How to Calculate Income Tax in India (FY 2026-27): Slabs, Rebate & Examples
To work out your income tax in India, add up your income, subtract the deductions your tax regime allows, apply the slab rates, then subtract any rebate and add 4% cess. This guide walks through each step with worked examples, using the rates for FY 2026-27 (the tax year starting 1 April 2026).
What changed in 2026
- New law: the Income-tax Act, 2025 replaced the Income-tax Act, 1961 from 1 April 2026. Section numbers and form names are changing, but the way tax is calculated for most people is the same.
- Rates unchanged: Budget 2026-27 (1 February 2026) did not change slab rates, the standard deduction or the rebate under either regime.
- Other Budget 2026 changes: TCS on overseas tour packages cut to 2%; TCS on foreign remittances for education and medical treatment cut from 5% to 2%; interest awarded by a Motor Accident Claims Tribunal is now tax-free; STT on futures and options was raised; share buybacks are taxed as capital gains for all shareholders.
Step 1: Add up your total income
Income is grouped under five heads:
- Salary (including pension)
- House property (rent received, or interest on a home loan)
- Business or profession
- Capital gains (sale of shares, mutual funds, property, gold)
- Other sources (bank and FD interest, dividends, gifts above the limit)
Most capital gains and some winnings are taxed at special rates, not slab rates, so keep them aside when you apply the slabs.
Step 2: Choose your regime
The new regime is the default. It has lower rates but allows very few deductions. The old regime has higher rates but lets you claim deductions such as 80C, 80D and HRA. Salaried people can choose each year when filing the return. See our comparison: old vs new tax regime.
Step 3: Apply the slab rates
New tax regime (FY 2026-27)
| Taxable income | Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹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% |
- Standard deduction for salary and pension: ₹75,000.
- Rebate: up to ₹60,000, so there is no tax if taxable income is up to ₹12 lakh (₹12.75 lakh for a salaried person after the standard deduction). The rebate doesn’t apply to special-rate income such as capital gains.
Old tax regime (below 60 years)
| Taxable income | Rate |
|---|---|
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
The basic exemption is ₹3 lakh for senior citizens (60–79) and ₹5 lakh for super senior citizens (80+). The standard deduction is ₹50,000, and the rebate (up to ₹12,500) makes income up to ₹5 lakh tax-free.
Step 4: Add surcharge and cess
- Health and education cess: 4% of the tax (plus surcharge), for everyone who pays tax.
- Surcharge: only if income exceeds ₹50 lakh (10% up to ₹1 crore, then higher). In the new regime the highest surcharge is capped at 25%.
Worked examples (new regime, salaried)
Salary ₹12,00,000
Taxable income = ₹12,00,000 − ₹75,000 = ₹11,25,000. Slab tax = ₹20,000 (5% of ₹4 lakh) + ₹32,500 (10% of ₹3.25 lakh) = ₹52,500. This is below ₹12 lakh, so the rebate cancels it. Tax payable: nil.
Salary ₹18,00,000
Taxable income = ₹17,25,000. Slab tax = ₹20,000 + ₹40,000 (10% of ₹4 lakh) + ₹60,000 (15% of ₹4 lakh) + ₹25,000 (20% of ₹1.25 lakh) = ₹1,45,000. Add 4% cess (₹5,800). Tax payable: ₹1,50,800.
Marginal relief: if your income is just above ₹12 lakh, the tax you pay can’t be more than the income above ₹12 lakh. The Income Tax Department’s calculator applies this automatically.
Income that is tax-free (fully or partly)
- Agricultural income (it’s added to your income only to work out the rate on your other income, under the old regime).
- PPF interest and maturity amount.
- EPF withdrawal after 5 years of continuous service. Interest on your own contributions above ₹2.5 lakh a year is taxable.
- Gifts from relatives (any amount), gifts on marriage, and gifts from others up to ₹50,000 in a year.
- Gratuity up to ₹20 lakh for private-sector employees, and leave encashment at retirement up to ₹25 lakh (the full amount is exempt for government employees).
- Life insurance maturity, subject to premium limits in the law.
- HRA and LTA (old regime only, within limits).
- Interest from a Motor Accident Claims Tribunal award (from FY 2026-27).
Where to calculate and file
Use the free tax calculator on the Income Tax e-filing portal to check your figure, then file your return there. Your employer deducts TDS based on the regime you declare. Check that the TDS matches your Form 26AS / AIS before filing. Make sure your PAN is linked to Aadhaar: see PAN–Aadhaar link status.
Frequently asked questions
Is income up to ₹12 lakh really tax-free?
Yes, under the new regime, provided the income is taxed at slab rates. With the ₹75,000 standard deduction, salary up to ₹12.75 lakh pays no tax. Capital gains taxed at special rates don’t get the rebate.
Did Budget 2026 change the income tax slabs?
No. The slabs, standard deduction and rebate for FY 2026-27 are the same as FY 2025-26. The main change is the new Income-tax Act, 2025, which applies from 1 April 2026.
Which regime should I choose?
If your deductions (80C, 80D, HRA, home-loan interest) are small, the new regime usually costs less. Compare both: old vs new tax regime.
Related guides
Sources: Income Tax e-filing portal, Union Budget 2026-27, PIB. This is general information, not tax advice. Check the portal or a tax professional for your case.