How to Calculate Income Tax in India Step by Step
Income tax calculation may look difficult at first, but once you follow the process step by step, it becomes much easier. You mainly need to know your total income, deductions, exemptions, and the tax regime you want to compare.
In India, salaried taxpayers usually calculate tax by first finding total income, then reducing eligible deductions, then applying the tax slab rates, and finally adding cess. If you want a faster result, you can also use our Tax Calculator to compare old and new regime instantly.
For FY 2025-26, the new regime slab structure starts with nil tax up to ₹4 lakh, and salaried taxpayers get a ₹75,000 standard deduction under the new regime. Under the old regime, salaried taxpayers generally get a ₹50,000 standard deduction, while deductions like 80C, 80D, and HRA exemption continue to matter.
Step 1: Find Your Gross Total Income
Start by adding all taxable income sources for the year. For most salaried people, this includes salary income, interest income, rental income if any, and other normal taxable income.
Your gross total income may include:
- Salary or pension
- Interest from savings account or fixed deposit
- Income from house property
- Freelance or side income
- Any other normal taxable income
Step 2: Choose Old Regime or New Regime for Comparison
Before final calculation, you should compare both tax regimes. The old regime usually works better when you claim deductions and exemptions. The new regime usually works better when deductions are low and you prefer a simpler structure.
The new regime is the default regime for many taxpayers, but you should still compare both before deciding.
Step 3: Reduce Exemptions and Standard Deduction
For salaried employees, the next step is to reduce eligible salary-related benefits such as standard deduction and, under the old regime, exemptions like HRA where applicable.
| Item | Old Regime | New Regime |
|---|---|---|
| Standard Deduction for Salaried Employees | ₹50,000 | ₹75,000 |
| HRA Exemption | Usually available if eligible | Generally not available |
| Other Salary Exemptions | Can matter depending on case | Limited in comparison |
The standard deduction values above are part of the current tax framework for FY 2025-26.
Step 4: Claim Eligible Deductions
This is where the old regime can become very useful. If you are eligible, you can reduce your taxable income through common deductions.
Popular deductions include:
- Section 80C for PPF, EPF, ELSS, LIC, and home loan principal
- Section 80D for health insurance premium
- Section 80CCD(1B) for additional NPS contribution
- Section 24(b) for eligible home loan interest
- Section 80E for education loan interest
In the new regime, most of these deductions are not available in the same way, though employer contribution to NPS under section 80CCD(2) remains relevant in many cases.
Step 5: Calculate Taxable Income
Once you have reduced exemptions and deductions, the amount left is your taxable income.
Simple formula:
Taxable Income = Gross Total Income − Exemptions − Deductions
Step 6: Apply Income Tax Slab Rates
After finding taxable income, apply the slab rates of the selected regime.
New Regime Slabs for FY 2025-26
- Up to ₹4 lakh: Nil
- ₹4 lakh to ₹8 lakh: 5%
- ₹8 lakh to ₹12 lakh: 10%
- ₹12 lakh to ₹16 lakh: 15%
- ₹16 lakh to ₹20 lakh: 20%
- ₹20 lakh to ₹24 lakh: 25%
- Above ₹24 lakh: 30%
Under the current rules, resident individuals under the new regime can get rebate relief up to ₹12 lakh taxable income, which is why many taxpayers may pay no tax at that level. For salaried taxpayers, with the ₹75,000 standard deduction, this often translates to no tax up to ₹12.75 lakh salary in common cases.
Old Regime Slabs
The old regime continues to use the age-based slab structure for individuals, with deductions and exemptions playing a big role in reducing taxable income. Rebate under section 87A continues to matter for resident individuals up to the eligible threshold.
Step 7: Add Health and Education Cess
After calculating tax as per slabs, add 4% health and education cess on the tax amount. This is part of the final tax payable.
Step 8: Adjust TDS and Find Final Payable or Refund
If tax has already been deducted by your employer or any other payer, subtract that TDS from your final tax amount.
If TDS is more than your final tax, you may get a refund. If TDS is lower than the final tax, you may need to pay the balance.
Simple Example of Income Tax Calculation
Suppose your salary is ₹12,00,000 and your other income is ₹50,000. Under the old regime, you may reduce your taxable income using standard deduction, HRA, 80C, 80D, and NPS if eligible. Under the new regime, deductions are more limited, but slab rates are lower.
Because both structures are different, the best way is to compare them side by side using a tool rather than doing everything manually.
Best Way to Calculate Tax Quickly
Manual tax calculation is useful for understanding the process, but for practical use, a calculator saves time and reduces mistakes. Try our Income Tax Calculator to compare old and new regime, check tax payable or refund, and view detailed tax breakup instantly.
Frequently Asked Questions
How is income tax calculated in India?
Income tax is usually calculated by finding gross total income, reducing eligible exemptions and deductions, applying slab rates, adding cess, and then adjusting TDS.
How do salaried employees calculate taxable income?
Salaried employees usually start with salary income, reduce standard deduction and eligible exemptions, claim deductions if available, and then apply the tax slabs.
What is the easiest way to calculate income tax?
The easiest way is to use an online tax calculator that compares both regimes and shows the final tax breakup.
Can I compare old and new regime online?
Yes. You can use our Tax Calculator to compare both instantly.