In the Finance Bill 2025, the Union Finance Minister Smt. Nirmala Sitharaman has enhanced the Income tax slabs for the new regime for the Individuals, HUF, Association of Persons, Body of Individuals and Artificial juridical person with effect from AY 2026-27. The slab enhancement has been an indicator that the Modi Government is concerned about the middle-class income people. This step will boost the Investment in the Market as it will increase the fund flow in the hand of the Individuals. In the Finance Bill 2025, the new slabs have been as follows:-
| Total Income | Rate of Tax |
| Upto Rs. 400000 | Nil |
| Rs. 400001 – Rs. 800000 | 5% |
| Rs. 800001 – Rs. 1200000 | 10% |
| Rs. 1200001 – Rs. 1600000 | 15% |
| Rs. 1600001 – Rs. 2000000 | 20% |
| Rs. 2000001 – Rs. 2400000 | 25% |
| Above Rs. 2400000 | 30% |
In the Finance Bill 2025, the provisions regarding the Rebate u/s. 87A have been modified with the effect from AY 2026-27 i.e. from 01-04-2025 onwards. Upto AY 2025-26, the rebate u/s. 87A has been applicable upto Rs. 700000/- of Income. This limit has been enhanced with effect from AY 2026-27 and the income limit has been increased to Rs. 1250000/-.
It is pertinent to note that the provisions of Section 87A shall not apply to the income chargeable at special rates i.e. capital gains u/s. 111A, 112, etc.
Let’s understand these changes with the help of certain examples:-
- A is a resident individual having a business income of Rs. 12,00,000/-. Let’s analyze this income tax computation with the tax slabs for the AY 2025-26 and AY 2026-27.
For AY 2025-26
| Income | Tax |
| Upto Rs. 3,00,000 | 0 |
| Rs. 300001 – Rs. 700000 | 20000 |
| Rs. 700001 – Rs. 1000000 | 30000 |
| Rs. 1000001 – Rs. 1200000 | 30000 |
Total tax on Rs. 1200000 = Rs. 80000
Education cess @ 4% = Rs. 3200
Total tax payable = Rs. 83200
For AY 2026-27
| Income | Tax |
| Upto Rs. 400000 | 0 |
| Rs. 400001 – Rs. 800000 | 20000 |
| Rs. 800001 – Rs. 1200000 | 40000 |
Total Income on Rs. 1200000 = Rs. 60000
Less: Rebate u/s. 87A = Rs. 60000
Total tax payable = Nil
It is pertinent to mention that in the new tax slab, Mr. X has Rs. 83200/- in his hand that he can either invest or expense off according to his needs.
