Income Tax Rates In India for Financial Year 2025-26

India has a progressive method of taxation i.e. higher taxes for higher income. The tax rates are decided based on residential status of person, type of taxable person, nature and quantum of income. We have summarized below the applicable tax rate for different type of persons for Financial Year 2025-26.

A.    Tax Rates for Individuals/HUFs

Option–I   With all Available Exemptions (Old Tax Regime)

OR

Option 2: Under section 115BAC of the Act (without certain deductions/exemptions) (Default Tax Regime) 

Rebate u/s 87A

Persons having a total income of less than INR 12,00,000 shall be eligible for the benefit of rebate under Section 87A of the Act for an amount up to INR 60,000. Accordingly, there will not be any tax liability for the assessee having income up to INR 12,00,000 under Option- 2.  However, rebate under section 87A is not avaliable in the tax on income chargeable at special rates.

Further persons exercising Option -1 having a total income of less than INR 5,00,000 shall be eligible for the benefit of rebate under Section 87A of the Act for an amount up to INR 12,500.

Exemptions Not Available in Option- 2

In case the assessee opts for Option-2, certain exemptions/deduction (such as LTA, HRA, Interest on housing loan, and deduction under section 80) shall not be available except followings:

• A standard deduction of Rs. 75,000 will be allowed to salaried employees.

• Salaried individuals are allowed a deduction of the contributions made by the employer towards the National Pension Scheme during the computation of his total income provided total deduction shall not exceed 14% of their salary. (Section 80CCD(2))

• Businesses can still claim depreciation on assets, including buildings, machinery, and equipment, as per Section 32. However, additional depreciation of 20% on new plant and machinery (which was earlier available to manufacturing entities) is not allowed.

• Deduction in respect of additional employee cost incurred for employment of new employees is allowed. Deduction is available for 3 assessment years starting from the year in which the employment is provided. (Section 80JJAA).

• Deduction under section 80LA shall also be available in case of a person, having a Unit in the International Financial Services Centre with respect to the income from its business for which it has been approved for setting up in such a Centre in a Special Economic Zone for 10 consecutive AYs out of 15 years beginning with the AY in which permission has been obtained and has exercised the option under section 115BAC only if Assessee furnishes along with return of Income, a report of Chartered Accountant in Form No. 10CCF, certifying that deduction has been correctly claimed in accordance with the provisions of the section.

Additional conditions in relation to option 2

Any carried forward losses or unabsorbed additional depreciation, if any, cannot be set off against current income or carried forward to future years if such loss is attributable to any of the deductions not allowed under the option -2 (Section 115BAC). This means that losses linked to previously claimed deductions under the old regime will lapse if the taxpayer opts for the new tax regime, ensuring a clean transition without past benefits influencing future tax computations.

Surcharge Applicable to the Individuals/HUF: -

*if total income includes any dividend income, income chargeable u/s 111A, 112A and 112, the rate of surcharge on the amount of Income tax computed on that part of income shall not exceed 15%.

Moreover, surcharge is subject to a marginal relief (in order to ensure that increase in tax should in no case be more than increase in income).

Income Chargeable at Special rates: -

Further, there are various incomes which are taxable at special rates. These incomes are taxable at same rate under both new tax regime and old tax regime.

Note: The concessional rate (Option 2) will be default tax regime unless Option-1 (Old tax regime) is exercised by the individual/HUF in the prescribed manner on or before the time specified.

B. Income Tax Slab for Partnership Firm/ LLP

Income of Partnership firms/LLP is taxable @ 30%.

Important points to be consider for taxation of Firm/LLP

• Surcharge @ 12% will be applicable if total income of the firm/ LLP or Local authority exceeds Rs. 1 crore.
• Heath & Education Cess @ 4% shall be applicable on above tax rates
• The benefit of rebate u/s 87A is not available partnership firm/LLP.
• Marginal relief to be checked in order to ensure that increase in tax should in no case be more than increase in income.

C. Tax Rates for Companies

C.1 Tax Rates for Domestic Companies  

Domestic Company means an Indian Company or any other Company which in respect of its income liable to taxed in India and has made the prescribed adjustments for the declaration and payment of dividend within India. 

The corporate tax rate for domestic companies is as below:       

Further domestic companies have following options for lower tax rates subject to satisfaction of prescribed conditions:

Further, provisions relating to MAT/ AMT shall not apply to the companies opting for concessional rates of tax.

C.2      Tax rates for foreign companies

As per income tax law, Foreign Company is a company which is not a domestic company as defined ie. the Company which is registered outside India. A foreign Company can become a domestic company if it makes arrangement for declaration & payment of dividend in India. Following are the applicable tax rates for foreign companies: 

D. Tax rates for Cooperative Societies

*Further, surcharge shall be levied @ 7% if total income Exceed Rs.1 Crore but less than Rs.10 Crore and 12% if  total income Exceed Rs.10 Core.

Under new tax regime cooperative societies resident in India may pay tax at the rate of 22% for AY 2021-22 onwards in respect of its total income subject to complying certain conditions under section 115BAD. Surcharge shall be applicable @ 10% for Cooperative Society opting for this option. Further cess of 4% will also be applicable. The Option so exercised cannot be withdrawn. Further, following deductions/ exemptions would not be available:

• Deductions u/s 10AA or depreciation u/s 32(1) (iia) or section 32AD or section 33AB or section 33ABA or section 35(2AA) or section 35AD or section 35CCC or under any provisions of chapter VI-A other than section 80JJAA.
• Without set off of any loss carried forward or depreciation from any earlier assessment year, if such loss or depreciation is attributable to any of the deductions referred to in (a) above; and
• No further deduction of loss or depreciation shall be provided for any subsequent year.
• The concessional rate shall not apply unless option is exercised by the co-operative society in the prescribed manner on or before the due date specified under sub-section (1) of section 139 of the Act for furnishing the returns of income for any previous year relevant to the assessment year commencing on or after 1st April, 2021 and such option once exercised shall apply to subsequent assessment years.
• If the person has a Unit in the International Financial Services Centre (IFSC), as referred to in sub-section (1A) of section 80LA, the deduction under section 80LA shall be available to such Unit subject to fulfilment of the conditions contained in that section; and 
• The option so exercised cannot be withdrawn.

Further, provisions relating to MAT/ AMT shall not apply to the Cooperative Societies opting for concessional rates of tax.