How is income tax calculated in India?
India uses a progressive slab-rate system under the Income Tax Act 1961. Your gross income is reduced by allowed deductions to arrive at taxable income, which is then taxed at graduated slab rates. The final liability adds surcharge (if applicable) and 4% Health & Education Cess.
The calculation steps are:
- Gross total income — salary, business income, house property income, other sources (interest, dividends)
- Less: deductions — standard deduction, Section 80C, 80D, 24(b), 80E (old regime only; new regime allows only standard deduction)
- = Taxable income
- Apply slab tax — graduated rates from the applicable regime table
- Less: 87A rebate — reduces tax to ₹0 if taxable income ≤ threshold
- Add: surcharge — on income tax (after rebate) when taxable income > ₹50 lakh
- Add: cess — 4% on (tax after rebate + surcharge)
- = Total tax payable
FY 2026-27 slab structure
New regime (default from FY 2023-24)
| Taxable income | Rate |
|---|---|
| Up to ₹3,00,000 | 0% |
| ₹3,00,001 – ₹7,00,000 | 5% |
| ₹7,00,001 – ₹10,00,000 | 10% |
| ₹10,00,001 – ₹12,00,000 | 15% |
| ₹12,00,001 – ₹15,00,000 | 20% |
| Above ₹15,00,000 | 30% |
Standard deduction ₹75,000. Section 87A rebate: tax up to ₹25,000 waived if taxable income ≤ ₹7 lakh. Surcharge capped at 25%.
Old regime
| Taxable income | Rate (below 60) |
|---|---|
| Up to ₹2,50,000 | 0% |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
Standard deduction ₹50,000. Allows 80C (₹1.5L cap), 80CCD(1B) NPS (₹50K), 80D (₹1L cap), 24(b) (₹2L cap for self-occupied), 80E (no cap), 80EEA (₹1.5L). Section 87A rebate: tax up to ₹12,500 waived if taxable income ≤ ₹5 lakh. Surcharge up to 37% for income > ₹5 Cr.
Choosing between regimes
The new regime wins when your eligible deductions are modest. The break-even point is approximately ₹3.75 lakh of deductions for most salaried taxpayers (₹75K std deduction + ₹1.5L 80C + ₹50K NPS + ₹25K 80D + ₹75K in other deductions). If your actual deductions exceed this, the old regime reduces your liability more.
Key differences:
- New regime: simpler, lower rates at lower incomes, no deduction admin
- Old regime: higher rates but allows substantial deductions for home loan interest, insurance, ELSS/PPF/EPF contributions
- HRA claimants: old regime almost always better for renters in metros paying > ₹20K/month rent
Use the Old vs New Regime Comparison Calculator to compare your exact liability side by side.
Bridges
If you have a home loan, your Section 24(b) interest deduction (up to ₹2 lakh/year for self-occupied property under the old regime) can significantly reduce your tax. The Home Loan Tax Benefit Calculator computes both the 24(b) interest deduction and 80C principal deduction, and shows the net after-tax cost of your EMI.
For HRA-claiming employees in the old regime: first compute your exempt HRA using the HRA Exemption Calculator, then enter the net taxable salary here.
For Section 80C optimisation: the 80C Deduction Calculator helps you allocate the ₹1.5 lakh cap across PPF, ELSS, LIC premium, EPF, and principal repayment.
Related glossary entries
- EMI — understanding EMI helps when computing Section 24(b) home-loan interest in the deductions section above