How to Calculate Income Tax on Salary?
India's net direct tax collections reached about 12.92 lakh crore rupees by mid-November 2025. It's a 7% surge from the previous year. Millions of people, including salaried employees, contribute to the major part of these finances.
These growing numbers often spark curiosity among employees: Am I paying the right amount of tax? Am I missing deductions? How exactly is my tax being calculated?
Numbers, slabs, and rules can leave employees confused. But knowing how to calculate your income tax can help you avoid overpaying and better plan your finances.
Let's take a closer look and learn how to calculate income tax on salary in the simplest way possible.
What is Income Tax?
Income tax is the money paid to the government from the money that you have earned. This is generally deducted by your employer from your salary under TDS.
Income taxes are used by the government to pay for roads, hospitals, schools, and public services. The process to calculate income tax works as follows:
- You earn money from your job.
- A portion of that money is given to the government as tax.
- What you have left after deducting taxes is your net pay.
- The amount of tax you pay depends on how much you earn and which tax bracket you fall into.
What Are the Components Included in Your Salary Payslip?
The key components included in your salary typically include fixed and variable elements. Each component is treated differently for tax purposes. While some are fully taxable, some are partially exempt, and others may be completely tax-free.
What Are the Income Tax Slabs for FY 2025-26?
The income tax slabs and rates for the fiscal year 2025-2026 are based on your annual income and the regime you select, old or new.
How to Calculate Income Tax on Salary?
Calculating income tax on salary is an easy process. You just need to follow a few steps:
This is your total earnings before any deductions. Total everything you earn as salary, basic pay, allowances, and bonuses, plus any other taxable income.
Some allowances, like HRA, LTA, or medical reimbursements, may be partially or fully tax-free. So, take these out.
Use deductions you're eligible for under sections like 80C(PF, PPF, ELSS, life insurance, tuition fees – max ₹1.5 lakh), 80D (health insurance premiums), and others like NPS contributions. Do you know"what is standard deduction in income tax"? Standard Deduction allows you to subtract a fixed amount from your salary before calculating income tax. Salaried individuals can deduct ₹50,000 from their taxable income automatically.
India has two tax regimes: Old and New. Tax is calculated according to slabs in the chosen regime. Check the income tax slabs for FY 2025–26 and calculate the tax based on your taxable income and chosen tax regime (Old or New).
Don't forget to include health and education cess (4%) and any surcharge if your income is high. Surcharge may apply if your income is above ₹50 lakh.
If your employer has already deducted tax at source (TDS), subtract it. That tells you whether you need to pay more or get a refund.
Important Tip:
Use a free income tax calculator online to check your tax in seconds without doing any manual calculations.
Level up your wallet — download Roarbank now
How Your Income Tax is Calculated: Old vs New Regime?
Let's assume a salaried person earns ₹8,00,000 per year:
- HRA received: ₹2,00,000 (rent paid ₹1,50,000)
- Standard deduction: ₹50,000
- 80C investments: ₹1,50,000
Gross Salary: ₹8,00,000
Minus Standard Deduction:
₹50,000 → ₹7,50,000
Minus HRA Exemption:
₹1,50,000 → ₹6,00,000
Minus 80C Deduction:
₹1,50,000 → ₹4,50,000
Taxable Income (Old Regime) = ₹4,50,000
Tax Calculation (Old Regime):
Income up to 2,50,000 → Nil → Tax = ₹0
Income from 2,50,001 – 4,50,000 → 5% of (4,50,000 − 2,50,000) = 5% of 2,00,000 = ₹10,000
Add 4% Health & Education Cess:
₹10,000 × 4% = ₹400
Total Tax Payable (Old Regime) = 10,000 + 400 = ₹10,400
Gross Salary: ₹8,00,000
Income up to 2,50,000 → Nil → Tax = ₹0
Tax Calculation (New Regime):
Income from 2,50,001 to 5,00,000 → 5% of (5,00,000 − 2,50,000) = 5% of 2,50,000 = ₹12,500
Income from 5,00,001 to 7,50,000 → 10% of (7,50,000 − 5,00,000)
= 10% of 2,50,000 = ₹25,000
Total Tax Before Cess = 12,500 + 25,000 = ₹37,500
Cess = 4% of 37,500 = 1,500
Total Tax Payable (New Regime) = 37,500 + 1,500 = ₹39,000
How to Save Income Tax on Salary?
There are practical, simple, and legitimate measures you can take to save on income tax:
Investing in the Provident Fund, Public Provident Fund, or Equity-Linked Savings Scheme is an easy way to save tax. They come under Section 80C, and you can claim a tax break of up to ₹1.5 lakh each year.
Keep all of your rent receipts and any rental agreement just in case you want to save tax every year (if ever you spend a good amount on rent). You can get tax exemption on a portion of your House Rent Allowance (HRA), and even a minor benefit goes a long way toward saving your taxed-outgo.
Salaried employees are already entitled to a standard deduction of ₹50,000. For instance, on a salary of ₹8 lakh. Your taxable income becomes ₹7.5 lakh after the standard deduction. Every salaried employee can benefit from it.
You can make contributions to NPS( National Pension Scheme), a government-backed retirement plan. It usually offers additional tax benefits under Section 80 CCD. You get a deduction now and a pension later.
Record the insurance premiums you pay for yourself as well as those paid on behalf of your spouse, children, and parents. It can lower your taxable income legally and ensure that you have health protection for your family while saving tax at the same time.
Take Control of Your Taxes Today!
Handling income tax is easy if you plan it correctly. Look at your salary, subtract exemptions and deductions, and pick the regime that saves the most of your income. Moreover, invest in PF, NPS, and ELSS for extra savings.
Make your financial life simpler with Roarbank, an all-in-one app by Unity Small Finance Bank Limited, while managing your taxes.
FAQ
Income Tax = Taxable Income × Applicable Tax Rate + Cess & Surcharge
The new income tax in India is a simpler system with lower tax rates but fewer exemptions and deductions. It lets you pay tax based on your income slab.
No, only the eligible portion of HRA based on rent paid and city of residence is exempted.
Yes, individuals can choose annually. However, business owners can't switch due to presumptive taxation.
Professional tax is a state-level tax, usually small, deducted from salary in addition to income tax.
