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Section 87A Rebate & Standard Deduction
Section 87A of the Income tax act offers a tax rebate to reduce the final tax liability to zero if your taxable income falls under the specified income limit. However, tax rebate is not a deduction, rather applies after your tax liability is calculated.
1. Rebate Under Section 87A
- The new tax regime offers a tax rebate of up to Rs. 60,000 thus effectively making taxable income up to Rs. 12 lakh tax-free.
- The old tax regime offers a tax rebate of Rs. 12,500 making taxable income up to Rs. 5 lakh tax-free.
- Rebate is not allowed for incomes taxed at special rates such as Capital Gain under Section 111A and 112A.
2. Standard Deduction
A flat Standard Deduction is available to salaried taxpayers and pensioners under the head income tax form Salary For FY 2025-26, the standard deduction under
- New tax regime is Rs. 75,000 and
- Old tax regime is Rs. 50,000.
3. Example
Mr. Ax earns a salary income of Rs. 11.75 lakh in FY 2025-26 and opts for the new tax regime. After the standard deduction of Rs. 75,000 his taxable income will be Rs. 11 lakh. Here’s how Section 87A rebate works:
| Slab | Amount | Tax |
| Up to Rs. 4 lakh | Rs. 4 lakh @ 0% | Nil |
| Rs. 4 lakh to Rs. 8 lakh | Rs. 4 lakh @ 5% | 20,000 |
| Rs. 8 lakh to Rs. 11 lakh | Rs. 3 lakh @ 10% | 30,000 |
| Total Tax Before Rebate | 50,000 | |
| Rebate u/s 87A | – 50,000 | |
| Net Tax Liability | 0 | |
Since, Section 87A offers a tax rebate up to Rs. 60,000 and Mr. X’s tax liability was Rs. 50,000, he is eligible for a tax rebate. Thus, bringing his net tax liability to Zero and saving Rs. 50,000 in taxes.
Surcharge & Cess
Surcharge is an additional tax that is applicable only if your total income exceeds certain threshold limits. The surcharge rates are as follows:
| Income Limit | New Tax Regime | Old Tax Regime |
| Up to Rs. 50 lakh | Nil | Nil |
| Rs. 50 lakh to Rs. 1 Crore | 10% | 10% |
| Rs. 1 Crore to Rs. 2 Crore | 15% | 15% |
| Rs. 2 Crore to Rs. 5 Crore | 25% | 25% |
| Above Rs. 5 Crore | 25% | 37% |
All taxpayers pay a 4% health & education cess on their tax liability irrespective of their income limit.
Income Tax Slabs For Specific Categories
1. Income Tax Slabs For Senior Citizens (Aged 60 to 80)
The old tax regime offers a higher basic exemption limit to resident Senor Citizen
| Income Tax Slabs | Income Tax Rate |
| Up to Rs. 3 lakh | Nil |
| Rs. 3 lakh to Rs. 5 lakh | 5% |
| Rs. 5 lakh to Rs. 10 lakh | 20% |
| Above Rs. 10 lakh | 30% |
However, the new tax regime slab rate remains the same.
2. Income Tax Slabs For Super Senior Citizens (Aged 80+ years)
For resident taxpayers aged above 80 years the basic exemption limit under the old tax regime is Rs. 5 lakh.
| Income Tax Slabs | Income Tax Rate |
| Up to Rs. 5 lakh | Nil |
| Rs. 5 lakh to Rs. 10 lakh | 20% |
| Above Rs. 10 lakh | 30% |
The new tax regime slabs remain the same with no such higher basic exemption limits.
3. Income Tax Slabs For Women
The income tax slabs for Women remain the same at the existing rates under both the old and new tax regime. The Income Tax Act does not offer different tax slabs and rates for women.
4. Income Tax Slabs For NRIs
NRIs also can choose between the old and new tax regime. The tax Slab for NRIs are the same with a basic exemption limit of Rs. 4 lakh under the new tax regime and a basic exemption limit of Rs. 2.5 lakh under the old tax regime.
However, NRIs do not enjoy basic exemption limit relaxation for senior & super senior citizens under the old tax regime, as it is only available for resident taxpayers.
5. Income Tax Slabs For HUF
The new tax regime is the default tax regime for HUFs and the tax slabs remain the same with a basic exemption limit up to Rs. 4 lakh. HUFs also have the option to opt for the old tax regime with a basic exemption limit of Rs. 2.5 lakh.
Special Income Tax Rates
The Income Tax Act taxes certain incomes at a special flat rate instead of the normal slab rates. These incomes include Short-term capital gains under Section 111A Long term Capital Gains Lottery or Game show winnings and gains from virtual Digital assets
| Income Type | Tax Rate |
| Short-term Capital Gains (Section 111A) | 20% |
| Long-term Capital Gains | 12.5% |
| Lottery or Game show winnings | 30% |
| Crypto or Virtual Digital Assets | 30% |
Income Tax Slabs For FY 2026-27 (AY 2027-28)
As proposed in Budget 2026 there are no changes to the tax slabs for FY 2026-27. This means that the existing tax slabs and rates will be applicable as it is under both the new and old tax regime. Taxpayers continue to enjoy the same basic exemption limits of
- Rs. 4 lakh under new tax regime
- Rs. 2.5 lakh old tax regime
The new tax regime under Section 115BAC continues to be the default tax regime.
Income Tax Slabs Comparison For FY 2023-24, FY 2024-25 & FY 2025-26
The old tax regime slabs have remained unchanged over the years. However, there have been significant changes in the new tax regime slabs. The following new tax regime changes were made:
| Income Tax Slab | FY 2023-24 | FY 2024-25 | FY 2025-26 |
| Up to Rs. 3 lakh | Nil | Nil | Nil |
| Rs. 3 lakh to Rs. 4 lakh | 5% | 5% | Nil |
| Rs. 4 lakh to Rs. 6 lakh | 5% | 5% | 5% |
| Rs. 6 lakh to Rs. 7 lakh | 10% | 5% | 5% |
| Rs. 7 lakh to Rs. 8 lakh | 10% | 10% | 5% |
| Rs. 8 lakh to Rs. 9 lakh | 10% | 10% | 10% |
| Rs. 9 lakh to Rs. 10 lakh | 15% | 10% | 10% |
| Rs. 10 lakh to Rs. 12 lakh | 15% | 15% | 10% |
| Rs. 12 lakh to Rs. 15 lakh | 20% | 15% | 15% |
| Rs. 15 lakh to Rs. 16 lakh | 30% | 20% | 15% |
| Rs. 16 lakh to Rs. 20 lakh | 30% | 20% | 20% |
| Rs. 20 lakh to Rs. 24 lakh | 30% | 30% | 25% |
| Above Rs. 24 lakh | 30% | 30% | 30% |
Key Changes in Income Tax Slabs
- FY 2023-24 restructured the slabs and increased the basic exemption limit from Rs. 2.5 lakh to Rs. 3 lakh.
- Slabs were restructured again in FY 2025-26 and the basic exemption limit was increased to Rs. 4 lakh from Rs. 3 lakh.
- The tax-free limit was increased to Rs. 12 lakh in FY 2025-26 from Rs. 7 lakh in Rs. 2024-25 due to increase in Section 87A rebate limit.
Old v/s New Tax Regime – Which is Better For FY 2025-26?
Which tax regime is better depends on the deductions and exemptions that are allowed to the taxpayer. The new tax regime offers a lower tax slab rate but disallows most of the deductions. However, the old tax regime has higher tax slab rates but lets you reduce the taxable income through significant deductions and exemptions.
Key Differences Between Old and New Tax Regime
| Feature | Old Tax Regime | New Tax Regime |
| Default Regime | No | Yes |
| Basic Exemption Limit | Rs. 2.5 lakh | Rs. 4 lakh |
| Rebate u/s 87A | Rs. 12,500 (income up to Rs. 5 lakh) | Rs. 60,000 (income up to Rs. 12 lakh) |
| Standard Deduction | Rs. 50,000 | Rs. 75,000 |
| Section 80C Deductions | Allowed | Not Allowed |
| HRA Exemption | Allowed | Not Allowed |
| Home loan interest (Self-occupied) | Allowed | Not Allowed |
| NPS Deduction | Fully Allowed | Only Employer Contribution |
| Set-off of House property losses | Allowed | Not Allowed |
| Section 80D Deduction | Allowed | Not Allowed |
Therefore, choose the old tax regime when you have significant deductions and exemptions to claim. Else, choose the new tax regime.
How to Calculate Income Tax For FY 2025-26?
Income tax is calculated by reducing the deductions and exemptions from the gross total income, applying slab rates, and adjusting rebates, cess and prepaid taxes. Follow these steps to calculate income tax liability under the Income Tax Act:
Step 1: Calculate Gross Total Income by adding salary, house property, business or profession, other sources and capital gains.
Step 2: Reduce eligible deductions or exemptions based on the regime chosen
Step 3: Compute the taxable income.
Step 4: Apply slab rates and compute tax as per the chosen regime.
Step 5: Apply and claim rebate if eligible.
Step 6: Add cess at 4% (and surcharge, if applicable) on tax computed in Step 4.
Step 7: Reduce TDS, TCS, or advance tax already paid to find net payable or refund.
Income Tax Calculation Example
Example 1
Mr. Deepak has a salary income of Rs. 15 lakhs. His taxable income and tax liability for FY 2025-26 (AY 2026-27) will be computed as follows under the new tax regime to save taxes:
| Particulars | Amount |
| Income From Salary | 15,00,000 |
| (-) Standard Deduction | – 75,000 |
| Taxable Income for FY 2025-26 (AY 2026-27) | 14,25,000 |
The tax liability of Mr. Deepak will be calculated as follows:
| Income Tax Slabs | Tax Liability | |
| Up to Rs. 4 lakh | Rs. 4 lakh @ 0% | 0 |
| Rs. 4 lakh to Rs. 8 lakh | Rs. 4 lakh @ 5% | 20,000 |
| Rs. 8 lakh to Rs. 12 lakh | Rs. 4 lakh @ 10% | 40,000 |
| Rs. 12 lakh to Rs. 14.25 lakh | Rs. 2.25 lakh @ 15% | 33,750 |
| Total | 93,750 | |
| Add: Health & Education Cess @ 4% | 3,750 | |
| Total Tax Liability (New Tax Regime) | 97,500 | |
Therefore, the tax liability of Mr. Deepak for FY 2025-26 (AY 2026-27) under the new tax regime is Rs. 97,500.
Example 2
Mr. Aryan for FY 2025-26 has the following incomes, exemptions and deductions.
- Salary – Rs. 25 lakh
- HRA Exemption Rs. 4 lakh
- 80C Deduction – Rs. 1.5 lakh
- 80D Deduction – Rs. 25,000
His taxable income and tax liability for FY 2025-26 (AY 2026-27) will be computed as follows:
| Particulars | New Tax Regime | Old Tax Regime |
| Income From Salary | 25,00,000 | 25,00,000 |
| (-) Standard Deduction | – 75,000 | – 50,000 |
| (-) HRA Exemption | – 4,00,000 | |
| 24,25,000 | 20,40,000 | |
| Less: Other deductions | ||
| (-) Section 80C | – 1,50,000 | |
| (-) Section 80D | – 25,000 | |
| Taxable Income | 24,25,000 | 18,75,000 |
Mr. Aryan’s Tax Liability will be calculated as follows:
1. Under New Tax Regime
| Income Tax Slabs | Tax Liability | |
| Up to Rs. 4 lakh | Rs. 4 lakh @ 0% | 0 |
| Rs. 4 lakh to Rs. 8 lakh | Rs. 4 lakh @ 5% | 20,000 |
| Rs. 8 lakh to Rs. 12 lakh | Rs. 4 lakh @ 10% | 40,000 |
| Rs. 12 lakh to Rs. 16 lakh | Rs. 4 lakh @ 15% | 60,000 |
| Rs. 16 lakh to Rs. 20 lakh | Rs. 4 lakh @ 20% | 80,000 |
| Rs. 20 lakh to Rs. 24 lakh | Rs. 4 lakh @ 25% | 1,00,000 |
| Rs. 24 lakh to Rs. 24.25 lakh | Rs. 25,000 @ 30% | 7,500 |
| Total | 3,07,500 | |
| Add: Health & Education Cess @ 4% | 12,300 | |
| Total Tax Liability (New Tax Regime) | 3,19,800 | |
2. Under Old Tax Regime
| Income Tax Slabs | Tax Liability | |
| Up to Rs. 2.5 lakh | Rs. 2.5 lakh @ 0% | 0 |
| Rs. 2.5 lakh to Rs. 5 lakh | Rs. 2.5 lakh @ 5% | 12,500 |
| Rs. 5 lakh to Rs. 10 lakh | Rs. 5 lakh @ 20% | 1,00,000 |
| Above Rs. 10 lakh | Rs. 8.75 lakh @ 30% | 2,62,500 |
| Total | 3,75,000 | |
| Add: Health & Education Cess @ 4% | 15,000 | |
| Total Tax Liability (Old Tax Regime) | 3,90,000 | |
Therefore, tax liability of Mr. Anban for FY 2025-26 (AY 2026-27) is as follows:
| Tax Regime | Tax Liability |
| New Tax Regime | 3,19,800 |
| Old Tax Regime | 3,90,000 |
Therefore, by opting for New Tax Regime he can save Rs. 70,200 in taxes. However, many deductions & exemptions are not allowed under the new tax regime.