Skip to content

NISM-Series-X-B: Investment Adviser (Level 2) · Concepts in Taxation

Income Tax Slab Rates, Surcharge and Cess for Individuals

Updated 11 October 2026 · Fact-checked

Income tax on an individual is found by applying slab rates to taxable income, adding surcharge if income crosses a threshold (after marginal relief), then adding 4% health and education cess on tax plus surcharge. The rates differ between the old and new regimes. Work in that fixed order.

Understand Tax Rates, Slabs, Surcharge and Cess

Income tax in India is progressive. Your taxable income is split into bands called slabs, and each band is taxed at its own rate. Only the part of income inside a band is taxed at that band's rate. Crossing a slab does not raise the tax on income below it.

An individual can choose between two regimes. The old regime allows many deductions and exemptions (such as Chapter VI-A deductions) but has fewer, higher-rate slabs. The new regime (the default) has more slabs with lower rates, but allows very few deductions. Rates change with each Finance Act, so this page uses the slabs for FY 2025-26 (AY 2026-27). Check your workbook version for the current figures.

After slab tax comes surcharge. It is an extra percentage on the income tax, charged only when total income crosses a threshold. It is on the tax, not on the income. Higher incomes face higher surcharge rates. In the new regime the highest surcharge rate is capped at 25%. Surcharge on dividend income and on capital gains taxed at special rates (such as under sections 111A, 112 and 112A) is capped at 15%.

Marginal relief stops a cliff effect. Without it, a person earning ₹1 above a threshold could pay lakhs more in surcharge. With it, the extra tax plus surcharge can never exceed the extra income earned above the threshold.

Last comes health and education cess at 4%. It applies on income tax plus surcharge, for every taxpayer who owes tax. There is no cess on cess, and no marginal relief on cess.

Key formulas to remember

New regime slabs (individual, FY 2025-26)
Up to ₹4,00,000: nil | ₹4–8 lakh: 5% | ₹8–12 lakh: 10% | ₹12–16 lakh: 15% | ₹16–20 lakh: 20% | ₹20–24 lakh: 25% | Above ₹24 lakh: 30%
Same slabs for all ages. Rebate under section 87A makes tax nil for resident individuals with taxable income up to ₹12,00,000 (rebate capped at ₹60,000). Standard deduction for salaried people is ₹75,000.
Old regime slabs (below 60 years)
Up to ₹2,50,000: nil | ₹2.5–5 lakh: 5% | ₹5–10 lakh: 20% | Above ₹10 lakh: 30%
Basic exemption is ₹3,00,000 for resident seniors (60 to below 80) and ₹5,00,000 for super seniors (80 and above). Rebate of up to ₹12,500 applies if taxable income is up to ₹5,00,000.
Surcharge rates on income tax (old regime)
Income above ₹50 lakh to ₹1 crore: 10% | above ₹1 crore to ₹2 crore: 15% | above ₹2 crore to ₹5 crore: 25% | above ₹5 crore: 37%
In the new regime the 37% band does not apply; the top rate is 25%. No surcharge up to ₹50 lakh.
Cess
Cess = 4% × (income tax + surcharge)
Charged after surcharge and after marginal relief.
Marginal relief on surcharge
Tax plus surcharge payable ≤ tax on threshold income + (total income − threshold)
Relief = (tax + surcharge) − that limit, when the result is positive. Apply it before cess.
Total tax liability
Slab tax − rebate + surcharge (after relief) + 4% cess
Follow this order every time.

How to solve Tax Rates, Slabs, Surcharge and Cess questions

Use one fixed sequence for any question on tax rates, surcharge and cess. Skipping or reordering steps is how marks are lost.

  1. 1Identify the regime (old or new), the age group and residential status given in the question.
  2. 2Take taxable income as given. If the question gives gross income, first subtract the deductions allowed under that regime.
  3. 3Compute slab tax band by band, using only the part of income inside each band.
  4. 4Apply section 87A rebate if taxable income qualifies. Rebate cannot exceed the tax computed.
  5. 5Check whether total income exceeds a surcharge threshold. If so, compute surcharge as a percentage of tax.
  6. 6Test marginal relief: compare tax plus surcharge with tax at the threshold plus the income above the threshold. Pay the lower amount.
  7. 7Add 4% cess on tax plus surcharge (after relief). This is the final tax liability.

Quickest way: Cumulative slab-tax shortcut

When to use it: Use when the question gives taxable income and asks for total tax in the new regime, where slab tax at each boundary is easy to remember.

  1. Memorise cumulative tax at each new-regime boundary: ₹8 lakh = ₹20,000; ₹12 lakh = ₹60,000; ₹16 lakh = ₹1,20,000; ₹20 lakh = ₹2,00,000; ₹24 lakh = ₹3,00,000.
  2. Take the boundary just below the income, then add the excess income at the next rate.
  3. For income above ₹24 lakh: tax = ₹3,00,000 + 30% of the excess over ₹24 lakh.
  4. Multiply by 1.04 if there is no surcharge. With surcharge, multiply by (1 + surcharge rate) first, then by 1.04.
  5. If income is just over a surcharge threshold, check marginal relief before choosing the answer.

Common mistakes in Tax Rates, Slabs, Surcharge and Cess

  • Applying the slab rate to the whole income instead of only the part in that band.

    Students confuse progressive slabs with a flat rate for the highest band reached.

    Fix: Always compute band by band, or use cumulative tax at the lower boundary plus the excess.

  • Charging surcharge on income instead of on tax.

    The threshold is expressed in income, so students apply the percentage to income.

    Fix: Income only decides whether surcharge applies and at what rate. The percentage is applied to the income tax.

  • Adding cess before surcharge, or charging cess on tax only.

    Students remember '4% cess' but not its base.

    Fix: Cess base is tax plus surcharge. Do surcharge first, then cess last.

  • Forgetting marginal relief just above a threshold.

    Students compute surcharge mechanically and move on.

    Fix: Whenever income is only slightly above ₹50 lakh, ₹1 crore, ₹2 crore or ₹5 crore, test the marginal relief limit.

  • Using the top surcharge of 37% in the new regime.

    Students learn old regime rates and assume they apply everywhere.

    Fix: Remember the new regime top surcharge is capped at 25%. Surcharge on dividend and special-rate capital gains is capped at 15%.

  • Applying section 87A rebate in the old regime at the new-regime limit.

    Both regimes have a rebate, and the limits get mixed up.

    Fix: Old regime: up to ₹12,500 for taxable income up to ₹5 lakh. New regime: up to ₹60,000 for taxable income up to ₹12 lakh.

Worked examples

Example 1

A resident individual below 60 years has taxable income of ₹15,00,000 for FY 2025-26 under the new regime. Compute total tax liability including cess.

Show the solution
  1. Up to ₹4,00,000: nil.
  2. ₹4,00,000 to ₹8,00,000: ₹4,00,000 × 5% = ₹20,000.
  3. ₹8,00,000 to ₹12,00,000: ₹4,00,000 × 10% = ₹40,000.
  4. ₹12,00,000 to ₹15,00,000: ₹3,00,000 × 15% = ₹45,000.
  5. Slab tax = ₹20,000 + ₹40,000 + ₹45,000 = ₹1,05,000.
  6. Income is above ₹12,00,000, so no section 87A rebate. Income is below ₹50 lakh, so no surcharge.
  7. Cess = 4% × ₹1,05,000 = ₹4,200.
  8. Total = ₹1,05,000 + ₹4,200 = ₹1,09,200.

Answer: ₹1,09,200

Example 2

A resident individual below 60 years has taxable income of ₹50,10,000 (all taxed at normal slab rates) for FY 2025-26 under the new regime. Compute total tax including surcharge, marginal relief and cess.

Show the solution
  1. Tax on first ₹24,00,000 = ₹20,000 + ₹40,000 + ₹60,000 + ₹80,000 + ₹1,00,000 = ₹3,00,000.
  2. Tax on the balance ₹26,10,000 at 30% = ₹7,83,000. Slab tax = ₹10,83,000.
  3. Income exceeds ₹50 lakh, so surcharge at 10% = ₹1,08,300. Tax plus surcharge = ₹11,91,300.
  4. Tax on ₹50,00,000 = ₹3,00,000 + (₹26,00,000 × 30%) = ₹3,00,000 + ₹7,80,000 = ₹10,80,000. No surcharge at that level.
  5. Excess income over threshold = ₹10,000. Maximum tax plus surcharge = ₹10,80,000 + ₹10,000 = ₹10,90,000.
  6. Marginal relief = ₹11,91,300 − ₹10,90,000 = ₹1,01,300. Tax plus surcharge payable = ₹10,90,000 (effective surcharge ₹7,000).
  7. Cess = 4% × ₹10,90,000 = ₹43,600.
  8. Total = ₹10,90,000 + ₹43,600 = ₹11,33,600.

Answer: ₹11,33,600

Exam tips

  • Check which regime and which age group the question names before touching any number. Most trap options come from using the wrong table.
  • Expect questions on the order of computation: slab tax, rebate, surcharge, marginal relief, then cess. Know that cess is last and is 4%.
  • If income is just above a surcharge threshold, the correct option usually reflects marginal relief. Eliminate options where tax rises by more than the extra income.
  • Remember the caps: new regime surcharge tops out at 25%, and surcharge on dividend and special-rate capital gains is capped at 15%.
  • On a 2-mark question a wrong answer costs twice as much as on a 1-mark question, so finish the full calculation before choosing on caselet questions.

Practice questions from Concepts in Taxation

Tax Rates, Slabs, Surcharge and Cess in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Tax Rates, Slabs, Surcharge and Cess: frequently asked questions

What is the difference between old and new regime tax slabs?

The new regime has seven bands from nil up to 30% with lower rates and a higher basic exemption, but allows very few deductions. The old regime has four bands (nil, 5%, 20%, 30%) and allows deductions and exemptions such as Chapter VI-A. You choose based on which gives lower tax for your deductions.

How is surcharge and cess calculated on income tax?

Surcharge is a percentage of the income tax, charged only when total income exceeds ₹50 lakh, with higher rates at higher thresholds. Cess is 4% of income tax plus surcharge. Compute surcharge first, apply marginal relief if relevant, then add cess.

What is marginal relief on surcharge?

It ensures that when income just crosses a surcharge threshold, the extra tax plus surcharge does not exceed the extra income above that threshold. You compare tax plus surcharge with tax at the threshold plus the excess income, and pay the lower figure.

Is cess charged on surcharge too?

Yes. The 4% health and education cess is calculated on income tax plus surcharge. It is not charged on itself, and marginal relief does not apply to cess.