Income Tax Rules & Slabs for Central Government Employees (FY 2025–26 / AY 2026–27)

Income Tax for Central Government Employees and Pensioners

💡 IGECORNER Key Takeaway: Under the New Tax Regime, salaried Central Government employees earning up to ₹12.75 Lakh gross salary pay ₹0 Income Tax (₹12,75,000 gross − ₹75,000 standard deduction = ₹12,00,000 net income, completely offset by Section 87A rebate of ₹60,000).

Income Tax Slab Comparison

Income Slab New Tax Regime Default Old Tax Regime Optional
Up to ₹2,50,000 NIL NIL
₹2,50,001 – ₹4,00,000 NIL 5%
₹4,00,001 – ₹5,00,000 5% 5%
₹5,00,001 – ₹8,00,000 5% 20%
₹8,00,001 – ₹10,00,000 10% 20%
₹10,00,001 – ₹12,00,000 10% 30%
₹12,00,001 – ₹16,00,000 15% 30%
₹16,00,001 – ₹20,00,000 20% 30%
₹20,00,001 – ₹24,00,000 25% 30%
Above ₹24,00,000 30% 30%

Key Deductions & Allowances for Serving Staff

Deduction / Allowance Head Old Tax Regime New Tax Regime
Standard Deduction ₹50,000 ₹75,000
Govt Pension Contribution u/s 80CCD(2) Allowed (up to 14% of Basic+DA) Allowed (up to 14% of Basic+DA)
Employee NPS Contribution u/s 80CCD(1B) Allowed (up to ₹50,000) Not Allowed
House Rent Allowance (HRA) u/s 10(13A) Exempt (Min of 3 conditions) Not Allowed
Section 80C (GPF, CGEGIS, ELSS, Tuition Fees) Allowed (up to ₹1,50,000) Not Allowed
Home Loan Interest u/s 24(b) (Self-Occupied) Allowed (up to ₹2,00,000) Not Allowed

Retirement Benefits & Exemption Rules CG Staff Special

Retirement Benefit Head Tax Treatment for Central Govt Staff Relevant IT Section
Death-cum-Retirement Gratuity (DCRG) 100% Tax-Free (No upper cap limit for Govt staff) Section 10(10)(i)
Earned Leave Encashment 100% Tax-Free on superannuation or retirement Section 10(10AA)(i)
Commuted Pension Lump Sum 100% Tax-Free Section 10(10A)(i)
Monthly Uncommuted Pension Fully Taxable as “Salaries” (Eligible for Standard Deduction) Section 17(1)
Family Pension (Legal Heirs) Standard Deduction of ₹25,000 or 1/3rd (whichever is lower) Section 57(iia)

DDO Income Tax Compliance Timeline

Important annual milestones for Central Government staff to submit declarations to their Drawing & Disbursing Officer (DDO):

April (Start of FY)
Option Declaration

Intimate DDO whether you choose Old or New Regime for monthly TDS deduction.

Nov – Dec
Form 12BB Submission

Submit proposed investment proofs, HRA receipts, and home loan interest certificates.

Jan – Feb
Final Proof Verification

DDO verifies actual investment receipts and adjusts TDS for remaining salary months.

By June 15
Form 16 Issuance

DDO issues Part A & B of Form 16 to file your annual Income Tax Return (ITR).

Downloads & Useful Documents

Form 12BB Declaration Form
Investment declaration for DDO
Download PDF
Form 10E (Section 89 Relief)
For DA Arrears tax calculation
Download PDF

Frequently Asked Questions (FAQs)

1. Which tax regime is default for central government employees?
The New Tax Regime is the default option. However, government employees can choose between the Old and New regime at the start of the financial year during tax declaration with their DDO.
2. How is DA Arrears tax calculated? Can I claim relief?
DA Arrears received in a lump sum are added to your gross income in the financial year received. If this pushes you into a higher tax bracket, you can claim tax relief under Section 89(1) by submitting Form 10E on the Income Tax Portal.
3. Is employer contribution to NPS/UPS tax exempt?
Yes, under Section 80CCD(2), Central Government contribution up to 14% of Basic Pay + DA is fully deductible under both Old and New Tax Regimes.
4. How is Leave Encashment taxed upon retirement?
For Central Government employees, Leave Encashment received at the time of retirement or superannuation is 100% tax-free without any upper cap under Section 10(10AA)(i).
5. Can I switch between Old and New Tax Regimes when filing my ITR?
Yes, as a salaried employee without business income, you can switch between the Old and New Tax Regimes at the time of filing your ITR, even if you declared a different option to your DDO earlier.

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4 responses to “Income Tax Rules & Slabs for Central Government Employees (FY 2025–26 / AY 2026–27)”

  1. A P J Avatar
    A P J

    sir,
    my date of birth is 22.03.1964, so I shall become a senior citizen on 31 .03.2024,
    In this situation ,Para ( B )Rates of tax for every individual, being a resident in India, who is of the age of sixty years or more but less than eighty years at any time during the financial year”
    shall be applicable to me.

    Reply
    1. M.K.KUMAR Avatar
      M.K.KUMAR

      Yes, you are eligible under Senior citizens of Income tax rules.

      Reply
  2. anil kumar Avatar
    anil kumar

    it is a excellent site for any salary calculation or matter related to pay

    Reply
    1. igeadmin Avatar
      igeadmin

      Thank you so much Sir

      Reply

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4 COMMENTS

  1. sir,
    my date of birth is 22.03.1964, so I shall become a senior citizen on 31 .03.2024,
    In this situation ,Para ( B )Rates of tax for every individual, being a resident in India, who is of the age of sixty years or more but less than eighty years at any time during the financial year”
    shall be applicable to me.

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