had already deducted — ₹1,20,000. Done, he thought. Three months later his CA glanced at his salary slip and pointed out he was on the wrong regime. Arjun could have paid ₹40,000 less. He had not made any calculation error. He just had not made any calculation at all. This post shows the math that would have saved him.
New Regime Tax Slabs for FY 2025-26
The new tax regime introduced in Budget 2023 and made the default from FY 2024-25 uses these slabs:
| Income Slab | Tax Rate |
|---|---|
| ₹0 – ₹4,00,000 | 0% |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
Add 4% health and education cess on the total tax computed above. No cess is charged on zero-tax cases.
Section 87A Rebate and the Zero-Tax Threshold
Under the new regime, if your taxable income is ₹12 lakh or below, Section 87A gives you a rebate equal to your entire tax liability — so the tax payable is ₹0. Here is the working: tax on ₹12L under new regime slabs = 5% × ₹4L + 10% × ₹4L = ₹20,000 + ₹40,000 = ₹60,000. The 87A rebate is exactly ₹60,000 for this bracket. Result: zero tax.
Salaried employees get an additional ₹75,000 standard deduction under the new regime. That means an employee earning ₹12,75,000 has a taxable income of ₹12,00,000 after the deduction — and pays zero tax. Gross salary of ₹12.75 lakh. Not a paisa of income tax.
Worked Example — ₹15 Lakh Salary, New Regime vs Old Regime
New regime: Gross salary ₹15,00,000. Standard deduction: ₹75,000. Taxable income: ₹14,25,000.
Tax calculation on ₹14.25L:
0–4L → ₹0
4–8L → 5% × ₹4,00,000 = ₹20,000
8–12L → 10% × ₹4,00,000 = ₹40,000
12–14.25L → 15% × ₹2,25,000 = ₹33,750
Total tax = ₹93,750. Cess 4% = ₹3,750. Total: ₹97,500.
Old regime (with typical deductions — 80C ₹1.5L, HRA ₹1.5L, 80D ₹25K, standard deduction ₹50K = ₹3.75L total): Taxable income = ₹15L – ₹3.75L = ₹11.25L.
Old regime tax on ₹11.25L:
0–2.5L → ₹0
2.5–5L → 5% × ₹2.5L = ₹12,500
5–10L → 20% × ₹5L = ₹1,00,000
10–11.25L → 30% × ₹1.25L = ₹37,500
Total tax = ₹1,50,000. Cess 4% = ₹6,000. Total: ₹1,56,000.
New regime saves ₹58,500 on this salary, even after accounting for all the typical old-regime deductions. Arjun's employer defaulted to the new regime for TDS — which was actually the right regime here — but Arjun had assumed his Section 80C investments would put the old regime ahead. Running the actual numbers showed otherwise.
Run this for your own numbers
Calculate Your Income Tax →What Most People Get Wrong
Employers default to the new regime for TDS calculations unless you submit Form 10-IEA explicitly declaring the old regime. If the old regime saves you money and you want to use it, you must actively opt in — every financial year, through your HR portal or a physical declaration. The default is not neutral. It favours whichever regime your employer picks, which may not be the one that minimises your tax. Most HR portals have an investment declaration window in January where you can switch. Miss that window and your employer locks your regime for the year. You can still claim the difference when you file your ITR — but you lose the cash flow benefit of lower monthly TDS for 12 months.
Frequently Asked Questions
What are the income tax slabs for FY 2025-26 under the new regime?
0–4L: 0%, 4–8L: 5%, 8–12L: 10%, 12–16L: 15%, 16–20L: 20%, 20–24L: 25%, above 24L: 30%. Plus 4% health and education cess on tax payable.
What is the Section 87A rebate for FY 2025-26?
Under the new regime, income up to ₹12 lakh has zero tax due to the Section 87A rebate. With the ₹75,000 standard deduction, salaried employees earning up to ₹12.75L pay zero tax.
Is the new tax regime better than the old regime for FY 2025-26?
For most salaried employees, the new regime is better unless you have high deductions (HRA over ₹1.5L, NPS, large insurance premiums). The new regime wins by ₹58,500 on a ₹15L salary with moderate old-regime deductions.
How is income tax calculated for a ₹15 lakh salary in FY 2025-26?
New regime: Taxable income = ₹15L – ₹75K standard deduction = ₹14.25L. Tax = ₹20K (5% on 4–8L) + ₹40K (10% on 8–12L) + ₹33,750 (15% on 12–14.25L) = ₹93,750. Plus 4% cess = ₹97,500 total.
What is the standard deduction for salaried employees in FY 2025-26?
₹75,000 under the new regime. ₹50,000 under the old regime.
New or old regime — have you run the comparison for your actual salary and actual investments?