Tax on investments, explained simply

In one minute

Two regimes

India has a new tax regime (the default) and an old one. Salaried people can choose each year.

New regime (FY 2026-27)

Nil up to ₹4 lakh, then 5%, 10%, 15%, 20% and 25% in ₹4 lakh steps, and 30% above ₹24 lakh. A rebate means no tax up to ₹12 lakh of income (gains taxed at special rates, like equity gains, aren't covered).

Old regime

Nil up to ₹2.5 lakh, 5% to ₹5 lakh, 20% to ₹10 lakh, 30% above. It allows deductions like the ₹1.5 lakh one for PPF, ELSS and NSC.

Cess

A 4% health and education cess is added on top of the tax.

How different investments are taxed

Interest from FDs, RDs, NSC, Post Office deposits and SCSS is added to your income and taxed at your slab rate, every year.

Equity mutual funds and shares: gains on units held more than a year are taxed at 12.5%, and the first ₹1.25 lakh of such gains each year is tax-free. Sell within a year and it's 20%.

Debt mutual funds bought after 1 April 2023: gains are taxed at your slab rate, but only when you sell.

PPF and Sukanya Samriddhi: no tax at all on the interest or the final amount.

Same ₹1,00,000, same 7% a year for 5 years, 30% slab: a deposit taxed every year leaves ₹1,27,696, a debt fund taxed when you sell leaves ₹1,27,696, and an arbitrage fund taxed like equity leaves ₹1,40,255.

Key ideas

1. 1Your slab rate is what interest pays. The higher your slab, the more fixed-income returns shrink.
2. 2When tax is paid matters. Tax paid every year compounds against you; tax paid once at the end lets the whole amount keep growing.
3. 3Deductions only work in the old regime. If you use the new regime, PPF and ELSS still have their other benefits but no deduction.
4. 4Surcharge isn't included here. Very high incomes pay a surcharge on top, which NetReturns doesn't add.
5. 5The law was renamed, not the rates. The Income-tax Act, 2025 replaced the 1961 Act from April 2026; these rates carried over.

Words you'll see

Slab rate

The tax rate on the top part of your income.

Tax regime

One of the two ways to work out income tax: new or old.

Rebate

A reduction that wipes out tax up to a certain income.

Capital gains

Profit from selling an investment for more than you paid.

LTCG / STCG

Long-term and short-term capital gains, depending on how long you held the investment.

Deduction

An amount you can subtract from taxable income, like ₹1.5 lakh for PPF (old regime only).