Budget 2026 Tax Slab Changes: New Regime Slabs, Rebate, and Marginal Relief Explained

TL;DR

• The new regime under Section 115BAC is the default; you must actively opt out to use the old regime.
• Slabs under the new regime were stabilised in Budget 2026 with no major rate cut beyond what FY 2025-26 already delivered.
• Section 87A rebate continues for incomes up to the threshold notified, making low-to-mid income earners effectively tax-free.
• Marginal relief is built into the law — income just above the rebate ceiling does not trigger a tax cliff.
• Old regime slabs are unchanged and remain the legacy option for taxpayers with large deductions.

What this means in plain terms

If you were hoping Budget 2026 would deliver another big slab shake-up, that did not happen. Instead, the government cemented the slabs introduced in the previous cycle and focused energy on compliance plumbing — AIS, TIS, faceless assessment, and TDS rationalisation. For most salaried Indians, this means your in-hand take-home is largely steady and the planning challenge shifts to choosing the right regime and timing your deductions.

The new regime is now the centre of gravity. It is simpler, has a higher standard deduction, a wider zero-tax band thanks to Section 87A, and a more forgiving surcharge structure. The old regime survives but is a niche choice — generally only useful if you have a big home loan and large insurance plus PPF contributions.

Understanding the new regime slabs

How the slabs are structured

The new regime under Section 115BAC uses progressively widening bands. The first band is fully exempt, then each higher band attracts a higher rate up to 30% at the top. The exact band widths and rates for FY 2026-27 are published on incometax.gov.in. The rate at the top end is identical to the old regime — what differs is the width of the lower bands and the absence of most deductions.

Standard deduction inside the new regime

A flat Rs. 75,000 standard deduction is available to salaried taxpayers and pensioners under the new regime as per current rules. Family pensioners get Rs. 25,000. This is automatic and does not require you to submit any proof.

Section 80CCD(2) is still available

Even under the new regime, your employer's contribution to NPS under Section 80CCD(2) is deductible — up to 14% of basic plus DA for private sector employees. This is a structural lever a lot of taxpayers miss when comparing regimes.

Rebate under Section 87A

Who qualifies

Section 87A rebate is available to resident individuals whose total income does not exceed the threshold notified for the financial year. Under the new regime, the rebate ceiling is significantly higher than under the old regime. The rebate is calculated against the actual tax payable before cess.

How marginal relief works

If your income is just slightly above the rebate ceiling, marginal relief kicks in to ensure the extra tax does not exceed the extra income. So if your income crosses the threshold by Rs. 10,000, your additional tax is capped at Rs. 10,000 — not the full slab rate applied to the entire amount. This prevents the cliff effect that used to penalise small increments above the threshold.

Old regime rebate continues

Under the old regime, the Section 87A rebate is capped at Rs. 12,500 for incomes up to Rs. 5,00,000. This has not changed and is unlikely to change unless the old regime itself is overhauled.

Old regime slabs and surcharge

Slabs unchanged

The old regime continues with the long-standing slab structure: zero tax up to Rs. 2,50,000, then 5% up to Rs. 5,00,000, 20% up to Rs. 10,00,000, and 30% above. Senior citizens get a slightly higher exemption threshold.

Surcharge

Surcharge under the old regime can go up to 37% on incomes above Rs. 5 crore, before the new regime's 25% cap was introduced for that bracket. This is one of the strongest arguments for the new regime at the very top end.

A real example

Meet Ananya, 31, Rs. 18L CTC, Bengaluru. She is on a standard salary structure, contributes Rs. 1,20,000 to EPF, has a Rs. 30,000 term insurance premium, and Rs. 20,000 health insurance premium. No home loan. No business income.

Here is how she should think about FY 2026-27:

1. Compute new regime taxable income: Rs. 18,00,000 minus Rs. 75,000 standard deduction equals Rs. 17,25,000. Apply slab tax cell by cell using the FY 2026-27 slabs on incometax.gov.in. Add 4% cess.
2. Add employer's NPS contribution under Section 80CCD(2) if available — for Ananya, her employer contributes 10% of basic, which is Rs. 90,000. This reduces her taxable income further to Rs. 16,35,000.
3. Compute old regime taxable income: Rs. 18,00,000 minus Rs. 50,000 standard deduction minus Rs. 1,50,000 (Section 80C from EPF + insurance), minus Rs. 20,000 (Section 80D for self). Apply old regime slabs.
4. Compare the two. For Ananya, who lacks a home loan and has limited 80C utilisation beyond EPF, the new regime saves roughly Rs. 25,000 to Rs. 40,000.
5. File a fresh Form 10-IEA only if she ever wants to opt out of the new regime. Otherwise, no action needed — new regime is default.

What to do this week

1. Pull your latest pay slip and check what your projected annual income is.
2. Use the income tax calculator on incometax.gov.in to compute liability under both regimes.
3. Run the 6-step assessment at https://myfinancial.in to see your old-vs-new regime delta, unused deductions, and insurance gap in under 10 minutes.
4. Inform HR of your final regime choice for FY 2026-27 if you have not already.
5. Set up advance tax reminders if your non-salary income is meaningful.

FAQ

Are tax slabs the same for senior citizens under the new regime?

Yes, under the new regime there is no separate slab for senior or super-senior citizens. Everyone follows the same slab structure. Under the old regime, senior citizens (60-79) and super-senior citizens (80+) still get higher basic exemption thresholds.

What is the maximum tax-free income under the new regime?

After accounting for the standard deduction of Rs. 75,000 and the Section 87A rebate, total income up to the notified threshold can be effectively tax-free. The exact number is published in the Finance Act and mirrored on incometax.gov.in.

Can I switch back to the old regime later?

Yes for salaried taxpayers — you can switch every year by filing Form 10-IEA before the due date for filing your return. Business and professional income earners get only one switch in their lifetime.

Is the 4% cess still applicable?

Yes. The 4% health and education cess applies to your tax liability under both regimes. It is computed after the rebate under Section 87A but before TDS adjustments.

Does the new regime save tax for everyone?

No. People with large home loan interest, full Section 80C utilisation, big HRA claims, and Section 80D contributions for parents may still find the old regime cheaper. The break-even depends on the size of deductions versus the wider lower bands and standard deduction in the new regime.

What happens if I do not file Form 10-IEA?

You are deemed to have opted for the new regime — it is the default for salaried and pensioner individuals from FY 2023-24 onwards as per Section 115BAC.

Where do I find the official slab tables?

Tax slab tables for FY 2026-27 are available on incometax.gov.in under Quick Links → Tax Information. The Finance Act 2026 itself is on indiabudget.gov.in.

Sources

• https://www.indiabudget.gov.in/
• https://incometax.gov.in/
• https://finmin.nic.in/
• https://www.sebi.gov.in/
• https://pfrda.org.in/

This is general information, not personalised advice. For your situation, consult a Certified Financial Planner.