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Planning taxes beforehand is the best decision for salaried employees and HUF as it helps you save on taxes. So, though the financial year 2025-26 has just started, it is best to learn about the various income tax slabs and rates applicable for FY 2025-26 (AY 2026-27).
In India, every individual, Hindu Undivided Family (HUF), business, corporate and other such establishments are required to pay income tax, which is calculated annually. The administration, collection and recovery of income tax are set according to the regulations under the Income Tax Act, 1961.
Your income tax is calculated on the basis of your earnings from 5 heads of income, namely:
The government has defined various tax slabs applicable to individuals below 60 years of age, senior citizens and super-senior citizens. Income from all sources except capital gains is taxed according to these slab rates.
The following is an elaboration on the individual income tax slab for salaried individuals who are below 60 years of age and HUF tax slabs for the FY 2025-26.
Plan your taxes for the current financial year 2025-26 and check out the revised income tax for HUF and income tax exemption for salaried employees under the new tax regime, as per the Union Budget of 2025.
Salaried individuals below the age of 60 will have to follow the proposed new tax rates, effective April 1, 2025, if they opt for the revised New Tax Regime.
Under this revised tax structure for FY 2025-26, individuals with earnings up to ₹12 lakh will not have to pay any tax thanks to an increased tax rebate of ₹60,000, under Section 87A.
The Old Tax Regime for FY 2025-26 (AY 2026-27) for salaried individuals and HUF below 60 years of age is as follows:
Additionally, you will also be levied an additional 4% Health and Education cess, irrespective of the chosen tax regime.
Plan your taxes for the current financial year 2024-25 and check out the revised income tax slabs and income tax exemption limit for salaried employees under the new tax regime here.
Income tax for salaried employees below 60 are calculated as per the given tax rates for FY 2024-25, if they opt for the revised New Tax Regime.
Additionally, you will also be levied an additional 4% Health and Education cess.
The Old Tax Regime for FY 2024-25 for salaried individuals and HUF below 60 years of age is as follows:
Additionally, you will also be levied an additional 4% Health and Education cess, irrespective of the chosen tax regime.
Here are some different scenarios to help you understand tax liability under the new tax regime for FY 2025-26.
Since your taxable income is below the ₹12 lakh slab, your total tax payable will be zero as you will get the full Section 87A rebate.
So, total tax payable = ₹0
Using the benefit of ₹75,000 standard deduction, your taxable income will come down to ₹12 lakh.
Now, your income is qualified for the 100% rebate, leading to zero tax liability.
So, total tax payable = ₹0
Since your income here exceeds ₹12.75 lakh, you can no longer avail the rebate.
So, taxable income after standard deduction = ₹13 lakh - ₹75,000 = ₹12.25 lakh
Tax Calculation on ₹12.25 lakh:
Total tax before marginal relief = ₹63,750
With marginal relief, applicable tax liability = ₹25,000 + cess
If your income exceeds ₹50 lakhs, an additional surcharge as per the given rates will be levied on your existing income tax rates for assessing the total tax for FY 2025-26.
Note that for FY 2022-23, the highest surcharge on income over ₹5 Crore was 37%. After Union Budget 2023, this surcharge has been reduced to 25% under the new tax regime, effective from April 1, 2023, while all the other surcharge rates remain the same.
After the Union Budget 2025, salaried individuals can avail an income tax rebate under Section 87A of the Income Tax Act, 1961 of ₹60,000 if they opt for the new tax regime. This rebate allows individuals earning an income up to ₹12 lakhs to pay significantly lower tax amount under the new tax regime.
It means that if income tax for salaried person payable is up to ₹60,000, the amount will be a total rebate, but the benefit is not available for income taxed at special rates (e.g., capital gains under section 112A).
However, under the old tax regime, the tax rebate of ₹12,500 remains the same for both financial years, i.e., till income up to ₹5 lakhs.
Eligibility for salaried individuals to claim the rebate under Section 87A for FY 2025-26 (AY 2026-27):
One must be an Indian resident below 80 years of age.
The total income after all the deductions under Section 80 should not be higher than ₹7 lakhs.
Salaried individuals will also get a marginal relief benefit under Section 87A if their income comes up to ₹12.75 lakh. It ensures that taxpayers whose income exceeds ₹12 lakh by a small margin do not have to pay significantly more tax.
Income up to ₹12 lakh is tax free (other than income chargeable to tax at special rates such as capital gains on listed equity shares, etc.) as the Budget 2025 increased the benefit of rebate as per Section 87A from ₹25,000 to ₹60,000.
So, if your computable tax comes out to be ₹60,000 with a ₹12 lakh income, the rebate would be applied to it, bringing down the tax to zero.
For example, if your income is ₹11,50,000, then,
Capital gains on listed equity shares: ₹1,50,000
Total income: ₹11,50,000
Tax on normal income: ₹40,000
Tax on special income: ₹18,750
Rebate under section 87A: ₹40,000
So, Tax liability (excluding cess): ₹18,750
Marginal relief is a tax benefit provided under Section 87A that ensures that taxpayers whose income exceeds ₹12 lakh by a small margin do not have to pay significantly more tax.
Marginal relief is applicable to incomes up to ₹12.75 lakh, after which normal tax rates apply, as per the IT slabs. Here’s how it is calculated:
Salaried individuals who opt for the new tax regime in FY 2025-26 will not be eligible for the following deductions and benefits.
Under Section 80C, the investments made in the Employees’ Provident Fund, Life Insurance Premium and Public Provident Fund are not available for deduction.
Under Sections 80C and 80EE/ 80EEA, the deduction on payment of interest and principal amount towards housing loans up to ₹1.5 lakhs can no more be claimed for tax relief.
Interest paid on the student loan debt under Section 80E.
House Rent Allowance (HRA), based on the individual’s rent and salary structure.
The professional tax of ₹2,500.
Leave Travel Allowance (LTA).
Deductions on entertainment allowance (applicable for government employees).
Deduction of the interest payment of home loan for self-occupied/ vacant property under Section 24(b).
Deduction of the interest payment up to ₹2 lakhs for the purchase/construction/ repair/reconstruction of house property under section 24(b).
Tax deduction under Section 35(1)(ii), 35(2AA), 32AD, 33AB, 35(1)(iii), 33ABA, 35(1)(ii), 35CCC(a), and 35AD of the IT Act.
Additional depreciation as specified under Section 32(ii) (a).
The option to adjust the unabsorbed depreciation of previous years.
Deductions as specified under Chapter VI-A such as 80IA, 80CCC, 80C, 80CCD, 80D, 80CCG, 80DDB, 80EE, 80E, 80EEA, 80DD, 80EEB, 80GG, 80IB, 80IAC, and 80IAB.
Minor child, helper allowances and allowances for children's education.
If salaried taxpayers opt for the new tax regime for FY 2025-26, they can benefit from these exemptions and deductions:
You can claim a standard deduction of ₹75,000 under the head 'Income from salaries' only on earnings from their salary, as revised by the Union Budget 2025-26.
The benefit of any NPS (National Pension Scheme) contribution by the employer to the employee's NPS account under Section 80CCD (2) of the Income Tax Act, 1961, is available. However, no tax deductions are allowed on the employee's own contribution.
For all salaried employees, the maximum deduction amount is 14% of their salary, as revised by Budget 2024-25.
Up to 30% of the new employee cost is deductible under Section 80JJAA.
Employers' contributions made in a financial year to their employee's NPS and EPF and superannuation accounts, up to ₹7.5 lakhs is the income tax exemption limit for salaried employees.
Tax exemption on the interest earned from their Employees' Provident Fund account, up to 9.5%.
The lump-sum maturity amount received from the NPS account and the partial fund withdrawal from the Tier I NPS account, both are exempt from taxation.
Tax exemption on the interest or the maturity amount received from the PPF account.
Travel allowances for disabled employees, allowances to cover the travel cost or transfer of an employee, conveyance allowance, daily allowances are eligible for tax exemption, allowances to employees for performing official duties.
Exemptions of up to ₹3,500 and ₹7,000 on interest on their Post Office Savings individual and joint accounts, respectively, under Section 10(15)(i).
Maturity amount received from Life Insurance Company account under Section 10(10D) is exempted.
Tax exemption on interests and maturity amounts received from the Sukanya Samriddhi Account.
Gifts received from employers up to ₹5,000 can be come under the salary exemption limit.
Exemption of up to ₹20 lakhs on the gratuity amount that non-government employees receive from their employer. For government employees, the entire gratuity is exempted from being taxed.
Non-government employees can enjoy exemption up to 1/3 of their commuted pension if they receive gratuity. If they do not receive gratuity, then they can claim up to ½ of their commuted pensions.
Interest of a home loan borrowed for a rented property is eligible for tax deduction.
The leave encashment during retirement.
Monetary benefits received from employers for voluntary retirement, up to ₹5 lakhs.
Education scholarships, retrenchment compensation, and monetary benefits for retirement.
Here are some of the important income tax benefits in the form of allowances and deductions under the old tax regime that can help reduce the tax liability for salaried individuals for the financial year 2025-26.
A standard deduction of ₹50,000.
Leave Travel Allowance (LTA) twice in a block of four years, and House Rent Allowance (HRA).
Reimbursement for expenses on telephone and mobile used at residence.
Employees can claim tax-free reimbursement of the expenses incurred on books, newspapers, periodicals, journals, etc.
Expenses incurred on food coupons.
Benefits on relocation allowance for shifting from one city to another for business purposes.
Benefits on various facilities provided by the employer like health club facilities, cab facilities, gifts or vouchers.
Following is a table illustrating the applicability of these income tax exemptions under the old tax regime along with their limits, which can be used as tax saving options for salaried people:
Following is a table illustrating the applicability of these income tax exemptions under the old tax regime along with their limits, which can be used as tax saving options for salaried people:
These are some of the major income tax exemptions for salaried employees in India.
With such allowances and exemptions from income tax for salaried persons, you can reduce your tax liabilities to quite an extent. So, before you start filing your income tax returns for the previous financial year, make sure you have a comprehensive idea about all the applicable slabs, exemptions and benefits that you can avail yourself of your tax payments.
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