Income Tax Rates for Financial Year 2025-26 (Assessment Year 2026-27)

1. Architecture of the Tax Rate System in FY 2025-26

1.1 Dual Regime for Individuals and Similar Entities

For individuals, HUFs, AOPs, BOIs and Artificial Juridical Persons, the law offers two alternative ways to compute tax:

• The Old Regime with traditional slabs and a wide universe of exemptions and deductions;
• The New Regime under section 115BAC(1A), which is the default option, offering lower, more granular slabs but with most exemptions and deductions switched off.

The taxpayer’s core choice is therefore not simply “rate” but “rate + deduction structure”. The same total income can be taxed under either regime with different final results.

1.2 Entity-wise Rate Blocks

Beyond individuals and HUFs, the Act uses separate rate blocks:

• Firms / LLPs – taxed at a flat rate on total income;
• Co-operative societies – small slab then 30%;
• Domestic companies – 25% or 30% in the normal route, plus optional regimes at 25%, 22% or 15%;
• Foreign companies – a nominal 35% rate with surcharge slabs.

These rates are then layered with surcharge and 4% Health & Education Cess, plus special rules like AMT/MAT where applicable.

2. Old Regime Slab Rates – Individuals & HUFs

2.1 Individuals Below 60 and Non-Residents

Under the old regime, for resident individuals below 60 years and all non-resident individuals (irrespective of age), the slabs are:

• Up to ₹2,50,000 – Nil;
• ₹2,50,001 to ₹5,00,000 – 5%;
• ₹5,00,001 to ₹10,00,000 – 20%;
• Above ₹10,00,000 – 30%.

The same slabs also apply to HUFs, AOPs, BOIs and AJPs when they remain under the old regime instead of opting for the new one.

2.2 Resident Senior Citizens (60–<80 Years)

For resident individuals aged 60 years or more but less than 80 years at any time during the year:

• Up to ₹3,00,000 – Nil;
• ₹3,00,001 to ₹5,00,000 – 5%;
• ₹5,00,001 to ₹10,00,000 – 20%;
• Above ₹10,00,000 – 30%.

The higher basic exemption recognises the need to lessen tax pressure on post-retirement incomes while keeping the same 5–20–30% progression beyond that point.

2.3 Resident Super Senior Citizens (80 Years and Above)

Resident individuals aged 80 years or more at any time during the year enjoy an even higher zero-tax band:

• Up to ₹5,00,000 – Nil;
• ₹5,00,001 to ₹10,00,000 – 20%;
• Above ₹10,00,000 – 30%.

There is no 5% slab; tax starts directly at 20% once income crosses ₹5 lakh.

2.4 Rebate Under Section 87A in the Old Regime

In the old regime, a resident individual with total income up to ₹5,00,000 can avail rebate under section 87A, up to a maximum of ₹12,500. This effectively makes tax liability Nil for total income up to ₹5 lakh (before cess).

This rebate is not available to non-residents and operates before cess but after computing basic tax on the slab.

3. New Regime u/s 115BAC(1A) – Default for AY 2026-27

3.1 Who Is Covered and How It Works

The new regime is the default regime for:

• Individuals (residents and non-residents);
• HUFs;
• AOPs, BOIs; and
• Artificial Juridical Persons.

A taxpayer who prefers the old regime must consciously opt for it in the manner prescribed. Under the new regime:

• Many familiar exemptions and deductions are not allowed;
• Slab rates are lower and more finely spaced;
• There is no alternate minimum tax (AMT) for those under this regime.

3.2 New Regime Slab Structure – FY 2025-26

Under section 115BAC(1A), the slab rates for AY 2026-27 are:

• Up to ₹4,00,000 – Nil;
• ₹4,00,001 to ₹8,00,000 – 5%;
• ₹8,00,001 to ₹12,00,000 – 10%;
• ₹12,00,001 to ₹16,00,000 – 15%;
• ₹16,00,001 to ₹20,00,000 – 20%;
• ₹20,00,001 to ₹24,00,000 – 25%;
• Above ₹24,00,000 – 30%.

Instead of sharp spikes at ₹5 lakh and ₹10 lakh, the burden moves smoothly upward, making the new regime more progressive and predictable across the middle-income spectrum.

3.3 Rebate and Marginal Relief Under New Regime

Under the new regime, a resident individual with total income up to ₹7,00,000 is eligible for an enhanced rebate under section 87A, up to ₹60,000. This can make the final tax outgo effectively zero up to that threshold.

A marginal relief mechanism operates near ₹7 lakh so that a small increase in income just above ₹7,00,000 does not cause a disproportionately large jump in tax. The additional tax over the rebate zone is adjusted to ensure that it does not exceed the additional income itself.

3.4 What You Give Up in the New Regime

To access these lower slab rates, taxpayers under the new regime compute income without many classic tax-planning tools, such as:

• House Rent Allowance (HRA) exemption;
• Leave Travel Allowance (LTA);
• Interest on housing loan for self-occupied property (as a deduction from income from house property);
• Most Chapter VI-A deductions like 80C, 80D, 80G and others;
• SEZ deduction and several business incentive deductions.

The philosophy is to swap complex deduction-based planning for a simpler, lower-rate environment.

4. Surcharge, Health & Education Cess and AMT/MAT

4.1 Surcharge on Individuals & HUFs – Old Regime

Under the old regime, individuals and HUFs pay surcharge on income tax at the following levels:

• 10% of tax if total income exceeds ₹50 lakh up to ₹1 crore;
• 15% of tax if income exceeds ₹1 crore up to ₹2 crore;
• 25% if income exceeds ₹2 crore up to ₹5 crore;
• 37% if income exceeds ₹5 crore.

Surcharge on certain long-term capital gains and dividend income is capped at 15%. Marginal relief ensures that the total increase in tax plus surcharge at a threshold does not exceed the incremental income beyond that threshold.

4.2 Surcharge in the New Regime

For taxpayers under the new regime, the surcharge structure is simplified:

• 10% of tax if income exceeds ₹50 lakh up to ₹1 crore;
• 15% if income exceeds ₹1 crore up to ₹2 crore;
• 25% if income exceeds ₹2 crore.

Again, surcharge on specific capital gains and dividend income is generally restricted to 15%, and marginal relief ensures smooth transitions across the thresholds.

4.3 Health & Education Cess

Across regimes and categories (unless specially exempted), Health & Education Cess is levied at 4% on the sum of income tax and surcharge:

4.4 Alternate Minimum Tax (AMT) and Minimum Alternate Tax (MAT)

Alternate Minimum Tax (AMT) at 18.5% of adjusted total income applies to certain non-corporate taxpayers who claim specified deductions, but does not apply to those who opt for the new regime under section 115BAC(1A).

Minimum Alternate Tax (MAT) at 15% of book profits generally applies to companies, but companies that have opted for the special corporate regimes under sections 115BAA or 115BAB are exempt from MAT.

5. Tax Rates for Firms, LLPs and Other Non-Corporate Entities

5.1 Partnership Firms and LLPs

A partnership firm or LLP, whether resident or non-resident, is taxed at:

• 30% on total income;
• 12% surcharge if total income exceeds ₹1 crore;
• 4% cess on tax plus surcharge.

AMT at 18.5% of adjusted total income may apply if the firm or LLP claims specified deductions that trigger AMT provisions.

5.2 HUFs, AOPs, BOIs, AJPs

Hindu Undivided Families (HUFs), Associations of Persons (AOPs), Bodies of Individuals (BOIs) and Artificial Juridical Persons (AJPs) follow:

• The old individual slab (2.5–5–10 lakh thresholds with 5–20–30% bands) when under the old regime; or
• The new regime slab (0–4 lakh Nil, then 5%, 10%, 15%, 20%, 25%, 30%) when under section 115BAC(1A).

This alignment keeps their rate framework parallel to that of individual taxpayers, while still treating the entity as a separate taxable person.

6. Corporate Tax Rates – Domestic Companies

6.1 Normal Domestic Company Rates

For domestic companies in AY 2026-27, the standard corporate tax structure is:

• 25% tax if turnover or gross receipts of FY 2023-24 do not exceed ₹400 crore;
• 30% tax for all other domestic companies.

Surcharge applies as:

• 7% of tax if total income exceeds ₹1 crore up to ₹10 crore;
• 12% of tax if total income exceeds ₹10 crore.

After tax and surcharge, 4% Health & Education Cess is added, with marginal relief at surcharge thresholds.

6.2 Optional Special Corporate Regimes

Domestic companies have access to optional concessional regimes:

• Section 115BA: 25% for certain manufacturing companies (rarely used now due to more attractive options);
• Section 115BAA: 22% for domestic companies that give up specified incentives and deductions; surcharge is a flat 10%;
• Section 115BAB: 15% for new manufacturing companies meeting strict conditions on incorporation, commencement and activity mix, with 10% surcharge.

Companies under 115BAA or 115BAB are not subject to MAT, making these regimes attractive for high-profit, low-incentive structures.

7. Foreign Companies and Co-operative Societies

7.1 Foreign Companies

Foreign companies are taxed at:

• 35% on total income;
• 2% surcharge if income exceeds ₹1 crore up to ₹10 crore;
• 5% surcharge if income exceeds ₹10 crore;
• 4% cess on tax plus surcharge.

MAT may apply to foreign companies with book profits and a taxable presence in India, subject to treaty and permanent establishment considerations.

7.2 Co-operative Societies

Co-operative societies follow a three-step slab:

• Up to ₹10,000 – 10%;
• ₹10,001 to ₹20,000 – 20%;
• Above ₹20,000 – 30%.

Surcharge and cess apply on top, and separate concessional regimes for certain co-operatives may exist (for example, lower flat rates subject to conditions), providing targeted relief to well-defined sectors.

8. Special Income Rates – Capital Gains, Lotteries and Casual Income

Beyond the normal slabs and flat rates, certain types of income carry special tax rates that override general slabs:

8.1 Capital Gains

Capital gains taxation hinges on holding period and asset type:

• Short-term capital gains on listed equity and equity mutual funds, where securities transaction tax (STT) is paid, are usually taxed at 15% under a dedicated section;
• Long-term capital gains on certain assets are taxed at 10% or 20%, depending on whether indexation is permitted and the nature of the asset (listed equity, debt, property, etc.);
• Surcharge on some long-term capital gains and specified income streams is capped at 15%, even for very high-income taxpayers.

These special rates apply irrespective of the general regime (old or new) that the individual or entity uses for other income.

8.2 Lotteries, Gaming, Betting and Similar Incomes

Winnings from lotteries, game shows, gambling, betting, horse races and online gaming are generally taxed at a flat 30%, without slab benefits and often without the ability to set off losses from such activities against other heads of income.

For such income, the TDS rate of 30% effectively mirrors the final tax rate, with separate sections dealing with TDS on each type of winning.

9. Comparing Old vs New Regime for Individuals

9.1 Old Regime – Deduction-Oriented

The old regime is traditionally suited to taxpayers who:

• Make full use of 80C, 80D, 80G and other deductions;
• Have significant HRA-based rent exemptions and LTA claims;
• Pay housing loan interest on self-occupied property;
• Benefit from age-based higher basic exemption (senior and super senior).

However, the old regime also produces more abrupt tax jumps and demands careful documentation and planning throughout the year.

9.2 New Regime – Rate-Oriented and Simpler

The new regime, in contrast, favours taxpayers who:

• Have simpler financial arrangements with few deductions;
• Do not wish to lock funds into long-term tax-saving instruments;
• Prefer predictable, lower slab rates and easier monthly TDS patterns.

The nil tax up to ₹4 lakh, followed by gradual bands of 5%, 10%, 15%, 20%, 25% and 30%, makes the system especially attractive for middle incomes where deduction scope is limited.

9.3 Strategic Decision Framework

A simple strategic lens is:

For taxpayers with business or professional income, switching rules between regimes are more restrictive. Once you opt out of the old regime in certain years, you may be barred from returning, so the decision must be evaluated carefully over a multi-year horizon.

10. Conclusion – Reading the FY 2025-26 Tax Rate Landscape

For Financial Year 2025-26 (Assessment Year 2026-27), India’s income tax rate system is best viewed as a structured matrix:

• Who you are: individual, HUF, firm, company, co-operative or foreign company;
• Which regime you use: old deductions-based or new slab-based for individuals and similar entities;
• What kind of income you earn: business/professional, salary, capital gains, casual winnings, etc.;
• How high your income is: which triggers surcharge and marginal relief.

Once this matrix is understood, the tax rate numbers become the final plug into a well-defined logic rather than an overwhelming list. The move to make the new regime the default, while preserving the old regime as an option, reflects a policy direction towards simplicity and transparency, but leaves room for classic tax planning where it still makes sense.