To calculate tax as per new regime for FY 2025-26, first determine your taxable income after eligible deductions, then apply the seven new-regime tax slabs.
After calculating slab-wise tax, check whether you qualify for the Section 87A rebate of up to ₹60,000, consider marginal relief where applicable, and add 4% Health and Education Cess to the tax payable.
The Income Tax Department confirms that the new-regime slabs for AY 2026-27 start with nil tax up to ₹4 lakh and reach 30% above ₹24 lakh.
For a salaried taxpayer, the ₹75,000 standard deduction can reduce taxable salary before the slab calculation. This means a salary figure and taxable income are not necessarily the same.
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How to Calculate Tax as Per New Regime
The easiest way to calculate income tax under the new regime is to follow this sequence:
- Calculate total income from salary, pension, business or profession, interest and other taxable sources.
- Identify eligible deductions available under the new regime.
- Subtract the applicable deductions to arrive at taxable income.
- Apply the FY 2025-26 new-regime tax slabs to each portion of taxable income.
- Calculate the tax before rebate.
- Check eligibility for the Section 87A rebate.
- Check whether marginal relief applies where relevant.
- Add 4% Health and Education Cess on the applicable income-tax and surcharge, if any.
- Arrive at the final tax liability.
This slab-by-slab approach is important because the highest applicable rate does not apply to the entire taxable income.
New Tax Regime Slabs for FY 2025-26
For FY 2025-26, the new tax regime has seven income bands for individuals. The Income Tax Department lists the following rates for AY 2026-27.
| Taxable Income | Tax Rate |
|---|---|
| Up to ₹4 lakh | Nil |
| ₹4 lakh–₹8 lakh | 5% |
| ₹8 lakh–₹12 lakh | 10% |
| ₹12 lakh–₹16 lakh | 15% |
| ₹16 lakh–₹20 lakh | 20% |
| ₹20 lakh–₹24 lakh | 25% |
| Above ₹24 lakh | 30% |
Example: Tax on ₹10 lakh taxable income
Suppose taxable income is ₹10 lakh.
- First ₹4 lakh: Nil
- Next ₹4 lakh: ₹20,000 at 5%
- Remaining ₹2 lakh: ₹20,000 at 10%
Tax before rebate = ₹40,000
If the taxpayer is a resident individual and meets the Section 87A conditions, the applicable rebate can eliminate this tax because taxable income is within the ₹12 lakh threshold.
How to Calculate Taxable Income Under the New Regime
Tax is calculated on taxable income, not simply on gross salary.
For a salaried employee, a simplified calculation can look like this:
Gross salary − eligible standard deduction − other eligible deductions = taxable income
The deductions available under the new regime are more limited than under the old regime, so a taxpayer should not automatically subtract investments such as Section 80C payments when performing a new-regime calculation.
Standard Deduction for Salaried Taxpayers
The standard deduction available against salary income under the new regime is ₹75,000 for FY 2025-26. It also applies to eligible pension income.
For example:
Annual salary: ₹15,00,000
Less: Standard deduction: ₹75,000
Taxable salary: ₹14,25,000
The ₹14.25 lakh figure is then used for the normal slab calculation, subject to other income, deductions and applicable tax rules.
Employer NPS Contribution
Employer contributions to the National Pension System can qualify for deduction under Section 80CCD(2), subject to the applicable conditions and limits.
For FY 2025-26, the Income Tax Department specifies a 14% of salary deduction limit for Section 80CCD(2) under the new regime for all categories of employers.
This is different from an employee’s own NPS contribution. The new regime does not generally allow taxpayers to treat every old-regime deduction as an available deduction.
Step-by-Step Income Tax Calculation Example
Consider a salaried taxpayer earning ₹15,50,000 during FY 2025-26, with no other income or eligible deductions apart from the standard deduction.
Step 1: Calculate taxable income
Annual salary: ₹15,50,000
Less: Standard deduction: ₹75,000
Taxable income: ₹14,75,000
Step 2: Apply the tax slabs
The tax is calculated progressively:
- First ₹4,00,000: Nil
- Next ₹4,00,000 at 5%: ₹20,000
- Next ₹4,00,000 at 10%: ₹40,000
- Remaining ₹2,75,000 at 15%: ₹41,250
Therefore:
Tax before rebate = ₹20,000 + ₹40,000 + ₹41,250 = ₹1,01,250
Step 3: Check Section 87A
The taxable income is ₹14.75 lakh, which exceeds the ₹12 lakh threshold for the Section 87A rebate.
Therefore, the ₹60,000 rebate is not available in this example.
Step 4: Add Health and Education Cess
Income tax: ₹1,01,250
4% cess: ₹4,050
Final tax liability = ₹1,05,300
This example shows why the calculation should be based on taxable income rather than simply applying a percentage to the annual salary.
How Section 87A Rebate Affects New-Regime Tax Calculation
Section 87A provides a rebate of income tax to eligible resident individuals.
Under the FY 2025-26 new regime, the rebate can be up to ₹60,000 when taxable income does not exceed ₹12 lakh.
The rebate is applied against eligible income-tax liability. It does not mean that every type of income is automatically tax-free.
Example at ₹12 lakh taxable income
If taxable income is exactly ₹12 lakh, the normal slab calculation produces:
- ₹0 on first ₹4 lakh
- ₹20,000 on the next ₹4 lakh
- ₹40,000 on the next ₹4 lakh
Tax before rebate = ₹60,000
For an eligible resident individual, the Section 87A rebate can reduce that tax to ₹0.
No cess is payable on income tax that has been completely eliminated by the rebate.
What about salary of ₹12.75 lakh?
A salaried taxpayer receiving ₹12.75 lakh can have taxable income of ₹12 lakh after the ₹75,000 standard deduction, assuming there are no other income or deduction adjustments.
That can bring the taxable income within the Section 87A threshold.
What happens slightly above ₹12 lakh?
A taxpayer whose taxable income is only slightly above ₹12 lakh may need to consider marginal relief.
This prevents the additional tax burden from becoming disproportionately higher than the income exceeding the relevant threshold, subject to the applicable rules.
For example, with taxable income of ₹12.25 lakh, the normal slab tax is ₹63,750. If marginal relief applies, the tax can be reduced so that the liability is aligned with the amount by which income exceeds ₹12 lakh.
The final amount should then be calculated with the applicable cess. The Income Tax Department provides the relevant marginal-relief provisions separately from the Section 87A rebate.
Special-rate income needs separate treatment
Income taxed under special provisions should not automatically be treated like ordinary slab-rate income.
For example, certain capital gains and other specified income can be subject to separate tax rules.
Section 87A treatment also has restrictions for income chargeable at special rates, so a calculation involving such income should be checked separately rather than using a simple salary-based formula.
Tax Calculation for Different Salary Levels
The following examples assume a salaried individual with only salary income and the ₹75,000 standard deduction, with no other adjustments. The examples are intended to demonstrate the calculation method.
| Annual Salary | Taxable Income | Tax Before Rebate | Rebate / Relief | Tax + Cess |
|---|---|---|---|---|
| ₹10,00,000 | ₹9,25,000 | ₹32,500 | ₹32,500 rebate | ₹0 |
| ₹12,00,000 | ₹11,25,000 | ₹52,500 | ₹52,500 rebate | ₹0 |
| ₹12,75,000 | ₹12,00,000 | ₹60,000 | ₹60,000 rebate | ₹0 |
| ₹13,00,000 | ₹12,25,000 | ₹63,750 | Marginal relief, where applicable | ₹26,000 |
| ₹15,50,000 | ₹14,75,000 | ₹1,01,250 | No 87A rebate | ₹1,05,300 |
| ₹25,00,000 | ₹24,25,000 | ₹3,62,500 | No 87A rebate | ₹3,77,000 |
The ₹13 lakh example is particularly important. Simply subtracting the Section 87A rebate because income is above ₹12 lakh would produce a misleading result. Marginal relief needs to be considered where the taxpayer falls within the relevant range.
For higher incomes, other issues such as surcharge can also become relevant. The Income Tax Department lists surcharge rates separately once total income crosses the applicable thresholds.
Common Mistakes When Calculating Tax Under the New Regime
1. Taxing the entire salary at one rate
A taxable income of ₹15 lakh does not mean that the entire ₹15 lakh is taxed at 20% or 30%. The slab system taxes different portions at different rates.
2. Forgetting the standard deduction
A qualifying salaried taxpayer can reduce salary income by the ₹75,000 standard deduction before calculating normal slab-rate tax.
3. Treating all old-regime deductions as available
The new regime does not provide the same deduction list as the old regime. Section 80CCD(2), for example, has specific treatment for eligible employer NPS contributions.
4. Stopping at the slab-tax calculation
The slab calculation gives tax before applicable rebate, relief, cess and surcharge. A complete calculation should continue through the final tax liability.
5. Ignoring Section 87A
A taxpayer with taxable income at or below ₹12 lakh should check the Section 87A rebate before concluding that tax is payable.
6. Ignoring marginal relief
Taxpayers just above a rebate threshold should check marginal relief rather than assuming that the full slab tax applies without adjustment.
7. Treating special-rate income like salary
Certain capital gains and other specified income can follow different tax rules. Combining such income with salary and applying ordinary slabs without checking the special provision can produce an incorrect calculation.
Quick Method to Calculate Tax in the New Regime
For a straightforward salary-only case, use this checklist:
Step 1: Find annual salary or taxable income sources.
Step 2: Subtract the applicable ₹75,000 standard deduction from eligible salary or pension income.
Step 3: Consider other deductions allowed under the new regime, such as eligible employer NPS contributions.
Step 4: Arrive at taxable income.
Step 5: Apply the seven FY 2025-26 tax slabs.
Step 6: Calculate tax before rebate.
Step 7: Check eligibility for the Section 87A rebate.
Step 8: Check marginal relief where the relevant income is only slightly above the applicable threshold.
Step 9: Add 4% Health and Education Cess on applicable income tax and surcharge, if any.
Step 10: Arrive at the final tax liability.
This method works well for a basic salary calculation, but taxpayers with capital gains, business income, foreign income, large deductions or other special-rate income may need a more detailed computation.
Key Takeaways
- FY 2025-26 new-regime slabs range from 0% to 30%, with the highest slab applying above ₹24 lakh.
- Eligible salaried taxpayers can claim a ₹75,000 standard deduction under the new regime.
- A resident individual with taxable income up to ₹12 lakh can generally receive a Section 87A rebate of up to ₹60,000, subject to the applicable conditions.
- A salary of up to ₹12.75 lakh can potentially result in zero normal slab tax for an eligible salaried taxpayer after the ₹75,000 standard deduction and Section 87A rebate.
- Taxpayers slightly above ₹12 lakh should check marginal relief rather than relying only on the basic rebate calculation.
- 4% Health and Education Cess is added to applicable income tax and surcharge, if any.
Frequently Asked Questions
How do I calculate income tax under the new regime for FY 2025-26?
Start with taxable income after applicable deductions, including the ₹75,000 standard deduction for eligible salary or pension income.
Apply the seven new-regime slabs, calculate tax before rebate, check Section 87A and marginal relief where applicable, and then add the 4% Health and Education Cess.
How is taxable income calculated under the new tax regime?
Taxable income is generally determined after considering income from the relevant sources and deductions permitted under the new regime.
For a simple salary-only example, a ₹15 lakh salary less the ₹75,000 standard deduction gives taxable salary of ₹14.25 lakh, before considering any other applicable adjustments.
How much salary can be tax-free under the new regime in FY 2025-26?
For an eligible salaried taxpayer with no other taxable income, salary of up to ₹12.75 lakh can potentially result in zero normal income-tax liability because the ₹75,000 standard deduction can reduce taxable income to ₹12 lakh, which falls within the Section 87A rebate threshold.
Is the ₹75,000 standard deduction available under the new regime?
Yes. The ₹75,000 standard deduction is available against eligible salary income under the new regime for FY 2025-26. Eligible pension income also receives the corresponding standard-deduction treatment.
How does Section 87A affect new-regime tax calculation?
For an eligible resident individual, Section 87A can provide a rebate of up to ₹60,000 when taxable income does not exceed ₹12 lakh under the new regime.
The rebate can reduce the normal slab tax to zero, but special-rate income and other conditions need to be considered separately.
Disclaimer
This article is intended for general educational and informational purposes and should not be treated as professional tax or financial advice.
Tax liability can vary based on income sources, deductions, residential status and special tax provisions.
