How Much Income Tax Will You Pay? FY 2026

Written by : Knowledge Centre Team

2026-06-18

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15 minutes read

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In this world, nothing can be said to be certain, except death and taxes.” These words by Benjamin Franklin, one of the founding fathers of the US, are still relevant. For Tax Year 2026-27, the income tax slabs remain unchanged from last year, so if you are wondering how much tax you need to pay, the answer lies in understanding the revised tax structure introduced in Budget 2025, which continues to apply in its entirety. The Finance Minister, Nirmala Sitharaman, announced a new tax regime in one of the biggest income tax reforms in the country.

The government has kept the New Tax Regime as the default option. If you opt for the New Tax Regime, you will get lower tax rates but will have to forego all the deductions allowed under the Old Tax Regime, like the premiums paid for life and health insurance.

Let us take a look at the income tax rates under the existing structure and the changes under the New Tax Regime vs the old one, Tax Year 2026-27.

Key Takeaways

The new tax regime offers lower tax rates but does not allow common deductions like HRA, 80C, or 80D.
The old tax regime continues to reward savings and investments with various exemptions and deductions.
Taxpayers earning up to ₹7 lakh under the new regime may benefit from full tax rebate via Section 87A.
The choice between regimes depends on your annual income and how much you invest in tax-saving instruments.
Individuals with higher deductions (like home loan, insurance, PF) may still find the old regime more tax-efficient.

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Old Tax Regime Tax Year 2026-27

Under the existing tax system, the income tax varies according to the age of the assessee. Taxpayers have been divided into three categories: those below 60 years, those between 60 and 80 years, known as senior citizens, and those over 80 years, known as supersenior citizens.

For an individual below 60 years of age: An annual income of up to ₹2.5 lakhs is exempted from income tax, while income between ₹2.5 lakhs and ₹5 lakhs is taxable at 5%, income between ₹5 lakhs and ₹10 lakhs at 20%, and income above ₹10 lakhs is taxed at 30%.
For an individual between 60 and 80 years: All the income tax slabs remain the same, except that the income exempted from tax is ₹3 lakhs instead of ₹2.5 lakhs
For an individual over 80 years of age: An annual income of up to ₹5 lakh is exempted from income tax without availing any rebate. Tax on other slabs remains the same

Low-income earners with an annual income of up to ₹5 lakh have effectively received tax relief and a rebate under Section 156 of the Income Tax Act 2025 (previously called Section 87A of the Income Tax Act, 1961).

People who have an annual income of over ₹50 lakh have to pay an additional surcharge on the amount of the income tax. For instance, the surcharge for income between ₹50 lakh and ₹1 crore is 10%, rising up to 37% for income exceeding ₹5 crore, with different rates of surcharge for other income slabs.

Click here to use:- Income Tax Calculator

There is an additional 4% Health & Education Cess that needs to be paid on every front of the amount of income tax and surcharge being paid.

Did You Know?

Over 9.19 crore returns were filed for the tax year 2024-25, an 8% rise from the previous year, marking India's highest-ever ITR filing milestone

Source: IncomeTax

New Tax Regime for Tax Year 2026-27

In contrast to the Old Tax Regime, the new tax structure has more income slabs and lower tax rates across income levels. The following table outlines the applicable slab rates for Tax Year 2026-27:

Annual 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%

The tax on income above ₹24 lakhs is 30%, the same as under the Old Tax Regime.

Which is Better?

At first glance, the New Tax Regime seems better, but one needs to dig deeper. Under the New Tax Regime, the tax rates are lower across income levels. However, it does not allow any tax exemptions or deductions. The following table captures the key difference at a glance:

Feature	Old Tax Regime	New Tax Regime
Basic Exemption Limit	₹2.5 lakh (₹3 lakh for senior citizens; ₹5 lakh for super senior citizens)	₹4 lakh (uniform for all age groups)
Tax Rates	Higher	Lower
Standard Deduction	₹50,000	₹75,000
Section 87A Rebate	Up to ₹12,500 (income up to ₹5 lakh)	Up to ₹60,000 (income up to ₹12 lakh)
HRA Exemption Section 10(13A)	Available	Not Available
Leave Travel Allowance Section 10(5)	Available	Not Available
Section 123 Deduction on Specified Investments (Earlier Section 80C)	Up to ₹1.5 lakh	Not Available
Section 124 Health Insurance Premium (Earlier Section 80D)	Available	Not Available

The suitability of the tax structure will vary depending on the level of investments one makes. Take into account all the exemptions you get and the deductions you are eligible for. Add up the exemptions and deductions, and deduct them from your annual income. If your taxable income after deductions is significantly lower, the Old Tax Regime may still work in your favour. For those with fewer investments in tax-saving instruments, the New Tax Regime is likely the more beneficial choice.

Conclusion

For Tax Year 2026-27, your tax liability ultimately comes down to one key decision, choosing between the Old and New Tax Regime. While the New Tax Regime offers lower rates and zero tax up to ₹12 lakh, the Old Tax Regime continues to reward disciplined savers through deductions under Section 123 and Section 124.

Regardless of the regime you choose, investing in the right financial instruments, such as life insurance premiums, NPS, and health insurance remains a smart way to build long-term wealth while keeping your tax outgo in check. Consult a tax professional to determine which regime works best for your income profile.

Glossary

Standard Deduction: A flat deduction of ₹75,000 (New Regime) or ₹50,000 (Old Regime) available to all salaried taxpayers
Income Tax Slab: The structure of tax rates against various ranges of income under the New and Old tax regimes
Section 87A Rebate: A tax rebate reducing liability to zero for income up to ₹12 lakh under the New Tax Regime
Tax Year: Term introduced under the Income Tax Act 2025, replacing the earlier Financial Year and Assessment Year framework
Health & Education Cess: A 4% surcharge levied on total income tax and applicable surcharge payable by every taxpayer

FAQs

No. Budget 2026 made no changes to income tax slabs or rates. The revised slab structure introduced in Budget 2025 continues to apply in full for Tax Year 2026-27 under both the Old and New Tax Regime.

Yes, for resident individuals. A Section 87A rebate of up to ₹60,000 ensures zero tax liability for taxable income up to ₹12 lakh. Salaried individuals additionally benefit from a ₹75,000 standard deduction, making their gross salary up to ₹12.75 lakh effectively tax-free.

Yes. Salaried individuals without business income can switch between regimes every year at the time of filing their ITR. The New Tax Regime is the default; to opt for the Old Regime, you must explicitly select it while filing.

The New Tax Regime allows only a limited set of deductions, standard deduction of ₹75,000, employer's NPS contribution under Section 125 (earlier Section 80CCD(2)), and deductions for Agniveer Corpus Fund contributions. Most other deductions, including Section 123 (80C), Section 124 (80D), and HRA, are not available.

The Income Tax Act 2025, effective from 1st April 2026, only restructures and renumbers existing provisions; it does not change any deduction limits or tax rates. For instance, Section 80C is now Section 123 and Section 80D is now Section 124, but the benefit amounts remain unchanged.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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