Income tax on salary in India: New regulations, slabs & filing dates (FY 2025-26 & TY 2026-27)

Every April, the same questions come up: How much of my salary is actually taxable? Which regime saves me more? What deductions can I claim? When is the last date for filing my income tax return?

If you are a salaried employee in India, this guide answers all of it. In plain language, this guide has the step by step process, updated for FY 2025-26 and TY 2026-27. By the time you finish reading, you will know exactly what drives your income tax, how the calculation works, what you can do to reduce it, and how to file your income tax return without confusion.

Want instant numbers? Use Zoho Payroll's free income tax calculator to compare your tax under the old and new regime for AY 2025-26 and TY 2026-27 in minutes.

What changed in 2026-27: Two regulations you should know about

Two significant regulatory changes affect how income tax on salary is calculated and filed in TY 2026-27:

Important for FY 2025-26 filing: Your ITR for FY 2025-26 (filed by July 31, 2026) is governed by the Income Tax Act 1961. The new section numbers fully apply from Tax Year 2026-27 that is, returns filed from July 2027 onwards.

1. The four new Labor Codes (November 21, 2025) introduced a uniform definition of "wages," requiring basic salary + dearness allowance to make up at least 50% of your CTC. Many employees now have a restructured salary with a higher basic component, which directly affects HRA exemption calculations and PF contributions. This, in turn, influences which tax regime benefits them more.

2. The Income Tax Act 2025 (effective April 1, 2026) replaced the Income Tax Act 1961 with a cleaner, simplified law. Every section has been renumbered. The tax rates, slab structures, and deduction limits are unchanged. But, the section references on your salary slip, Form 130 (the new Form 16), and ITR forms are new from Tax Year 2026-27 onwards.

This article uses the new section numbers from the Income Tax Act 2025 throughout, with old references noted where helpful.

What actually determines your income tax?

Before calculating a single rupee, you need to understand the three things that determine your income tax liability:

• How much of your salary is taxable?

Not all salary components are taxed equally.

• Which tax regime do you choose?

You've two options: old or new, each works very differently.

• What deductions and exemptions can you claim?

These help reduce the income on which tax is calculated.

Salary components and their tax treatment

Your gross salary is not your taxable salary. Different components are treated differently. Here is what counts and what does not.

Old regime vs. New regime - The right one

This is the most important decision you make every financial year. Choosing the wrong regime can cost you lakhs.

New tax regime

This is the default. If you do not inform your employer of a regime choice, the new regime applies automatically.

• Lower tax slab rates (in detail below)

• Very few deductions: salaried individuals and pensioners can claim a standard deduction of ₹75,000 under Section 16(ia) and employer NPS contribution.

• The Section 156(2)(a) rebate [previously Section 87A] makes income up to ₹12 lakh completely tax-free. For salaried employees, this extends to ₹12,75,000 gross salary after the standard deduction

• No HRA, no LTA, no home loan interest deduction, no Section 123 investments

Best for: Employees with limited investments or deductions, no significant rent, or income up to ₹12,75,000.

Old tax regime

This requires an active choice. Declare it to your employer at the start of the year. Salaried employees with only salary income can also switch while filing their ITR. Old tax regime has:

• Higher slab rates but access to all exemptions (HRA, LTA) and Chapter VIII deductions (Life insurance premiums, children's education, EPF, interest paid on higher education loans, donations, health checkup, and more)

• Standard deduction of ₹50,000

• Section 156(2)(a) rebate makes income up to ₹5 lakh tax-free

Best for: Employees paying significant rent in metro cities, those maximising investments under Section 123 (such as Life Insurance Premiums, Tax-Saving Fixed Deposits), or those with a home loan.

You can switch regimes every year when filing your ITR, as long as you do not have business income.

So, how to decide?

Ask yourself one question: Do my total old-regime deductions and exemptions exceed the tax saved by the new regime's lower slab rates?

Not sure? The Zoho Payroll income tax calculator lets you run an old vs. new regime comparison with your exact salary and deductions - the most reliable way to decide.

Income tax slab rates for FY 2025-26 and TY 2026-27

Budget 2026 update: No changes were made to income tax slab rates for TY 2026-27. The same slab rates applicable for FY 2025-26 continue unchanged for TY 2026-27 under both regimes.

New tax regime - Income tax slabs 2025-26 and 2026-27 

Old tax regime - Income tax slabs 2025-26 and 2026-27 

Under the new regime, the same slab rates apply to all age groups, there are no separate, more favorable slabs for senior or super senior citizens. This is a key difference from the old regime.

Exemptions that reduce your taxable salary (Old regime only)

Exemptions are deducted from gross salary before slab rates are applied. They are available only if you choose the old tax regime.

Deductions that reduce your taxable income

Deductions work differently from exemptions, they are subtracted after exemptions, reducing what remains of your net salary. Here are the ones that matter most for salaried employees.

How to calculate income tax on salary - step by step

Now that you know what goes into the calculation, here is the exact process. Follow these steps in order.

Step 1: Calculate your gross salary

Add every component on your payslip: Basic + DA + HRA + special allowance + bonus + all other allowances and perquisites.

Step 2: Subtract exemptions

New regime: Deduct only the ₹75,000 standard deduction (Section 19).

Old regime: Deduct ₹50,000 Standard Deduction + HRA, LTA, and other allowances

Step 3: Subtract deductions

New regime: Deduct only the employer's NPS contribution (Section 124(2))

Old regime: Deduct all investments (Section 123 (up to ₹1,50,000)) + Additional contribution to NPS (Section 124 (1B) up to ₹50,000) + employer NPS + Health insurance(section 126) + education loan interest (Section 129) + home loan interest (Section 22)

Step 4: Arrive at net taxable income

Net Taxable Income = Gross Salary − Exemptions − Deductions

This is the number on which income tax is calculated.

Step 5: Apply tax slab rates

Apply the applicable slab rates from Part 4 to your net taxable income. Remember: You only pay the higher rate on the portion of income that falls into that specific bracket.

Step 6: Apply the rebate (Section 87A)

New Regime: If income is ≤ ₹12,00,000, your tax is ZERO.

Old Regime: If income is ≤ ₹5,00,000, your tax is ZERO.

Step 7: Add surcharge (if income exceeds ₹50 lakh)

Calculate surcharge (10% to 25%) at the applicable rate on your income tax amount (after rebate).

Step 8: Add 4% health and education cess

Cess = 4% × (Income tax after rebate + Surcharge)

Step 9: Your final income tax liability

The result of Step 8 is your total tax for the year, which is:

Total tax payable = Income tax after rebate + Surcharge + Cess

Subtract any TDS (Tax Deducted at Source) already paid by your employer to see if you owe more or are due a refund.

How your employer deducts tax - TDS on salary

You do not pay income tax in a lump sum at the end of the year. Your employer deducts it every month and pays the government on your behalf. This is called Tax Deducted at Source (TDS), governed by Section 392 of the Income Tax Act 2025 [previously Section 192].

How TDS Is computed month by month

1. Year-start declaration: You inform your employer of your regime choice and expected investments for the year. Remember, if you stay silent, the new regime applies by default.

2. Annual tax estimate: The employer calculates your projected annual taxable income based on your salary and declarations.

3. Divide by 12: The annual tax (after rebate and cess) is divided by 12 and deducted from each monthly salary.

4. Adjustments through the year: Bonuses, increments, or revised investment declarations trigger a recalculation, the updated annual tax is spread across the remaining months.

5. Government deposit: TDS must be deposited with the government by the 7th of the next month (except for March, which has a deadline of April 30).

6. Year-end certificate: Your employer is legally required to issue your Form 16 by June 15.

What You Receive: Form 130 Replaces Form 16

From Tax Year 2026-27 onwards, your annual TDS certificate changes:

This document is your "proof of tax paid" and is essential for filing your final return by July 31.

Income tax return filing - Dates, forms, process

ITR filing due dates - Last dates for filing income tax return in India 

**Income tax return last date penalty:

• ₹1,000 if total income is ₹5 lakh or less

• ₹5,000 if total income exceeds ₹5 lakh

Which ITR form do you need? 

Most salaried employees file ITR-1.

How Zoho Payroll makes income tax effortless

For HR teams and payroll managers, income tax is not a once-a-year event. It is a monthly calculation that adjusts for bonuses, increments, investment declarations, and regime changes throughout the year.

Zoho Payroll handles the full cycle automatically:

• Monthly TDS calculation under Section 392 (IT Act 2025) updated for FY 2025-26 and FY 2026-27 income tax slabs

• Old vs. new regime comparison for every employee through a self-service portal, so each person can see their exact tax under both regimes and make an informed choice

• Digital investment declaration and proof collection: TDS adjusts automatically when employees update their declarations

• Form 130 generation (replacing Form 16) for Tax Year 2026-27, with all new section references

• Labour Code compliant salary structuring: Ensures the 50% wage rule is met while maximising benefits

Frequently Asked Questions

• What is the income tax on a ₹12 lakh salary in India in FY 2025-26?

Under the new regime, a salaried employee with ₹12 lakh CTC has a taxable income of ₹11,25,000 after the ₹75,000 standard deduction. Since taxable income is below ₹12 lakh, the Section 156(2)(a) rebate covers this in full — total tax payable is zero. Note: the rebate applies to taxable income (post-standard deduction), not gross salary.

• Can I switch between the old and new income tax regime every year?

Yes. Salaried employees with no business income can switch every year at the time of filing their ITR. If you want to switch mid-year, you will need to inform your employer to adjust TDS from the remaining months.

• Is HRA available under the new tax regime?

No. HRA exemption is available only under the old tax regime. Under the new regime, the entire HRA received is added to your taxable income.

• What is Section 143(1) intimation under income tax?

It is an automated notice sent by the Income Tax Department after processing your filed return. It confirms whether your tax computation matches theirs, informs you of a refund due, or raises a demand for additional tax. It is not a scrutiny notice and does not require alarm — simply verify the figures and respond through the portal if a demand is raised.

• What is the last date for filing income tax return for FY 2025-26?

The income tax ITR filing due date for salaried individuals (ITR-1 / ITR-2) is July 31, 2026. For non-audit professionals (ITR-3 / ITR-4), the due date is August 31, 2026. Belated returns can be filed until December 31, 2026, with a penalty fee.

• What is the difference between cess and surcharge on income tax?

Cess (4% Health and Education Cess) applies to every taxpayer, it is computed on income tax and cannot be avoided. Surcharge applies only when taxable income exceeds ₹50 lakh. It is an additional percentage levied on the income tax amount itself, calculated before cess.

• How do I check my income tax refund status?

Log into the income tax portal at incometax.gov.in, go to e-File → Income Tax Returns → View Filed Returns, and check the Refund/Demand Status column. Refunds are typically credited within 15 to 45 days of e-verification.

• What changed in the Income Tax Act 2025? Does it affect how much tax I pay?

No. Tax rates, slab structures, and deduction limits are unchanged. The IT Act 2025 reorganised the law, sections are renumbered, "Assessment Year" is replaced by "Tax Year" from FY 2026-27, and Form 16 becomes Form 130. Your tax liability on the same income is identical under both Acts.

• What are some Tax-Saving Investments I can consider to reduce income tax using old regime?

If you are on the old regime and want to minimize your income tax, these are the instruments that matter most:

The one deduction that works under both regimes: Employer NPS under Section 124(2). If your employer contributes to NPS on your behalf, that amount (up to 14% of basic salary under the new regime) is deducted from your taxable income, no personal investment needed. With higher basic salaries post-labour code, this benefit is proportionally larger. Ask your HR team if it is already part of your CTC; if not, consider requesting it.