Detailed step-by-step guide to calculating income tax under the new tax regime for FY 2025-26 (AY 2026-27) based on the latest Union Budget.

1. New Income Tax Slabs for FY 2025-26 (AY 2026-27)

The new tax regime has introduced revised income tax slabs as follows:

Additionally, the Standard Deduction for salaried individuals has been increased to ?75,000.This means that individuals with a gross salary up to ?12,75,000 will not pay any income tax after applying standard deductions and tax slabs.

2. Steps to Calculate Income Tax

Step 1: Determine Gross Income

The gross annual income includes: ? Salary/wages ? Rental income ? Business or professional income ? Interest, dividends, or capital gains ? Any other taxable income

For this example, let's assume:

• Gross Annual Income = ?18,00,000

Step 2: Apply Standard Deduction

The standard deduction applies only to salaried individuals and pensioners under the new tax regime.

Calculation:

• Gross Income = ?18,00,000
• Standard Deduction = ?75,000
• Net Taxable Income = ?18,00,000 - ?75,000 = ?17,25,000

Step 3: Apply the Tax Slabs to Calculate Tax

Now, we apply the new tax slabs to ?17,25,000 step by step:

Step 4: Apply Health & Education Cess

A 4% cess is applied on total tax:

• Cess = 4% of ?1,45,000
• = ?5,800

Step 5: Calculate Final Tax Liability

• Total Tax Before Cess = ?1,45,000
• Cess (4%) = ?5,800
• Final Tax Payable = ?1,50,800

3. Example Scenarios

Here are a few more tax calculations under different income levels:

4. Additional Key Points

? The new tax regime is now the default but taxpayers can still opt for the old tax regime if they find it more beneficial.

? The old regime allows deductions under Section 80C, 80D, HRA, and other exemptions, while the new regime does not allow most deductions except the standard deduction.

? If your taxable income (after deductions) is below ?7,00,000, you qualify for the rebate under Section 87A, making your tax liability zero.

5. Comparison: Old vs New Tax Regime

If you have multiple deductions, the old regime might be better for you. Here's a quick comparison:

Who should choose the New Regime?

? Salaried individuals who don’t claim many deductions

? People with high income and low exemptions

Who should choose the Old Regime?

? Individuals who claim deductions under 80C, HRA, 80D (Medical Insurance), or Home Loan Interest

? Those who invest in PPF, EPF, Life Insurance, etc.

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