Understanding tax calculation on salary income India is important for salaried employees who want to manage their finances, plan investments, and comply with income tax regulations. Every salaried individual earning income in India should understand how income tax is calculated, which deductions are available, and how the old and new tax regimes affect their final tax liability.

The Indian income tax system provides two tax regimes: the Old Tax Regime and the New Tax Regime. Both regimes have different tax slabs, deductions, and exemptions. Choosing the right regime can help salaried employees manage their tax expenses more effectively.

In this guide, we will explain how to calculate income tax on salary in India, understand applicable tax slabs, calculate taxable income, and identify available deductions and exemptions.

What Is Tax Calculation on Salary Income?

Tax calculation on salary income refers to determining the amount of income tax payable by an individual based on their annual salary and applicable tax rules.

Salary income generally includes:

• Basic Salary

• House Rent Allowance (HRA)

• Dearness Allowance (DA)

• Special Allowance

• Performance Bonus

• Leave Travel Allowance (LTA)

• Other taxable allowances

• Perquisites and employment benefits

The total salary received during a financial year is considered while calculating taxable income. However, certain exemptions and deductions may be available depending on the selected tax regime.

How to Calculate Income Tax on Salary in India?

Calculating income tax on salary involves several steps. You need to determine your annual salary, identify eligible exemptions, calculate taxable income, apply the relevant tax slabs, and add applicable cess.

Follow these steps:

Step 1: Calculate Your Annual Salary

First, calculate your total annual salary by adding all salary components received during the financial year.

For example:

Step 2: Identify Applicable Exemptions

Under the Old Tax Regime, eligible employees may claim exemptions such as:

• House Rent Allowance (HRA).

• Leave Travel Allowance (LTA).

• Certain allowances under applicable provisions.

The New Tax Regime provides fewer exemptions and deductions but offers different tax slab benefits.

Step 3: Deduct the Standard Deduction

The standard deduction reduces taxable salary income.

For FY 2025-26 (AY 2026-27):

• Old Tax Regime: ₹50,000.

• New Tax Regime: ₹75,000.

Step 4: Calculate Taxable Income

The basic formula is:

Taxable Income = Gross Salary − Eligible Exemptions − Standard Deduction − Applicable Deductions

The deductions available depend on the selected tax regime.

Step 5: Apply Income Tax Slabs

After calculating taxable income, apply the relevant income tax slab rates under the Old or New Tax Regime.

Step 6: Add Health and Education Cess

A 4% Health and Education Cess is added to the calculated income tax.

Surcharge may also apply when taxable income exceeds the prescribed limits.

Income Tax Slabs for FY 2026-27 (AY 2027-28)

The New Tax Regime is the default tax regime. Salaried individuals can choose the Old Tax Regime if they meet the applicable conditions.

New Tax Regime Slab Rates

The following slab rates apply under the New Tax Regime:

Old Tax Regime Slab Rates

For individuals below 60 years of age:

Senior citizens and super senior citizens have different basic exemption limits under the Old Tax Regime.

Standard Deduction on Salary Income

Standard deduction is a fixed deduction available to eligible salaried individuals and pensioners. It reduces taxable salary income without requiring investment proof.

For FY 2026-27, the standard deduction is:

For example, if your annual salary is ₹10,00,000 under the New Tax Regime, your taxable salary after standard deduction will be ₹9,25,000, before considering any other applicable income or adjustments.

Tax Rebate Under Section 87A

Section 87A provides an income tax rebate to eligible resident individual taxpayers.

Under the New Tax Regime:

• Taxable income up to ₹12,00,000 can qualify for a rebate of up to ₹60,000.

• Marginal relief may be available when taxable income slightly exceeds ₹12,00,000.

• A salaried resident individual can generally have zero tax liability on salary income up to ₹12,75,000 after the ₹75,000 standard deduction, subject to applicable conditions.

Under the Old Tax Regime, eligible resident individuals with taxable income up to ₹5,00,000 can claim a rebate of up to ₹12,500.

The rebate is subject to statutory conditions and does not eliminate tax on certain special-rate income.

Deductions Available Under the Old and New Tax Regimes

The availability of deductions is one of the major differences between the two tax regimes.

Deductions Under the Old Tax Regime

Eligible salaried employees may claim:

• Section 80C: Investments such as PPF, ELSS, and eligible life insurance premiums, subject to the overall limit.

• Section 80D: Eligible health insurance premiums.

• Section 80E: Eligible education loan interest.

• Section 80G: Eligible donations.

• HRA Exemption: Subject to applicable conditions.

• Section 24(b): Eligible home loan interest.

• Standard Deduction: ₹50,000.

Deductions Under the New Tax Regime

The New Tax Regime offers fewer deductions but lower income tax slab rates.

Some available benefits include:

• Standard deduction of ₹75,000.

• Eligible employer contribution to NPS under Section 80CCD(2).

• Certain specified allowances and deductions permitted under the new regime.

• Eligible family pension deduction, where applicable.

Most common deductions, including Section 80C, Section 80D, and HRA exemption, are not available under the New Tax Regime.

Example of Tax Calculation on Salary Income in India

Let's understand income tax calculation with an example of a salaried employee earning ₹15,00,000 annually under the New Tax Regime for FY 2026-27.

Example: Annual salary ₹15 lakh

Income Tax Calculation:

This example assumes that the employee has no other income, special-rate income, surcharge, or additional adjustments.

Difference Between Old Tax Regime and New Tax Regime

The best regime depends on your salary structure, investments, eligible deductions, and exemptions. Employees should calculate their tax liability under both regimes before making a decision.

How to Calculate Monthly TDS on Salary?

Tax Deducted at Source (TDS) is the amount of income tax deducted by an employer from an employee's salary and deposited with the government.

The employer generally estimates the employee's annual taxable income and calculates the applicable tax liability.

The monthly TDS calculation generally follows these steps:

1. Calculate the employee's estimated annual salary.

2. Apply eligible deductions and exemptions.

3. Calculate taxable income.

4. Apply the selected income tax regime.

5. Calculate the applicable rebate, cess, and surcharge.

6. Adjust for eligible tax already paid.

7. Divide the remaining estimated tax by the applicable remaining salary payments.

Employees can check their TDS details through Form 16, salary slips, and Form 26AS.

Common Mistakes to Avoid While Calculating Salary Income Tax

Salaried employees should avoid the following mistakes while calculating their income tax:

1. Selecting the wrong tax regime without comparing tax liability.

2. Forgetting to include bonuses and taxable allowances.

3. Claiming deductions that are not permitted under the selected regime.

4. Incorrectly calculating HRA exemption.

5. Not checking Form 16 and Form 26AS.

6. Ignoring additional income such as interest from savings accounts.

7. Not reporting other sources of taxable income.

8. Missing the applicable income tax return filing deadline.

Frequently Asked Questions (FAQs)

1. How is tax calculated on salary income in India?

Income tax on salary is calculated by determining gross annual salary, deducting eligible exemptions and deductions, applying the applicable tax slab rates, and adding cess and surcharge, if applicable.

2. What is the income tax exemption limit for FY 2026-27?

Under the New Tax Regime, income up to ₹4 lakh falls within the nil-rate slab. Eligible resident individuals can also claim Section 87A rebate, subject to conditions.

3. Is income up to ₹12 lakh tax-free in India?

Eligible resident individuals under the New Tax Regime can claim a rebate of up to ₹60,000 when taxable income does not exceed ₹12 lakh. This is subject to applicable conditions.

4. What is the standard deduction for salaried employees?

For FY 2026-27, the standard deduction is ₹75,000 under the New Tax Regime and ₹50,000 under the Old Tax Regime.

5. Which tax regime is better for salaried employees?

The better regime depends on salary, investments, HRA, insurance premiums, home loan interest, and eligible deductions. Comparing both regimes helps determine the more beneficial option.

6. Can I calculate income tax on salary online?

Yes, you can use an online income tax calculator to estimate your annual tax liability by entering your salary, deductions, exemptions, and selected tax regime.

7. What is the difference between gross salary and taxable salary?

Gross salary includes salary components and taxable allowances before eligible deductions. Taxable salary is the amount remaining after applicable exemptions and deductions.

Conclusion

Understanding tax calculation on salary income India helps employees manage their finances, plan investments, and avoid unnecessary tax payments. Knowing the difference between the Old and New Tax Regimes, standard deductions, income tax slabs, and Section 87A rebate can help salaried individuals make informed financial decisions.

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