What is income tax?

How your income tax is worked out

1. Add your income under the five heads: salary, house property, business or profession, capital gains, and other sources
2. Set off allowed losses to get gross total income
3. Subtract the deductions your regime allows to get taxable income
4. Apply slab rates to normal income and special rates to items such as capital gains
5. Subtract any rebate under section 87A, add surcharge if applicable and 4% health and education cess
6. Subtract TDS, TCS and advance tax already paid; the balance is payable or refundable

New regime slab rates

The new regime is the default for individuals. For FY 2025-26 the slabs are:

A rebate under section 87A makes income up to ₹12 lakh tax-free in the new regime (₹12.75 lakh for salaried people after the ₹75,000 standard deduction). Special-rate income such as capital gains is taxed separately.

Old regime and who should use it

The old regime has higher rates but allows deductions such as 80C, 80D, HRA, LTA and home-loan interest. It usually only wins if your deductions are large. Salaried people can choose each year when they file; people with business income can switch back to the old regime only once.

The new Income-tax Act, 2025

From 1 April 2026 income tax is governed by the Income-tax Act, 2025. Rates still come from the Finance Act, and the old and new regimes continue; mainly the section numbers and terminology changed, with a single 'tax year' replacing 'previous year' and 'assessment year'.