Tax Regime Overview
The Union Budget 2026 introduced updates to the income tax slabs, impacting how individuals calculate their tax liabilities for the fiscal year 2026-27.
Taxpayers now have a choice between the 'old tax regime' and the 'new tax regime', each with distinct features. The old regime typically allows for various deductions and exemptions, potentially reducing taxable income. The new regime, on the other hand, often offers lower tax rates but with limited or no deductions and exemptions. The choice between the two regimes depends on individual financial circumstances and the nature of their income. This enables taxpayers to choose the plan which provides the most benefit to them.
New Tax Rates
The new tax regime, as per Budget 2026, presents a different structure for income tax calculations. While the specific tax rates are subject to change, the general structure has seven income tax slabs. The new regime often provides tax rates that are generally lower. However, it is essential to consider that the new regime typically does not allow for certain deductions and exemptions, such as those for investments under Section 80C or house rent allowance (HRA). Those choosing this plan must carefully assess their total income and potential savings through deductions to determine if it is the more beneficial option. This regime aims to streamline the tax process and to provide a more straightforward method of calculating tax liabilities.
Old Tax Regime
The old tax regime, a traditional approach to income tax calculations, offers taxpayers a familiar pathway. This regime is characterized by a set of tax slabs and rates, with options to claim numerous deductions and exemptions. The deductions available under the old regime include investments made under Section 80C (like Public Provident Fund, life insurance premiums, and others), HRA, and others. Taxpayers can strategically utilize these deductions to reduce their taxable income, which could result in a lower tax liability. It is a suitable option for those who make substantial investments eligible for deductions or who receive allowances like HRA.
Section 87A Rebate
The Section 87A rebate, a crucial aspect of income tax calculations, is available under the new tax regime in Budget 2026. This rebate is designed to provide tax relief to individuals with specific income levels. It effectively reduces the amount of tax payable by a certain amount. To be eligible for the Section 87A rebate, taxpayers need to meet specific criteria, like their total income must not exceed a specified threshold. The rebate amount is calculated up to a certain limit of the tax liability. The rebate serves as a crucial aspect for those in the lower to mid-income brackets, providing significant financial relief and making the new tax regime more attractive.
Tax Calculator Usage
The Income Tax Calculator is a convenient and helpful tool for taxpayers to estimate their tax liability under both the new and old tax regimes. The calculator typically requires users to input details about their income, investments, and eligible deductions. The calculator then computes the tax liability based on the applicable tax slabs and rates of the selected regime. It helps taxpayers to compare the tax implications of both the old and new tax regimes. By using the calculator, taxpayers gain clarity on which regime is most beneficial for their financial situation. This tool helps in making informed decisions about tax planning and in optimising tax savings.
