Struggling with income tax calculations? Get a detailed step-by-step guide on how to calculate tax on salary with latest slabs (2025-26), deductions, exemptions & examples. Learn how to reduce tax liability and file ITR easily. Use our tax calculator today!
Understanding Income Tax in India
Income tax is a mandatory financial obligation imposed by the Government of India on individuals and entities based on their earnings. The tax collected is used to fund public services, infrastructure development, healthcare, education, and various government welfare schemes. Every salaried individual, self-employed professional, and business entity earning above a specified threshold is liable to pay income tax under the Income Tax Act, 1961.
Why Understanding Income Tax Calculations is Essential for Salaried Individuals
For salaried employees, income tax is deducted at source (TDS) by their employer before they receive their monthly salary. However, many individuals do not fully understand how their tax is computed, leading to overpayment or underpayment of taxes. By learning the correct tax calculation process, salaried individuals can:
- Plan their finances effectively by knowing how much salary they take home after deductions.
- Maximize tax savings by utilizing exemptions, deductions, and rebates allowed under the law.
- Avoid penalties and interest due to incorrect tax filing or delayed payments.
- Make informed investment decisions that align with tax benefits and financial goals.
Importance of Accurate Tax Calculation for Financial Planning
Accurately computing income tax is crucial for proper financial planning. A well-structured tax plan helps individuals:
- Reduce tax liability legally by leveraging tax-saving options like Provident Fund (PF), National Pension System (NPS), and insurance policies.
- Ensure compliance with tax laws and avoid legal troubles.
- Manage expenses efficiently by forecasting net salary after tax deductions.
- Prepare for future financial goals such as buying a house, higher education, or retirement savings.
Understanding income tax calculations empowers individuals to make smarter financial choices, ensuring that they pay only what is required while securing their financial future.
Basics of Income Tax in India
What is Income Tax, and Why is it Levied?
Income tax is a direct tax imposed by the Government of India on the income earned by individuals and entities. It is levied under the Income Tax Act, 1961 and is collected by the Income Tax Department of India. The primary purpose of income tax is to generate revenue for the government, which is used for:
- Public welfare programs such as healthcare, education, and infrastructure.
- Defense and national security.
- Social development initiatives and subsidies.
- Funding government operations and administrative expenses.
Every individual or entity earning income beyond a certain threshold is required to pay income tax as per the applicable tax slab rates determined by the government.
Taxpayer Categories in India
The Indian income tax system classifies taxpayers into different categories based on their legal identity and type of income. The major categories include:
- Individuals – Salaried employees, self-employed professionals, freelancers, pensioners, etc.
- Hindu Undivided Family (HUF) – A family-based tax entity that includes all members of a joint Hindu family.
- Firms – Partnership firms and LLPs (Limited Liability Partnerships).
- Companies – Private Limited Companies, Public Limited Companies, Startups, and Corporations.
- Association of Persons (AOP) and Body of Individuals (BOI) – Groups of individuals or associations that jointly earn income.
- Trusts & Non-Profit Organizations – Entities working for charitable or religious purposes.
Each category is subject to different tax rates and filing requirements. For salaried individuals, tax is calculated based on the income slab rates applicable under either the old tax regime or the new tax regime.
Financial Year vs. Assessment Year
Understanding the difference between the Financial Year (FY) and Assessment Year (AY) is crucial for tax filing:
- Financial Year (FY): The 12-month period in which income is earned. In India, it runs from April 1st to March 31st.
- Assessment Year (AY): The year following the financial year in which income is assessed and taxed.
For example, if income is earned during FY 2024-25 (April 1, 2024 – March 31, 2025), it will be assessed and taxed in AY 2025-26.
Every taxpayer must file their Income Tax Return (ITR) for the relevant Assessment Year, reporting income earned during the Financial Year. Filing income tax returns on time ensures compliance with tax laws and helps avoid penalties.
Understanding Income Tax Slabs (Latest Tax Rates 2025-26)
Income tax in India is levied based on slab rates, which means different portions of an individual’s income are taxed at different rates. The Government of India provides taxpayers with two options for taxation:
- Old Tax Regime (with exemptions and deductions).
- New Tax Regime (lower tax rates but fewer exemptions).
Let’s understand these tax regimes in detail.
New Tax Regime vs. Old Tax Regime
The Old Tax Regime allows taxpayers to claim various deductions and exemptions, such as:
- Standard Deduction of ₹50,000.
- House Rent Allowance (HRA).
- Deductions under Section 80C (PPF, LIC, EPF, ELSS, etc.) – Up to ₹1.5 lakh.
- Deductions under Section 80D (Health Insurance).
- Interest on Home Loan (Section 24b).
The New Tax Regime, introduced in 2020, simplifies tax calculation by offering lower tax rates but eliminates most exemptions and deductions. The New Tax Regime has been revised for FY 2025-26, making it the default option for taxpayers unless they opt for the Old Tax Regime.
Income Tax Slab Rates for FY 2025-26 (AY 2026-27)
New Tax Regime Slab Rates (2025-26)
| Annual Income (₹) | Tax Rate |
|---|---|
| 0 - 4,00,000 | 0% (No Tax) |
| 4,00,001 - 8,00,000 | 5% |
| 8,00,001 - 12,00,000 | 10% |
| 12,00,001 - 16,00,000 | 15% |
| 16,00,001 - 20,00,000 | 20% |
| 20,00,001 - 24,00,000 | 25% |
| Above 24,00,000 | 30% |
- No exemptions allowed except Standard Deduction of ₹50,000.
- Lower tax rates than the old regime but fewer tax-saving options.
Old Tax Regime Slab Rates (2025-26)
| Annual Income (₹) | Tax Rate |
|---|---|
| 0 - 2,50,000 | 0% (No Tax) |
| 2,50,001 - 5,00,000 | 5% |
| 5,00,001 - 10,00,000 | 20% |
| Above 10,00,000 | 30% |
- Exemptions and deductions allowed (e.g., 80C, 80D, HRA, Home Loan Interest, etc.).
- Higher tax rates but more tax-saving opportunities.
Comparison: New Tax Regime vs. Old Tax Regime
| Feature | New Tax Regime | Old Tax Regime |
|---|---|---|
| Basic Exemption Limit | ₹4,00,000 | ₹2,50,000 |
| Standard Deduction | ₹50,000 | ₹50,000 |
| Deductions & Exemptions | Not available (except standard deduction) | Available (HRA, 80C, 80D, etc.) |
| Tax Rates | Lower | Higher |
| Suitable for | Those who don’t claim many deductions | Those with significant deductions |
Which Tax Regime Should You Choose?
Choosing between the Old Tax Regime and the New Tax Regime depends on several factors:
Choose the New Tax Regime if:
- You prefer a simplified tax structure with lower rates.
- You don’t claim many exemptions (e.g., you don’t invest in PPF, LIC, or Home Loans).
- Your salary structure doesn’t include allowances like HRA, LTA, etc.
Choose the Old Tax Regime if:
- You have high tax-saving investments (PPF, ELSS, EPF, insurance).
- You claim home loan interest deductions (Section 24b).
- You receive HRA and other allowances that are tax-exempt.
Tip: Calculate tax under both regimes using the HR Calcy Income Tax Calculator to determine the best option for your salary structure.
Understanding these tax slab rates helps taxpayers optimize tax liability and maximize savings.
Components of Salary Considered for Tax Calculation
When calculating income tax on salary, it is essential to understand the different components of a salary structure. The salary of an individual consists of various elements, some of which are fully taxable, while others may be partially or fully exempt. Below are the key salary components considered for tax calculation:
1. Basic Salary
- Definition: The fixed component of an employee’s salary, forming the base for other salary elements.
- Taxability: Fully taxable under "Income from Salary" in the Income Tax Act.
- Impact: It determines deductions such as Provident Fund (PF) contributions and gratuity.
2. Dearness Allowance (DA)
- Definition: DA is paid to employees to offset the impact of inflation, primarily applicable to government and public sector employees.
- Taxability: Fully taxable and included in gross salary.
- Impact: If DA is part of salary for retirement benefits, it affects gratuity and pension calculations.
3. House Rent Allowance (HRA)
- Definition: An allowance provided to salaried individuals to cover rent expenses.
- Taxability: Partially exempt under Section 10(13A) of the Income Tax Act, subject to conditions.
- Exemption Calculation: The lowest of the following is exempt from tax:
- 50% of Basic Salary (for metro cities) or 40% of Basic Salary (for non-metro cities).
- Actual HRA received.
- Rent paid – 10% of Basic Salary.
Example:
If an employee receives ₹20,000 HRA, pays ₹15,000 rent, and has a ₹50,000 basic salary in a metro city:
- 50% of Basic Salary = ₹25,000
- Rent Paid – 10% of Basic Salary = ₹15,000 - ₹5,000 = ₹10,000
- HRA Received = ₹20,000
- Exempted HRA = ₹10,000 (lowest of the three values)
4. Special Allowances
Definition: Various allowances given by employers that are fully taxable unless specifically exempt. Examples include:
- Conveyance Allowance (for travel) – ₹1,600 per month is tax-free.
- Medical Allowance – Fully taxable.
- Education Allowance – ₹100 per child (max. 2 children) is exempt.
Taxability:
- Some special allowances have partial exemptions, while others are fully taxable.
5. Perquisites & Benefits
Definition: Additional benefits provided by employers beyond salary, such as:
- Company-provided car or accommodation.
- Free meals, gifts, or travel reimbursements.
- Interest-free or concessional loans from the employer.
Taxability:
- Most perquisites are taxable and added to the employee’s salary under "Income from Salary".
- Some perquisites (e.g., laptop provided for official use) are tax-free.
Tip: Perquisite valuation rules are set by the Income Tax Department.
6. Deductions (EPF, NPS, Professional Tax, etc.)
Definition: Certain mandatory deductions from salary help reduce taxable income. Common deductions include:
| Deduction | Eligibility | Maximum Exemption (₹) | Relevant Section |
|---|---|---|---|
| Employee Provident Fund (EPF) | Mandatory for employees in organizations with >20 employees | Part of ₹1.5 lakh limit | 80C |
| National Pension System (NPS) | Additional voluntary retirement savings | ₹50,000 (Extra over 80C limit) | 80CCD(1B) |
| Professional Tax | State government-imposed tax | ₹2,500 per year | Deductible under Section 16 |
Taxability:
- Contributions like EPF, NPS, and professional tax are deducted from salary before tax calculation, reducing taxable income.
7. Bonus and Other Income
Definition: Employers may provide annual bonuses, incentives, or performance-linked pay to employees.
Taxability:
- Fully taxable and included in salary income for tax calculation.
- If the bonus is deferred or paid in installments, it is taxed in the year it is received.
Understanding the components of salary helps employees optimize tax savings and make informed financial decisions. Certain allowances and deductions can reduce taxable income, lowering the overall tax burden. In the next section, we will discuss how to calculate income tax on salary step-by-step with an example.
Step-by-Step Guide to Calculate Income Tax on Salary (With Example)
Calculating income tax on salary involves multiple steps, including identifying exemptions, deductions, and applying the latest income tax slabs. Here’s a detailed step-by-step guide to help you compute your tax liability for the financial year 2025-26.
Step 1: Compute Gross Salary (Add All Earnings)
Gross Salary includes:
- Basic Salary
- Dearness Allowance (DA)
- House Rent Allowance (HRA)
- Special Allowances (e.g., travel, medical, food coupons)
- Bonus & Incentives
- Perquisites (e.g., employer-provided car, rent-free accommodation)
Example:
Let’s assume an employee earns the following:
| Salary Component | Amount (₹) |
|---|---|
| Basic Salary | ₹6,00,000 |
| HRA | ₹2,40,000 |
| Special Allowances | ₹1,00,000 |
| Bonus | ₹50,000 |
| Employer’s Contribution to EPF | ₹72,000 |
| Total Gross Salary | ₹10,62,000 |
Step 2: Identify Exemptions under Section 10 (HRA, LTA, etc.)
Common exemptions under Section 10:
- House Rent Allowance (HRA) Exemption (as per Section 10(13A))
- Leave Travel Allowance (LTA) (subject to actual travel expenses)
HRA Exemption Calculation (For a Metro City Employee Paying ₹2,00,000 Rent per Year):
The least of the following is exempt:
- 50% of Basic Salary → ₹3,00,000
- Actual HRA Received → ₹2,40,000
- (Rent Paid - 10% of Basic Salary) → (₹2,00,000 - ₹60,000) = ₹1,40,000
HRA Exempted: ₹1,40,000
Taxable HRA: ₹2,40,000 - ₹1,40,000 = ₹1,00,000
Total Exemptions: ₹1,40,000
Step 3: Deduct Standard Deduction (₹50,000)
Applicable to all salaried employees
Flat ₹50,000 deduction under Section 16
Taxable Income After Exemptions & Standard Deduction:
| Details | Amount (₹) |
|---|---|
| Gross Salary | ₹10,62,000 |
| (-) HRA Exemption | ₹1,40,000 |
| (-) Standard Deduction | ₹50,000 |
| Net Salary After Exemptions | ₹8,72,000 |
Step 4: Subtract Chapter VI-A Deductions (80C, 80D, etc.)
Deductions Allowed Under Chapter VI-A:
| Section | Deduction Type | Maximum Limit (₹) |
|---|---|---|
| 80C | EPF, PPF, ELSS, LIC Premium, etc. | ₹1,50,000 |
| 80D | Health Insurance Premium | ₹25,000 |
| 80CCD(1B) | Additional NPS Contribution | ₹50,000 |
Example Deductions:
- EPF Contribution: ₹72,000
- Life Insurance Premium: ₹50,000
- Health Insurance Premium: ₹20,000
- NPS Contribution: ₹30,000
Total Deductions: ₹1,50,000 (80C) + ₹20,000 (80D) + ₹30,000 (80CCD(1B)) = ₹2,00,000
Taxable Income After Deductions:
| Details | Amount (₹) |
|---|---|
| Net Salary After Exemptions | ₹8,72,000 |
| (-) Chapter VI-A Deductions | ₹2,00,000 |
| Taxable Income | ₹6,72,000 |
Step 5: Apply Income Tax Slabs (As Per Chosen Regime)
New Tax Regime (2025-26) Slabs:
| Taxable Income (₹) | Tax Rate |
|---|---|
| 0 - 4,00,000 | 0% |
| 4,00,001 - 8,00,000 | 5% |
| 8,00,001 - 12,00,000 | 10% |
| 12,00,001 - 16,00,000 | 15% |
| 16,00,001 - 20,00,000 | 20% |
| 20,00,001 - 24,00,000 | 25% |
| Above 24,00,000 | 30% |
Tax Calculation Under New Regime:
| Slab | Tax Rate | Taxable Amount (₹) | Tax (₹) |
|---|---|---|---|
| 0 - 4,00,000 | 0% | 4,00,000 | 0 |
| 4,00,001 - 6,72,000 | 5% | 2,72,000 | ₹13,600 |
| Total Tax Before Cess | ₹13,600 |
Step 6: Add Cess (4% Health & Education Cess)
Cess = 4% of ₹13,600 = ₹544
Final Tax Payable:
| Details | Amount (₹) |
|---|---|
| Income Tax | ₹13,600 |
| (+) 4% Cess | ₹544 |
| Total Tax Payable | ₹14,144 |
Step 7: Calculate Final Tax Payable & TDS
- If TDS is already deducted by the employer, adjust against the total tax payable.
- If excess tax is paid, claim a refund while filing ITR.
- If tax is due, pay using the Challan 280 on the Income Tax Portal.
Summary of Tax Calculation
| Step | Amount (₹) |
|---|---|
| Gross Salary | ₹10,62,000 |
| (-) Exemptions (HRA) | ₹1,40,000 |
| (-) Standard Deduction | ₹50,000 |
| (-) Deductions (80C, 80D, 80CCD) | ₹2,00,000 |
| Taxable Income | ₹6,72,000 |
| Tax as Per New Tax Regime | ₹13,600 |
| (+) 4% Cess | ₹544 |
| Total Tax Payable | ₹14,144 |
This step-by-step guide simplifies income tax calculation under the new regime. To calculate your own taxes, use the HR Calcy Income Tax Calculator.
Pro Tip: Choosing the right tax regime (old vs. new) depends on your exemptions and deductions. Use an online tax calculator for quick comparisons!
Example: Income Tax Calculation on ₹10 Lakh Salary
To understand how income tax is calculated, let’s consider a salary of ₹10,00,000 per year and compare tax liability under the Old Tax Regime and New Tax Regime for FY 2025-26.
Calculation Under Old Tax Regime (With Deductions)
Step 1: Compute Gross Salary
- Total Salary = ₹10,00,000
Step 2: Identify Exemptions (Section 10)
- HRA Exemption (Assumed) = ₹1,20,000
- Standard Deduction = ₹50,000
Net Salary After Exemptions:
₹10,00,000 - ₹1,20,000 - ₹50,000 = ₹8,30,000
Step 3: Apply Chapter VI-A Deductions
- 80C (EPF, PPF, LIC, ELSS, etc.) = ₹1,50,000
- 80D (Health Insurance Premium) = ₹25,000
- 80CCD(1B) (NPS Contribution) = ₹50,000
Total Deductions: ₹1,50,000 + ₹25,000 + ₹50,000 = ₹2,25,000
Taxable Income: ₹8,30,000 - ₹2,25,000 = ₹6,05,000
Tax Calculation (Old Regime Slabs 2025-26)
| Slab (₹) | Tax Rate | Taxable Amount (₹) | Tax (₹) |
|---|---|---|---|
| 0 - 2,50,000 | 0% | 2,50,000 | 0 |
| 2,50,001 - 5,00,000 | 5% | 2,50,000 | 12,500 |
| 5,00,001 - 6,05,000 | 20% | 1,05,000 | 21,000 |
| Total Tax Before Cess | ₹33,500 |
Step 4: Add 4% Health & Education Cess
4% of ₹33,500 = ₹1,340
Total Tax Payable (Old Regime): ₹34,840
Calculation Under New Tax Regime (Without Deductions)
In the New Tax Regime, deductions (80C, 80D, etc.) are not allowed, but tax rates are lower.
Tax Calculation (New Regime Slabs 2025-26)
| Slab (₹) | Tax Rate | Taxable Amount (₹) | Tax (₹) |
|---|---|---|---|
| 0 - 4,00,000 | 0% | 4,00,000 | 0 |
| 4,00,001 - 8,00,000 | 5% | 4,00,000 | 20,000 |
| 8,00,001 - 10,00,000 | 10% | 2,00,000 | 20,000 |
| Total Tax Before Cess | ₹40,000 |
Step 4: Add 4% Health & Education Cess
4% of ₹40,000 = ₹1,600
Total Tax Payable (New Regime): ₹41,600
Comparison: Old vs. New Tax Regime for ₹10 Lakh Salary
| Particulars | Old Tax Regime (With Deductions) | New Tax Regime (Without Deductions) |
|---|---|---|
| Gross Salary | ₹10,00,000 | ₹10,00,000 |
| (-) Exemptions (HRA, Standard Deduction) | ₹1,70,000 | Not Allowed |
| (-) Deductions (80C, 80D, NPS, etc.) | ₹2,25,000 | Not Allowed |
| Taxable Income | ₹6,05,000 | ₹10,00,000 |
| Income Tax Payable (Before Cess) | ₹33,500 | ₹40,000 |
| 4% Cess | ₹1,340 | ₹1,600 |
| Total Tax Payable | ₹34,840 | ₹41,600 |
Which Tax Regime is Better?
- If you claim deductions (80C, 80D, etc.), the Old Tax Regime is more beneficial (₹34,840 tax vs. ₹41,600 in the new regime).
- If you don’t have major deductions, the New Tax Regime is simpler with lower tax rates.
Common Deductions to Reduce Tax Liability
Maximizing tax deductions can significantly reduce your income tax liability. Here are some of the most common deductions available under the Income Tax Act, 1961:
Section 80C: Deduction up to ₹1.5 Lakh
One of the most popular tax-saving options, Section 80C allows a maximum deduction of ₹1.5 lakh on eligible investments and expenses, including:
Investments
- Public Provident Fund (PPF)
- Employees’ Provident Fund (EPF)
- Equity Linked Savings Scheme (ELSS)
- National Savings Certificate (NSC)
- Sukanya Samriddhi Yojana (SSY)
- 5-Year Fixed Deposit (FD) with banks/post offices
Expenses
- Life Insurance Premium (LIC, Term Plans)
- Tuition Fees for up to two children
- Home Loan Principal Repayment
Section 80D: Deduction for Health Insurance Premium
You can save tax by paying health insurance premiums for yourself, your family, and your parents.
| Category | Self, Spouse & Children | Parents | Total Deduction |
|---|---|---|---|
| If parents are below 60 years | ₹25,000 | ₹25,000 | ₹50,000 |
| If parents are above 60 years | ₹25,000 | ₹50,000 | ₹75,000 |
Additional ₹5,000 deduction for preventive health checkups within the limit.
Section 80E: Deduction on Education Loan Interest
- Interest paid on an education loan (for higher studies in India or abroad) is fully deductible under Section 80E.
- There is no upper limit on the deduction.
- Deduction is available for a maximum of 8 years from the year of repayment.
Section 80G: Deduction for Donations to Charity
- Donations to registered charitable institutions & relief funds are eligible for deductions under Section 80G.
- The deduction can be 50% or 100% of the donated amount, depending on the organization.
Examples of 100% Deduction:
- Prime Minister’s National Relief Fund
- National Defense Fund
Examples of 50% Deduction:
- NGOs & other approved charitable trusts
Other Lesser-Known Deductions
Section 80GG: House Rent Deduction (For Non-Salaried Individuals)
- Available if you don’t get HRA but pay rent.
- Maximum deduction = ₹60,000 per year.
Section 80TTB: Interest Income for Senior Citizens
- Up to ₹50,000 deduction on interest earned from bank/post office deposits (only for senior citizens).
Section 80U: Deduction for Disabled Individuals
- Persons with disabilities can claim a deduction of:
- ₹75,000 (for 40% to 80% disability)
- ₹1,25,000 (for 80% or more disability)
Using these deductions wisely can help reduce taxable income and save taxes effectively. Make sure to plan your investments early in the financial year to maximize benefits!
How to File Income Tax Returns (ITR) Online
Filing Income Tax Returns (ITR) is mandatory for individuals whose income exceeds the exemption limit. The Government of India has simplified the e-filing process through the official Income Tax e-Filing Portal (https://www.incometax.gov.in). Below is a step-by-step guide on how to file your ITR online.
Step 1: Register/Login to the Income Tax e-Filing Portal
- Visit the official Income Tax e-Filing portal: https://www.incometax.gov.in.
- Click on “Login” (or “Register” if you are a first-time user).
- Use your PAN (Permanent Account Number) as the user ID.
- Enter your password and complete the CAPTCHA verification.
- Click “Continue” to access your account.
Step 2: Select the Correct ITR Form
- Click on “e-File” → “Income Tax Return”.
- Select the relevant Assessment Year (AY 2025-26).
- Choose the appropriate ITR form based on your income type:
| ITR Form | Applicable For |
|---|---|
| ITR-1 (Sahaj) | Salaried individuals with income up to ₹50 lakh |
| ITR-2 | Salaried individuals earning more than ₹50 lakh or having capital gains |
| ITR-3 | Individuals earning from business or profession |
| ITR-4 (Sugam) | Presumptive income for businesses & professionals |
Select “Online” mode for e-filing.
Step 3: Fill in Salary and Deduction Details
- Verify personal details (Name, PAN, Address, Contact Info).
- Under the “Income” section, enter:
- Salary details (as per Form 16).
- Income from other sources (interest, rental income, etc.).
- Under the “Deductions” section, enter:
- Standard Deduction (₹50,000).
- Section 80C (PPF, EPF, ELSS, LIC, etc.).
- Section 80D (Health Insurance Premium).
- Other deductions (80E, 80G, etc.).
The portal will auto-calculate taxable income and suggest applicable tax slabs.
Step 4: Verify Tax Calculation and E-File the Return
- The portal automatically calculates total tax liability based on the income tax slabs.
- If tax is payable, make the payment through Challan 280 on the e-Filing portal.
- If you have already paid excess tax (TDS/TCS), claim a refund.
- Click “Proceed to E-File” and submit your ITR.
Step 5: E-Verify Using Aadhaar/Net Banking
- After submission, you need to verify your return within 30 days.
- Choose any one method for e-verification:
- Aadhaar OTP (Sent to your registered mobile).
- Net Banking (Login & verify through your bank).
- Demat Account (Using DP credentials).
- Once verified, you will receive a confirmation email & SMS from the Income Tax Department.
Filing Income Tax Returns online is quick, easy, and mandatory for compliance. Follow this guide to file your ITR correctly and on time to avoid penalties.
Common Mistakes to Avoid While Calculating Income Tax
Accurate income tax calculation is essential to avoid overpaying taxes or facing penalties. Many salaried individuals make avoidable mistakes while computing their tax liability. Here are some common mistakes to watch out for:
1. Forgetting to Claim Eligible Deductions
Many taxpayers fail to claim deductions they are entitled to, leading to higher tax payments.
Commonly missed deductions:
- Section 80C (₹1.5 lakh) – Investments like PPF, EPF, ELSS, NSC, Life Insurance Premium.
- Section 80D – Health insurance premiums for self and family.
- Section 80E – Interest on education loans.
- Section 80G – Donations to charitable organizations.
- HRA & LTA Exemptions (if applicable under Old Tax Regime).
Tip: Always check Form 16, bank statements, and investment proofs before filing.
2. Choosing the Wrong Tax Regime
The New Tax Regime (2025-26) offers lower tax rates but fewer deductions, while the Old Tax Regime allows multiple deductions.
Mistake: Selecting a regime without proper tax planning can lead to paying higher taxes.
Example:
- If you invest heavily in 80C, 80D, and other deductions, the Old Tax Regime may be more beneficial.
- If you don’t claim many deductions, the New Tax Regime could be better.
Tip: Use an Income Tax Calculator to compare both regimes before making a decision.
3. Not Considering Perquisites in Salary
- Perquisites (perks) such as rent-free accommodation, car benefits, ESOPs, and meal vouchers are taxable.
- Mistake: Many employees ignore these perks, leading to under-reporting of taxable income.
- Tip: Check salary slips and Form 16 to ensure perquisites are accounted for while computing tax.
4. Missing Deadlines for ITR Filing
- The due date for ITR filing is usually 31st July for salaried individuals.
- Mistake: Filing after the deadline can lead to:
- Late fees of up to ₹5,000 (under Section 234F).
- Loss of tax refunds due to delayed claims.
- Interest penalty on unpaid taxes.
Tip: File your ITR well before the deadline to avoid last-minute issues.
Avoiding these common mistakes will help in accurate tax calculation and ensure maximum tax savings. Stay updated on tax rules and use an Income Tax Calculator to make informed decisions.
Useful Tools & Resources for Tax Calculation
Accurate tax calculation is crucial for effective financial planning. Using reliable online tools and resources can simplify the process and help you make informed decisions. Below are some essential tools and sources to assist you in calculating and managing your income tax efficiently.
1. Online Income Tax Calculators
Using an income tax calculator is the easiest way to compute your tax liability based on your income, deductions, and tax regime selection.
Recommended tool: HR Calcy’s Income Tax Calculator
- Supports both Old & New Tax Regime calculations.
- Provides step-by-step tax breakdown.
- Easy-to-use interface for salaried individuals.
2. Government Websites for Official Tax Updates
For the latest tax slabs, exemptions, and legal changes, always refer to official government sources.
Key Government Websites:
- Income Tax Department of India – Official site for tax laws, ITR filing, and e-filing services.
- GST Portal – Updates on GST laws and compliance.
- NSDL Portal – PAN/TAN registration, TDS details, and tax-related services.
3. Trusted Sources for Tax-Saving Tips
Stay updated with the latest tax-saving strategies by following reputed financial portals and experts.
Recommended Tax & Finance Websites:
- HR Calcy – Expert guides on salary calculation, tax-saving tips, and HR tools.
- Economic Times – Reliable news on taxation and financial planning.
- Moneycontrol – Investment and tax-saving insights.
- ClearTax – Tax filing guides and financial calculators.
Using these tools and resources can help you calculate your income tax accurately, stay updated with tax laws, and maximize your savings. Always rely on official sources and trusted financial websites for correct tax-related information.
Calculate your taxes easily with HR Calcy’s Income Tax Calculator!
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| How to Calculate Income Tax on Salary |
Conclusion
Understanding how to calculate income tax on salary is essential for better financial planning and ensuring compliance with tax regulations. Here are the key takeaways from this guide:
- Know Your Tax Regime – Choose between the Old and New Tax Regime based on your income structure and available deductions.
- Use All Eligible Deductions – Maximize your tax savings by claiming deductions under Sections 80C, 80D, 80E, 80G, and others.
- Calculate Tax Accurately – Follow a step-by-step approach to avoid overpaying or underpaying taxes.
- File ITR on Time – Avoid penalties by filing your Income Tax Return (ITR) before the deadline.
Plan Your Tax-Saving Investments Early
Tax planning should not be a last-minute activity. Start investing in tax-saving instruments like PPF, ELSS, NPS, and health insurance at the beginning of the financial year to optimize savings and maximize returns.
Calculate Your Taxes Instantly
To make your tax calculations hassle-free, use the HR Calcy Income Tax Calculator. This tool helps you:
- Compute tax based on your income and deductions.
- Compare tax payable under Old vs. New Regime.
- Get accurate tax estimates in seconds.
Stay tax-smart and plan ahead for a financially secure future!
FAQ
How is income tax calculated on salary?
Income tax is calculated based on your **taxable income** after deductions. Apply the tax slab rates as per the chosen regime (old or new).
What is the difference between old and new tax regimes?
The **old tax regime** allows deductions like **80C, 80D, HRA**, etc., while the **new regime** has lower slab rates but no major deductions.
How much tax do I pay on a ₹10 lakh salary?
Under the **old regime**, tax is lower with deductions, while in the **new regime**, tax is higher due to no deductions. Use a tax calculator for exact numbers.
What deductions can I claim to reduce tax?
You can claim **80C (₹1.5L), 80D (Health Insurance), 80E (Education Loan), HRA, and Standard Deduction (₹50,000)** under the old regime.
How can I file my Income Tax Return (ITR) online?
Login to the **Income Tax e-Filing portal**, select the correct ITR form, enter details, verify tax, and submit. **E-verify via Aadhaar/Net Banking**.
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