Income tax in India follows a progressive slab system where different portions of income are taxed at different rates. For FY 2026-27, you can choose between the new regime (lower rates, fewer deductions) and the old regime (higher rates, more deductions). A rebate under Section 87A applies if taxable income is up to ₹7 lakh (new regime).

How the calculation works

Tax = Σ (Income in Slab × Slab Rate)

New Regime Slabs FY 2026-27:
₹0 - ₹3,00,000: 0%
₹3,00,001 - ₹7,00,000: 5%
₹7,00,001 - ₹10,00,000: 10%
₹10,00,001 - ₹12,00,000: 15%
₹12,00,001 - ₹15,00,000: 20%
Above ₹15,00,001: 30%

Total Tax = Tax Amount + Surcharge (if applicable) + 4% Cess

A quick example

Let us calculate tax for a salaried employee under the new regime:

Gross Annual Income:₹12,00,000

Tax Regime:New Regime FY 2026-27

Standard Deduction:₹75,000

Taxable Income:₹11,25,000

Step by step

1.₹0 - ₹3,00,000 at 0%: ₹0 tax
2.₹3,00,001 - ₹7,00,000 at 5%: ₹20,000 tax
3.₹7,00,001 - ₹10,00,000 at 10%: ₹30,000 tax
4.₹10,00,001 - ₹11,25,000 at 15%: ₹18,750 tax
5.Total tax before cess = ₹68,750
6.No surcharge as income is under ₹50L
7.Health & education cess (4%) = ₹2,750
8.Monthly in-hand ≈ ₹(12,00,000 - 71,500) / 12 = ₹94,041

So the answer is: Total Tax = ₹71,500 | Effective Tax Rate = 5.96% | Monthly In-Hand ≈ ₹94,041

Frequently Asked Questions

Which tax regime is better?

The new regime has lower tax rates but fewer deductions. If you claim significant deductions (80C, 80D, HRA), the old regime may be better. For most salaried employees with minimal deductions, the new regime is simpler and often beneficial.

What is the tax rebate under 87A?

Under Section 87A, if your taxable income is up to ₹7,00,000 (new regime) or ₹5,00,000 (old regime), you get a full rebate — meaning zero tax liability.

What is the standard deduction for 2026?

For FY 2026-27, the standard deduction is ₹75,000 under the new regime and ₹50,000 under the old regime.

How is HRA taxed?

HRA is partially exempt. The exemption is the minimum of: actual HRA received, 50%/40% of basic salary (metro/non-metro), and rent paid minus 10% of basic salary.

What is the surcharge on income tax?

Surcharge applies if income exceeds ₹50 lakh: 10% for ₹50L-₹1Cr, 15% for ₹1Cr-₹2Cr, 25% for ₹2Cr-₹5Cr, and 37% for above ₹5Cr.