Updated income tax slabs and rates as we move from 2025 to 2026

As we transition from the financial year 2025 to 2026, taxpayers in India need to stay informed about the new tax regime slabs and key changes in tax policies. Understanding the updated income tax rates is crucial for better financial planning and optimising tax liabilities. Additionally, awareness of specific tax components such as the short term capital gains taxis essential for investors who deal with equity and financial instruments frequently. This article provides a detailed overview of the newest income tax slab structure for individuals and the implications of short-term capital gains taxation as per the latest regulations.

Overview of new tax regime slabs for 2025-26

The government continues to encourage simplicity and transparency with its new tax regime. Starting April 2025, the income tax slabs have undergone moderate revisions to align with inflation and changing economic landscapes. The key feature of the new tax regime remains multiple slabs with reduced rates but without most exemptions and deductions.

Here are the updated slabs under the new tax regime for individual taxpayers below 60 years of age:

There is no change in cess and surcharge rates; health and education cess remains at 4% on the income tax calculated. The surcharge applies in case the total income exceeds Rs. 50 lakh, following the existing rules.

For senior citizens aged 60 and above but less than 80 years, the basic exemption limit remains at Rs. 3,00,000 with the same slab rates as above after that limit. For very senior citizens (above 80 years), the exemption limit is Rs. 5,00,000.

Key changes in tax slabs from previous year

Compared to the 2024-25 financial year, the new tax regime slabs for 2025-26 have been revised with a marginal increase in the upper thresholds across certain brackets. This aims to provide some relief against inflation and rising living costs. The most significant adjustment is seen in the highest slab, where the tax rate remains steady at 25% but applies only to income above Rs. 15 lakh rather than lower caps previously proposed.

The government’s goal behind these adjustments is to encourage more taxpayers to opt for the new tax regime, which offers simplicity and quicker filing options. However, the trade-off remains that individuals lose out on most exemptions and deductions such as house rent allowance, standard deduction, and others.

Understanding short term capital gains tax under the new regime

The short term capital gains tax (STCG) in India continues to be a critical component for investors, especially those trading in stocks, mutual funds, and other securities. Under the new tax regime slabs, the STCG tax treatment remains consistent with existing laws.

Short term capital gains arise when an asset is sold within one year of purchase for equity shares or equity-oriented mutual funds, and within three years for other assets like real estate. The gains from listed equity shares and equity funds attract a flat tax rate of 15%, regardless of the individual’s income tax slab.

For other asset classes, gains are added to the total income and taxed according to the slabs under the new tax regime. This means that investors must be mindful of the cumulative effect of their gains and salary or business income on the overall tax liability.

The government has maintained the 15% rate on equity-oriented STCG to promote a vibrant capital market. However, investors should note that these gains do not benefit from indexation, unlike long-term capital gains from non-equity assets.

Comparison between old and new tax regimes

The old tax regime is based on higher tax rates but allows exemptions and deductions such as Section 80C deductions, house rent allowance, medical reimbursements, and more. Taxpayers can continue using these benefits to reduce taxable income.

In contrast, the new tax regime slabs offer lower tax rates with multiple brackets but remove most exemptions. The trade-off for taxpayers is choosing simplicity or maximising savings through exemptions.

For example, a salaried individual making Rs. 12 lakh per annum and having investments under Section 80C worth Rs. 1.5 lakh may find the old regime more beneficial. On the other hand, a professional with fewer deductions and variable income might gain more from the new slabs.

Choosing between the two depends on individual income compositions, the presence of eligible deductions, and investment portfolios.

Impact on salaried individuals and professionals

With the new tax regime slabs effective from 2025-26, salaried employees must carefully evaluate their income structure. Many salaried taxpayers often invest in tax-saving instruments to reduce taxable income. Under the new regime, these instruments lose relevance, and the decision to switch depends on actual tax outflows.

Professionals and freelancers, who may not have access to structured deductions, could find the new regime more straightforward and potentially beneficial. Since the slabs now accommodate slightly higher income levels at each bracket, moderate earners could see some tax savings.

It is important to calculate tax liability under both regimes before finalising filing to optimise savings. Taxpayers should seek professional advice factoring in bonuses, perquisites, housing benefits, and investment plans.

Detailed notes on surcharge and cess

The health and education cess remains fixed at 4% of income tax after applying slab rates. This continues to fund government healthcare and education programmes.

Surcharge rates remain unchanged and apply only to those with taxable income exceeding Rs. 50 lakh:

• Income from Rs. 50 lakh to Rs. 1 crore: 10% surcharge
• Rs. 1 crore to Rs. 2 crore: 15% surcharge
• Rs. 2 crore to Rs. 5 crore: 25% surcharge
• Above Rs. 5 crore: 37% surcharge

These surcharges are added to the base income tax calculated on new tax regime slabs. The surcharge impact makes a difference mostly for ultra-high net worth individuals.

Considerations for investors regarding short term capital gains tax

Short term capital gains tax holds particular significance for investors who frequently trade equity and mutual funds. The flat 15% rate under the new tax regime slabs means the tax incidence is independent of the investor’s income bracket.

However, cumulative income plus STCG can push taxpayers into higher tax brackets for non-equity STCG or other income segments. Investors must maintain records accurately and factor in both gains and losses while filing returns.

Effective tax planning involves timing sales, using tax-loss harvesting, and understanding holding periods to minimise short-term capital gains tax impact.

Tax planning strategies to consider under the new tax regime slabs

1. Evaluate eligibility for deductions and exemptions under old regime first before opting for the new slabs.
2. Calculate actual tax liability under both regimes using income projections for 2025-26.
3. Monitor short term capital gains tax exposure, especially if dealing in equity markets frequently.
4. Review investment portfolio to align with your preferred tax regime.
5. Use tax saving instruments judiciously if sticking to the old regime for better returns.
6. Keep abreast of regulatory updates that may impact surcharge, cess, or applicable slabs.
7. Explore professional tax advice for complex income structures or higher income earners.

Key takeaways

• The new tax regime slabs for 2025-26 introduce marginally higher income thresholds and maintain maximum tax rate at 25%.
• The health and education cess remains at 4% with unchanged surcharge structure.
• The short term capital gains tax rate of 15% on equity-oriented instruments continues unchanged.
• Taxpayers should assess income composition before choosing between old and new regimes.
• Active investors need to plan with short term capital gains tax implications in mind.
• Professional consultation improves tax optimisation and compliance.

Conclusion

The updated new tax regime slabs for the financial year 2025-26 offer an enhanced framework for taxpayers seeking simplicity with lower rates but fewer exemptions. While this approach benefits certain categories of taxpayers, others may find retaining the old tax regime advantageous depending on investments and deductions.

Understanding the treatment of short term capital gains tax is equally vital as investors engage actively in stock and mutual fund markets. Awareness and strategic planning relating to these gains, combined with an accurate assessment of income tax slabs, can help taxpayers optimise their overall tax burden effectively.

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