The Income Tax Act 2025 (Act No. 30 of 2025), enacted on 21 August 2025 and effective from 1 April 2026, replaces the Income Tax Act 1961. One of its most significant changes is the introduction of revised tax slabs under the default tax regime. This guide explains every slab, applicable surcharge, health and education cess, and provides worked examples for individuals filing returns for Tax Year 2026-27.
Key Terminology Change: "Tax Year" Replaces Previous Year / Assessment Year
Under the old Act, income earned in the "Previous Year" was assessed in the "Assessment Year." The ITA 2025 replaces both with a single concept: the Tax Year. Income earned and taxes filed for the period 1 April 2026 to 31 March 2027 belong to Tax Year 2026-27. This simplifies compliance language significantly.
Default Tax Regime Slabs (Individuals – Tax Year 2026-27)
The following slabs apply to individuals (resident and non-resident), HUFs, and most taxpayers under the default regime prescribed by the ITA 2025:
| Income Slab | Tax Rate |
|---|---|
| Up to Rs. 4,00,000 | Nil |
| Rs. 4,00,001 – Rs. 8,00,000 | 5% |
| Rs. 8,00,001 – Rs. 12,00,000 | 10% |
| Rs. 12,00,001 – Rs. 16,00,000 | 15% |
| Rs. 16,00,001 – Rs. 20,00,000 | 20% |
| Rs. 20,00,001 – Rs. 24,00,000 | 25% |
| Above Rs. 24,00,000 | 30% |
Rebate Under ITA 2025
A full tax rebate is available for resident individuals whose total income does not exceed Rs. 12,00,000 (excluding special-rate incomes like LTCG and VDA). This means effectively zero tax is payable up to Rs. 12 lakh for eligible taxpayers. This rebate is only available under the default regime and is not available to non-residents.
Surcharge Rates
| Total Income | Surcharge Rate |
|---|---|
| Up to Rs. 50 lakh | Nil |
| Rs. 50 lakh – Rs. 1 crore | 10% |
| Rs. 1 crore – Rs. 2 crore | 15% |
| Rs. 2 crore – Rs. 5 crore | 25% |
| Above Rs. 5 crore | 25% |
Note: For LTCG on equity and VDA income, the maximum surcharge is capped at 15%.
Health and Education Cess
A 4% Health and Education Cess is levied on the income tax plus surcharge. This brings the effective top marginal rate (income above Rs. 5 crore) to approximately 39% (30% + 25% surcharge + 4% cess on combined tax).
Worked Example: Salaried Individual
Suppose Mr. Arjun has a gross salary of Rs. 18,00,000 and no deductions are claimed (default regime does not allow most deductions except standard deduction of Rs. 75,000):
- Net taxable income: Rs. 18,00,000 − Rs. 75,000 = Rs. 17,25,000
- Tax on Rs. 4L–8L (5%): Rs. 20,000
- Tax on Rs. 8L–12L (10%): Rs. 40,000
- Tax on Rs. 12L–16L (15%): Rs. 60,000
- Tax on Rs. 16L–17.25L (20%): Rs. 25,000
- Total tax before cess: Rs. 1,45,000
- Add 4% cess: Rs. 5,800
- Total tax payable: Rs. 1,50,800
Corporate Tax Rates Under ITA 2025
- Domestic companies (concessional regime): 22% + surcharge + cess
- New manufacturing companies: 15% + surcharge + cess
- Foreign companies: 35% (general) or as per DTAA
Special Flat Rates
- VDA / Crypto / NFT: 30% flat (no deduction except cost of acquisition; no set-off of VDA losses)
- LTCG on listed equity (STT paid), above Rs. 1.25 lakh: 12.5% (no indexation)
- STCG on listed equity (STT paid): 20%
- Lottery / online gaming: 30%
- Block assessment (undisclosed income): 60%
Old Regime vs Default Regime – Quick Comparison
| Feature | Default Regime (ITA 2025) | Old Regime (ITA 1961) |
|---|---|---|
| Basic exemption limit | Rs. 4 lakh | Rs. 2.5 lakh / Rs. 3 lakh |
| 80C / 80D deductions | Not available | Available |
| HRA exemption | Not available | Available |
| Standard deduction (salary) | Rs. 75,000 | Rs. 50,000 |
| Rebate up to | Rs. 12 lakh income | Rs. 7 lakh income |
| Top slab rate | 30% above Rs. 24L | 30% above Rs. 10L |
Filing Deadlines and Compliance
Under ITA 2025, the due date for filing income tax returns for non-audit cases remains 31 July of the next tax year. Audit cases must file by 31 October. Belated returns can be filed up to 31 December with a late fee of Rs. 5,000 (Rs. 1,000 for income below Rs. 5 lakh).
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