How Income Tax is Calculated for FY 2026-27 (Tax Year 2026-27)
Under the Income Tax Act, 2025, applicable for income earned from 1st April 2026 onward (known officially as Tax Year 2026-27 or FY 2026-27), income tax calculation follows a structured, transparent formula. Every Indian taxpayer's total tax liability is computed step-by-step from gross income to final net tax payable:
Gross Annual Income − Exemptions − Standard Deduction − Chapter VI-A Deductions = Taxable Income
Slab Tax − Section 87A Rebate − Marginal Relief + Surcharge − Surcharge Marginal Relief + 4% Cess = Total Income Tax Payable
A note on section numbers: The Income Tax Act, 2025 renumbers familiar provisions (for example, Section 80C becomes Section 123 and Section 87A becomes Section 157), but the deduction limits and slab rates themselves are unchanged for FY 2026-27. This calculator continues to use the familiar old section numbers (80C, 80D, 87A, 24(b), etc.), which most taxpayers, employers, and tax software will keep using during the transition.
Old vs New Tax Regime: Which One Should You Choose?
Since the introduction of the simplified tax structure, the New Tax Regime serves as the default tax regime in India. However, taxpayers still retain the flexibility to opt for the Old Tax Regime if they claim substantial deductions and exemptions.
- Choose New Tax Regime if: You prefer lower slab rates, want a hassle-free tax filing experience without locking money in investments, earn up to ₹12.75 Lakh (where salary tax becomes zero), or have minimal deductions (under ₹2.5 Lakh to ₹3 Lakh).
- Choose Old Tax Regime if: You pay a high house rent (HRA exemption), hold a home loan (up to ₹2 Lakh Section 24b interest deduction), invest heavily in 80C (EPF/PPF/ELSS), pay health insurance premiums under 80D, and total deductions exceed ₹3.5 Lakh per year.
Income Tax Slabs for FY 2026-27 (Tax Year 2026-27)
The slab rates under both regimes differ significantly. Below are the current applicable tax slabs:
1. New Tax Regime Slabs (Default for FY 2026-27)
| Taxable Income Slab | Income Tax Rate |
|---|---|
| ₹0 to ₹4,00,000 | 0% (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% |
2. Old Tax Regime Slabs (Age-Wise Classification)
| Taxable Income Range | Below 60 Years | Senior Citizens (60-79) | Super Senior Citizens (80+) |
|---|---|---|---|
| Up to Basic Exemption | ₹2.5 Lakh (0%) | ₹3.0 Lakh (0%) | ₹5.0 Lakh (0%) |
| ₹2,50,001 to ₹5,00,000 | 5% | 5% (from ₹3L) | Nil |
| ₹5,00,001 to ₹10,00,000 | 20% | 20% | 20% |
| Above ₹10,00,000 | 30% | 30% | 30% |
Standard Deduction & The ₹12.75 Lakh Salary Zero-Tax Formula
For salaried employees and pensioners, standard deduction is automatically applied without requiring any investment proof or receipts:
- New Tax Regime Standard Deduction: ₹75,000
- Old Tax Regime Standard Deduction: ₹50,000
Gross Annual Salary = ₹12,75,000
Less: Standard Deduction = ₹75,000
Net Taxable Income = ₹12,00,000
Calculated Slab Tax (0-4L: 0; 4-8L @ 5%: 20k; 8-12L @ 10%: 40k) = ₹60,000
Less: Section 87A Tax Rebate (Max ₹60,000 for income ≤ ₹12 Lakh) = ₹60,000
Final Tax Payable = ₹0 (Zero)
Key Tax Deductions & Exemptions Allowed
While the New Regime offers lower tax rates, the Old Regime allows several popular deductions under Chapter VI-A:
- Section 80C: Up to ₹1,50,000 for EPF, PPF, ELSS mutual funds, LIC premiums, home loan principal repayment, and children's tuition fees.
- Section 80D: Health insurance premium deduction — up to ₹25,000 for self/family (below 60) and ₹50,000 for senior citizens. An additional ₹25,000/₹50,000 is available for parents.
- Section 80CCD(1B): Additional voluntary contribution to National Pension System (NPS) up to ₹50,000 over and above the ₹1.5 Lakh 80C limit.
- Section 80CCD(2): Employer contribution to NPS — available under BOTH Old and New Regimes up to 14% of Basic + DA for government employees and 10%/14% for private sector employees.
- House Rent Allowance (HRA): Exemption available under Old Regime based on the minimum of actual HRA, 50%/40% of Basic+DA, or rent paid over 10% of Basic+DA.
- Section 24(b): Interest on self-occupied home loan up to ₹2,00,000 per year.
Worked Calculation Example: ₹15 Lakh Salary
Let's consider a salaried employee earning ₹15,00,000 per year who claims ₹1.5 Lakh in Section 80C, ₹25,000 in 80D health insurance, and ₹75,000 in HRA exemption:
| Parameter | New Tax Regime | Old Tax Regime |
|---|---|---|
| Gross Salary | ₹15,00,000 | ₹15,00,000 |
| Standard Deduction + Deductions | ₹75,000 | ₹3,00,000 (50k + 75k HRA + 1.5L 80C + 25k 80D) |
| Taxable Income | ₹14,25,000 | ₹12,00,000 |
| Calculated Slab Tax | ₹93,750 | ₹1,72,500 |
| Health & Education Cess (4%) | ₹3,750 | ₹6,900 |
| Total Tax Payable | ₹97,500 | ₹1,79,400 |
| Tax Savings Result | New Regime saves ₹81,900 per year! | |
Frequently Asked Questions (FAQs)
How is income tax calculated in India for FY 2026-27?
Income tax is calculated by taking your gross annual income, subtracting eligible deductions and standard deduction to find taxable income, applying slab rates, deducting Section 87A rebate, adding surcharge (if income exceeds ₹50 Lakh), and adding 4% Health & Education Cess.
What is the Income Tax Calculator for FY 2026-27?
It is a free online tool designed for Tax Year 2026-27 (FY 2026-27 under the Income Tax Act, 2025) that automatically calculates and compares your tax liability under both the Old and New Tax Regimes.
How much income is tax-free in India in FY 2026-27?
Under the New Tax Regime, taxable income up to ₹12 Lakh incurs ₹0 tax due to the Section 87A rebate of up to ₹60,000. For salaried individuals, with the ₹75,000 standard deduction, a gross salary up to ₹12.75 Lakh results in zero tax liability.
What are the new tax regime slabs for FY 2026-27?
The New Tax Regime slabs are: ₹0–₹4 Lakh: 0%, ₹4L–₹8L: 5%, ₹8L–₹12L: 10%, ₹12L–₹16L: 15%, ₹16L–₹20L: 20%, ₹20L–₹24L: 25%, and Above ₹24 Lakh: 30%.
What are the old tax regime slabs for FY 2026-27?
For individuals under 60: ₹0–₹2.5 Lakh: 0%, ₹2.5L–₹5L: 5%, ₹5L–₹10L: 20%, Above ₹10 Lakh: 30%. Basic exemption is ₹3 Lakh for Senior Citizens (60-79) and ₹5 Lakh for Super Senior Citizens (80+).
Which is better: Old Tax Regime or New Tax Regime?
The New Regime is better for most taxpayers who do not have large deductions. The Old Regime is better if you claim substantial deductions under 80C, 80D, HRA, and Home Loan Interest exceeding ₹3 Lakh to ₹4 Lakh per year.
What is the standard deduction for FY 2026-27?
For salaried employees and pensioners, the standard deduction is ₹75,000 under the New Tax Regime and ₹50,000 under the Old Tax Regime.
What is Section 87A rebate?
Section 87A gives a tax rebate to lower and middle-income earners. Under the New Regime, maximum rebate is ₹60,000 for taxable income up to ₹12 Lakh. Under the Old Regime, maximum rebate is ₹12,500 for taxable income up to ₹5 Lakh.
Is salary up to ₹12.75 lakh tax-free under the new regime?
Yes, for salaried individuals, a gross salary of ₹12.75 Lakh minus ₹75,000 standard deduction equals ₹12 Lakh taxable income. Tax on ₹12 Lakh is ₹60,000, which is fully offset by the ₹60,000 Section 87A rebate.
Can I claim Section 80C deductions under the new tax regime?
No, Section 80C deductions (PPF, EPF, ELSS, LIC) are not available under the New Tax Regime. They can only be claimed if you opt for the Old Tax Regime.
Can I claim HRA exemption under the new tax regime?
No, House Rent Allowance (HRA) exemption is only available under the Old Tax Regime.
What is Health and Education Cess?
Health and Education Cess is a 4% levy added to the sum of your income tax and surcharge.
What is surcharge on income tax?
Surcharge is an additional tax levied on high earners whose taxable income exceeds ₹50 Lakh. It ranges from 10% to 25% (or 37% under Old Regime) of the calculated income tax, subject to marginal relief.
Does this calculator calculate capital gains tax?
This calculator covers salary, interest, rental, and general business/freelance income. Complex capital gains (STCG/LTCG with special tax rates and holding periods) require a specialized capital gains calculator.