How to Calculate Salary Tax in India?
How to Calculate Salary Tax in India?
Step-by-Step Guide for FY 2024–25 | AY 2025–26
Are you wondering how much tax you need to pay on your salary? Whether you're a fresher earning your first paycheck or a seasoned professional, understanding how salary tax is calculated helps you plan your finances and avoid surprises during tax season.
In this article, we’ll walk you through how to calculate salary tax in India, using the latest tax slabs and deductions applicable for FY 2024–25 (AY 2025–26).
📘 What Is Taxable Salary?
Your taxable salary is not just your CTC (Cost to Company). It includes:
• Basic salary
• House Rent Allowance (HRA)
• Dearness Allowance (DA)
• Special allowance
• Bonus and incentives
• Gratuity (partially taxable)
• Perquisites (company car, accommodation, etc.)
Your net taxable income is calculated after exemptions and deductions are applied.
🧾 Step-by-Step Guide to Calculate Salary Tax
✅ Step 1: Choose Your Tax Regime
There are two regimes:
| Regime | Key Features |
| Old Regime | Higher tax rates + multiple deductions |
| New Regime | Lower tax rates + limited deductions |
💡 If you plan to claim deductions (like 80C, HRA, 80D), choose the Old Regime.
If you prefer simplicity, go for the New Regime.
✅ Step 2: Compute Gross Salary Income
Example:
| Salary Component | Monthly (₹) | Annual (₹) |
| Basic Salary | ₹40,000 | ₹4,80,000 |
| HRA | ₹15,000 | ₹1,80,000 |
| Special Allowance | ₹10,000 | ₹1,20,000 |
| Bonus | — | ₹50,000 |
| Total Salary Income | ₹8,30,000 |
✅ Step 3: Apply Exemptions (If in Old Regime)
• HRA exemption (based on rent paid, city, and salary structure)
• Standard Deduction: ₹50,000
• Professional Tax (if applicable): ₹2,400
Let’s assume HRA exemption = ₹70,000
Taxable Salary = ₹8,30,000 – ₹50,000 – ₹70,000 = ₹7,10,000
✅ Step 4: Deduct 80C/80D and Other Deductions (Old Regime Only)
| Section | Deduction Type | Amount (₹) |
| 80C | LIC/PPF/ELSS/EPF, etc. | ₹1,50,000 |
| 80D | Health insurance premium | ₹25,000 |
Total deductions = ₹1,75,000
Net Taxable Income = ₹7,10,000 – ₹1,75,000 = ₹5,35,000
✅ Step 5: Apply Tax Slabs
Under the Old Regime:
| Income Slab | Tax Rate | Tax Payable |
| Up to ₹2.5 lakh | Nil | ₹0 |
| ₹2.5L – ₹5L | 5% | ₹12,500 |
| ₹5L – ₹5.35L | 20% | ₹7,000 |
| Total Tax | ₹19,500 |
Less Rebate (87A) Up to ₹12,500 if total income ≤ ₹5 lakh —
Under New Regime (FY 2024–25):
| Slab | Tax Rate |
| Up to ₹3L | Nil |
| ₹3L – ₹6L | 5% |
| ₹6L – ₹9L | 10% |
| ₹9L – ₹12L | 15% |
| ₹12L – ₹15L | 20% |
| Above ₹15L | 30% |
Note: Standard Deduction of ₹50,000 is also allowed in the new regime.
✅ Step 6: Add Cess
• Health and Education Cess = 4% on tax payable
• Example: ₹19,500 × 4% = ₹780
• Total Tax Payable = ₹20,280
⚠️ When Is ITR Filing Mandatory?
• If your gross total income exceeds:
o ₹2.5 lakh (Old Regime – below 60 years)
o ₹3 lakh (New Regime or Senior Citizens)
• Even if your tax is deducted via TDS, filing ITR is mandatory to claim refunds and carry forward losses.
Final Words
Calculating salary tax involves knowing your income structure, exemptions, deductions, and selecting the right regime. With proper planning, you can save tax legally and efficiently.
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