How to Calculate Income Tax on Salary with Example?

How to Calculate Income Tax on Salary with Example?. Calculating income tax in India is essential for salaried individuals to ensure financial planning and legal compliance. Knowing about how to calculate income tax on salary with example helps in determining accurate tax liability. The process begins by computing the gross salary, then deducting exemptions like HRA and standard deduction. Next, deductions under Section 80C (like PF, LIC, ELSS) are applied, with the 80C deduction limit capped at Rs.1.5 lakh.
After all deductions, the taxable income is derived, on which applicable tax slabs are applied. This helps salaried individuals calculate income tax on salary with example in a simple and systematic way. For instance, if the net taxable income after deductions is Rs.6 lakh, the income tax is calculated according to the applicable slab, which can include 5% and 10% rates based on the slab system. Proper calculation helps in availing maximum deductions and avoiding penalties while filing returns confidently.
What is Income Tax?
Income tax is a type of direct tax that individuals, professionals, or businesses must pay on their income earned in a financial year. In India, the provisions for income tax are defined under the Income Tax Act, 1961. For salaried employees, income tax is levied on their total income after applying applicable exemptions and deductions. The tax is calculated as per the income slabs notified by the Government every year.
How to Calculate Tax on Salary?
To calculate income tax on salary with example, the following steps must be followed:

Calculate Gross Salary: This includes the sum of basic salary, dearness allowance, HRA, LTA, bonus, and other special allowances.

Subtract Exemptions (if old regime): Exemptions like HRA, LTA, and standard deduction are subtracted from gross salary. Note: exemptions are not applicable in the new regime except for the standard deduction of Rs. 75,000.

Apply Deductions (under old regime only): Deductions under Section 80C, 80D, 24(b), and others can be claimed to lower taxable income.

Arrive at Net Taxable Income: Gross salary minus exemptions and deductions will result in net taxable income.

Apply Relevant Slabs: Use the current income tax slabs under either the old or new tax regime.

Add Cess: Health and Education Cess at 4% is applicable on total income tax.

Deduct TDS or Advance Tax Paid: If TDS or advance tax has been paid, it will be adjusted against total tax liability.

What are the Sources of Income?
As per Indian tax law, income can be earned from the following five heads:

Income from Salary: Salary, allowances, perquisites, and bonuses.

Income from House Property: Rent received from letting out properties.

Income from Business/Profession: Profits earned from running a business.

Income from Capital Gains: Income from selling shares, land, etc.

Income from Other Sources: Interest income, dividends, gifts, etc.

Major Components of Salary
To correctly calculate income tax on salary with example, you should understand each part of your salary structure.

Basic Salary: This is the base component and forms a major portion of salary. It is fully taxable.

HRA (House Rent Allowance): Provided to meet rental expenses. Exemption is available under old regime if living in a rented house and rent receipts are available.

Dearness Allowance (DA): Compensates for inflation. It is fully taxable.

Conveyance Allowance: Reimbursement of travel expenses. Exempt up to a certain limit.

Medical Allowance: Reimbursement for medical bills. Exempt only if bills are submitted.

LTA (Leave Travel Allowance): Tax exemption is allowed for domestic travel, subject to conditions.

Bonus/Performance Incentives: Paid annually or quarterly. Fully taxable.

Provident Fund (PF): Employee and employer contributions. Employer’s contribution beyond 12% is taxable.

Special Allowance: Fully taxable.

Budget Update 2025: Major Relief for Salaried Individuals
The Budget 2025 brought big relief under the new tax regime:

The basic exemption limit is raised to Rs. 4 lakh.

The standard deduction of Rs. 75,000 is available to all salaried individuals.

Section 87A rebate is increased to Rs. 60,000, making income up to Rs. 12.75 lakh tax-free.

New Slab Structure under New Tax Regime (FY 2025-26)

Income Slab

Tax Rate

Rs.0 – Rs.4 lakh

No Tax

Rs.4 lakh – Rs.8 lakh

Rs.8 lakh – Rs.12 lakh

10%

Rs.12 lakh – Rs.16 lakh

15%

Rs.16 lakh – Rs.20 lakh

20%

Rs.20 lakh – Rs.24 lakh

25%

Above Rs.24 lakh

30%

How to Calculate Income tax on Salary with Example in New Regime Post Budget 2025?

Category

Amount

Total

Salary income

Rs. 16.5 lakh

Income derived from other sources

Rs. 20,000

Total gross income

Rs. 16.7 lakh

Deductions under Section 80C

Rs. 1.5 lakh

Deductions under Section 80TTA

Rs. 8,000

Deductions under Section 80D

Rs. 12,000

Rs. 1.7 lakh

Gross Taxable Income

Rs. 15 lakh

Total Tax to be paid

Rs. 2.73 lakh

Tax Comparison with Example
The following are the tax comparison with example:
1. Rs.15 Lakh Income: Old vs New Regime
Old Regime:

Gross Income: Rs.15,00,000

Deductions: Rs.5,00,000 (Standard + 80C + 80D + Home Loan)

Taxable Income: Rs.10,00,000

Tax: Rs.1,12,500 + Cess Rs.4,500 = Rs.1,17,000

New Regime:

Gross Income: Rs.15,00,000

Deduction: Rs.75,000

Taxable Income: Rs.14,25,000

Tax: Rs.93,750 + Cess Rs.3,750 = Rs.97,500

Savings in New Regime: Rs.19,500

2. Rs.20 Lakh Income: Old vs New Regime
Old Regime:

Gross Income: Rs.20,00,000

Deductions: Rs.5,00,000

Taxable Income: Rs.15,00,000

Tax: Rs.2,62,500 + Cess Rs.10,500 = Rs.2,73,000

New Regime:

Deduction: Rs.75,000

Taxable Income: Rs.19,25,000

Tax: Rs.1,85,000 + Cess Rs.7,400 = Rs.1,92,400

Savings in New Regime: Rs.80,600

3. Rs.24 Lakh Income: Old vs New Regime
Old Regime:

Gross Income: Rs.24,00,000

Deductions: Rs.5,00,000

Taxable Income: Rs.19,00,000

Tax: Rs.3,82,500 + Cess Rs.15,300 = Rs.3,97,800

New Regime:

Deduction: Rs.75,000

Taxable Income: Rs.23,25,000

Tax: Rs.2,81,250 + Cess Rs.11,250 = Rs.2,92,500

Savings in New Regime: Rs.1,05,300

Conclusion
Learning how to calculate income tax on salary with example helps salaried individuals make better financial decisions and take advantage of the tax-saving options provided under law. While the new tax regime offers simplified slabs and better savings for certain income levels, the old regime still benefits those with large deductions. Evaluating both options every year is key to reducing your tax burden effectively.
In case of any queries or support please connect with Compliance Calendar LLP through email at info@ccoffice.in or Call/Whatsapp at +91 9988424211.
FAQs on How to Calculate Income Tax on Salary with Example
Q1. How to calculate income tax on salary with example in the new regime?
Ans. To calculate income tax on salary with example under the new regime, first reduce the standard deduction of Rs.75,000 from your total income. Then, apply the applicable tax slab rates starting from Rs.4 lakh onwards. Finally, add 4% health and education cess on the total tax amount to find the final tax payable.
Q2. Can I claim 80C deductions if I choose the new tax regime?
Ans. No. If you opt for the new tax regime, most exemptions and deductions, including those under Section 80C, are not available. Only the standard deduction of Rs.75,000 is allowed for salaried individuals while calculating income tax on salary with example under the new regime.
Q3. How to calculate income tax on salary with example using 80C deductions?
Ans. Under the old regime, you can deduct up to Rs.1.5 lakh under Section 80C for investments like PPF, ELSS, LIC premiums, and more. Subtract these deductions from gross income to calculate the taxable income, then apply slab rates and cess accordingly.
Q4. What is the rebate under Section 87A in income tax for FY 2025-26?
Ans. As per Budget 2025, the Section 87A rebate limit has been increased to Rs.60,000. This means individuals with a taxable income of up to Rs.12.75 lakh can avail a rebate that brings their final tax liability to zero under the new regime.
Q5. How do I know which tax regime is better for me?
Ans. You should compare both regimes using your income and investment data. Calculate income tax on salary with example under both regimes to find the most tax-efficient option. If you have high deductions, the old regime may be better. Otherwise, the new regime could offer more savings.
Q6. How to calculate income tax on salary with example for Rs.15 lakh income?
Ans. In the old regime, you can claim deductions to reduce taxable income to Rs.10 lakh, resulting in tax around Rs.1.17 lakh. In the new regime, after Rs.75,000 standard deduction, tax is calculated on Rs.14.25 lakh with total liability of Rs.97,500. Hence, the new regime saves Rs.19,500.
Q7. Is income from other sources taxed the same as salary income?
Ans. Yes, income from other sources like interest or dividends is added to your total income while calculating income tax on salary with example. The combined total is taxed according to the applicable slab rates of the selected tax regime.
Q8. Do I need to pay tax if my income is below Rs.4 lakh under the new regime? 
Ans. No. As per the updated slab structure in Budget 2025, no tax is applicable if your total income is up to Rs.4 lakh. Also, incomes up to Rs.12.75 lakh can be made tax-free by applying the rebate and standard deduction under the new regime.

Calculating income tax in India is essential for salaried individuals to ensure financial planning and legal compliance. Knowing about how to calculate income tax on salary with example helps in determining accurate tax liability. The process begins by computing the gross salary, then deducting exemptions like HRA and standard deduction. Next, deductions under Section 80C (like PF, LIC, ELSS) are applied, with the 80C deduction limit capped at Rs.1.5 lakh.

After all deductions, the taxable income is derived, on which applicable tax slabs are applied. This helps salaried individuals calculate income tax on salary with example in a simple and systematic way. For instance, if the net taxable income after deductions is Rs.6 lakh, the income tax is calculated according to the applicable slab, which can include 5% and 10% rates based on the slab system. Proper calculation helps in availing maximum deductions and avoiding penalties while filing returns confidently.

What is Income Tax?

Income tax is a type of direct tax that individuals, professionals, or businesses must pay on their income earned in a financial year. In India, the provisions for income tax are defined under the Income Tax Act, 1961. For salaried employees, income tax is levied on their total income after applying applicable exemptions and deductions. The tax is calculated as per the income slabs notified by the Government every year.

How to Calculate Tax on Salary?

To calculate income tax on salary with example, the following steps must be followed:

Calculate Gross Salary: This includes the sum of basic salary, dearness allowance, HRA, LTA, bonus, and other special allowances.
Subtract Exemptions (if old regime): Exemptions like HRA, LTA, and standard deduction are subtracted from gross salary. Note: exemptions are not applicable in the new regime except for the standard deduction of Rs. 75,000.
Apply Deductions (under old regime only): Deductions under Section 80C, 80D, 24(b), and others can be claimed to lower taxable income.
Arrive at Net Taxable Income: Gross salary minus exemptions and deductions will result in net taxable income.
Apply Relevant Slabs: Use the current income tax slabs under either the old or new tax regime.
Add Cess: Health and Education Cess at 4% is applicable on total income tax.
Deduct TDS or Advance Tax Paid: If TDS or advance tax has been paid, it will be adjusted against total tax liability.

What are the Sources of Income?

As per Indian tax law, income can be earned from the following five heads:

Income from Salary: Salary, allowances, perquisites, and bonuses.
Income from House Property: Rent received from letting out properties.
Income from Business/Profession: Profits earned from running a business.
Income from Capital Gains: Income from selling shares, land, etc.
Income from Other Sources: Interest income, dividends, gifts, etc.

Major Components of Salary

To correctly calculate income tax on salary with example, you should understand each part of your salary structure.

Basic Salary: This is the base component and forms a major portion of salary. It is fully taxable.
HRA (House Rent Allowance): Provided to meet rental expenses. Exemption is available under old regime if living in a rented house and rent receipts are available.
Dearness Allowance (DA): Compensates for inflation. It is fully taxable.
Conveyance Allowance: Reimbursement of travel expenses. Exempt up to a certain limit.
Medical Allowance: Reimbursement for medical bills. Exempt only if bills are submitted.
LTA (Leave Travel Allowance): Tax exemption is allowed for domestic travel, subject to conditions.
Bonus/Performance Incentives: Paid annually or quarterly. Fully taxable.
Provident Fund (PF): Employee and employer contributions. Employer’s contribution beyond 12% is taxable.
Special Allowance: Fully taxable.

Budget Update 2025: Major Relief for Salaried Individuals

The Budget 2025 brought big relief under the new tax regime:

The basic exemption limit is raised to Rs. 4 lakh.
The standard deduction of Rs. 75,000 is available to all salaried individuals.
Section 87A rebate is increased to Rs. 60,000, making income up to Rs. 12.75 lakh tax-free.

New Slab Structure under New Tax Regime (FY 2025-26)

Income Slab	Tax Rate
Rs.0 – Rs.4 lakh	No Tax
Rs.4 lakh – Rs.8 lakh	5%
Rs.8 lakh – Rs.12 lakh	10%
Rs.12 lakh – Rs.16 lakh	15%
Rs.16 lakh – Rs.20 lakh	20%
Rs.20 lakh – Rs.24 lakh	25%
Above Rs.24 lakh	30%

How to Calculate Income tax on Salary with Example in New Regime Post Budget 2025?

Category	Amount	Total
Salary income (after standard deduction of Rs. 75,000)	Rs. 24.22 lakh	-
Income derived from other sources	Rs. 20,000	-
Total gross income	-	Rs. 24.42 lakh
Total Tax to be paid	-	Rs. 3,25,104

Calculation:

Rs.0 – Rs.4 lakh → 0% = Rs. 0
Rs.4 lakh – Rs.8 lakh → 5% = Rs. 20,000
Rs.8 lakh – Rs.12 lakh → 10% = Rs. 40,000
Rs.12 lakh – Rs.16 lakh → 15% = Rs. 60,000
Rs.16 lakh – Rs.20 lakh → 20% = Rs. 80,000
Rs.20 lakh – Rs.24 lakh → 25% = Rs. 1,00,000
Above Rs.24 lakh → 30% of Rs. 42,000 = Rs. 12,600
Cess 4% on Rs. 3,12,600 = Rs. 12,504

Total Tax Payable = Rs. 3,25,104

How to Calculate Income Tax on Salary with Example in Old Regime?

Category	Amount	Total
Salary income	Rs. 16.5 lakh	-
Income derived from other sources	Rs. 20,000	-
Total gross income	-	Rs. 16.7 lakh
Deductions under Section 80C	Rs. 1.5 lakh	-
Deductions under Section 80TTA	Rs. 8,000	-
Deductions under Section 80D	Rs. 12,000	Rs. 1.7 lakh
Gross Taxable Income	-	Rs. 15 lakh
Total Tax to be paid	-	Rs. 2.73 lakh

Tax Comparison with Example

The following are the tax comparison with example:

1. Rs.15 Lakh Income: Old vs New Regime

Old Regime:

Gross Income: Rs.15,00,000
Deductions: Rs.5,00,000 (Standard + 80C + 80D + Home Loan)
Taxable Income: Rs.10,00,000
Tax: Rs.1,12,500 + Cess Rs.4,500 = Rs.1,17,000

New Regime:

Gross Income: Rs.15,00,000
Deduction: Rs.75,000
Taxable Income: Rs.14,25,000
Tax: Rs.93,750 + Cess Rs.3,750 = Rs.97,500
Savings in New Regime: Rs.19,500

2. Rs.20 Lakh Income: Old vs New Regime

Old Regime:

Gross Income: Rs.20,00,000
Deductions: Rs.5,00,000
Taxable Income: Rs.15,00,000
Tax: Rs.2,62,500 + Cess Rs.10,500 = Rs.2,73,000

New Regime:

Deduction: Rs.75,000
Taxable Income: Rs.19,25,000
Tax: Rs.1,85,000 + Cess Rs.7,400 = Rs.1,92,400
Savings in New Regime: Rs.80,600

3. Rs.24 Lakh Income: Old vs New Regime

Old Regime:

Gross Income: Rs.24,00,000
Deductions: Rs.5,00,000
Taxable Income: Rs.19,00,000
Tax: Rs.3,82,500 + Cess Rs.15,300 = Rs.3,97,800

New Regime:

Deduction: Rs.75,000
Taxable Income: Rs.23,25,000
Tax: Rs.2,81,250 + Cess Rs.11,250 = Rs.2,92,500
Savings in New Regime: Rs.1,05,300

Conclusion

Learning how to calculate income tax on salary with example helps salaried individuals make better financial decisions and take advantage of the tax-saving options provided under law. While the new tax regime offers simplified slabs and better savings for certain income levels, the old regime still benefits those with large deductions. Evaluating both options every year is key to reducing your tax burden effectively.

In case of any queries or support please connect with Compliance Calendar LLP through email at info@ccoffice.in or Call/Whatsapp at +91 9988424211.

FAQs on How to Calculate Income Tax on Salary with Example

Q1. How to calculate income tax on salary with example in the new regime?

Ans. To calculate income tax on salary with example under the new regime, first reduce the standard deduction of Rs.75,000 from your total income. Then, apply the applicable tax slab rates starting from Rs.4 lakh onwards. Finally, add 4% health and education cess on the total tax amount to find the final tax payable.

Q2. Can I claim 80C deductions if I choose the new tax regime?

Ans. No. If you opt for the new tax regime, most exemptions and deductions, including those under Section 80C, are not available. Only the standard deduction of Rs.75,000 is allowed for salaried individuals while calculating income tax on salary with example under the new regime.

Q3. How to calculate income tax on salary with example using 80C deductions?

Ans. Under the old regime, you can deduct up to Rs.1.5 lakh under Section 80C for investments like PPF, ELSS, LIC premiums, and more. Subtract these deductions from gross income to calculate the taxable income, then apply slab rates and cess accordingly.

Q4. What is the rebate under Section 87A in income tax for FY 2025-26?

Ans. As per Budget 2025, the Section 87A rebate limit has been increased to Rs.60,000. This means individuals with a taxable income of up to Rs.12.75 lakh can avail a rebate that brings their final tax liability to zero under the new regime.

Q5. How do I know which tax regime is better for me?

Ans. You should compare both regimes using your income and investment data. Calculate income tax on salary with example under both regimes to find the most tax-efficient option. If you have high deductions, the old regime may be better. Otherwise, the new regime could offer more savings.

Q6. How to calculate income tax on salary with example for Rs.15 lakh income?

Ans. In the old regime, you can claim deductions to reduce taxable income to Rs.10 lakh, resulting in tax around Rs.1.17 lakh. In the new regime, after Rs.75,000 standard deduction, tax is calculated on Rs.14.25 lakh with total liability of Rs.97,500. Hence, the new regime saves Rs.19,500.

Q7. Is income from other sources taxed the same as salary income?

Ans. Yes, income from other sources like interest or dividends is added to your total income while calculating income tax on salary with example. The combined total is taxed according to the applicable slab rates of the selected tax regime.

Q8. Do I need to pay tax if my income is below Rs.4 lakh under the new regime?

Ans. No. As per the updated slab structure in Budget 2025, no tax is applicable if your total income is up to Rs.4 lakh. Also, incomes up to Rs.12.75 lakh can be made tax-free by applying the rebate and standard deduction under the new regime.