Below is a comprehensive guide to walk you through the step-by-step process of how to calculate income tax on salary with an example for better understanding:

Calculating your Gross Income

To know how to calculate tax on salary, you first need to calculate your gross total income. This involves considering various components within your salary structure, such as basic income, bonus, Employee Provident Fund (EPF), House Rent Allowance (HRA), Leave Travel Allowance (LTA) and special allowances such as mobile reimbursements and food coupons.

Reducing Deductions and Determining your Total Income

Reducing deductions is the next pivotal step when you calculate income tax. Some key deductions include the following:

  • ₹ 50,000 as standard deduction
  • Up to ₹ 1.5 lakh as deduction for various investments and savings instruments under Section 80C of The Income Tax Act, 1961
  • Up to ₹ 1 lakh as a deduction on the health insurance premiums and preventive health checkups of up to ₹ 5000 under Section 80D of The Income Tax Act, 1961
  • Up to ₹ 10,000 on the interest earned from a bank account under Section 80TTA of The Income Tax Act, 1961
  • Up to ₹ 50,000 on the National Pension Scheme (NPS) under Section 80CCD(1B) of The Income Tax Act, 1961
  • HRA
  • And more

Determining the Total Income

This process involves subtracting all eligible deductions from your gross total income. Depending on your applicable tax slab, you can subtract the standard deduction, applicable deductions and more to arrive at your total income.

Calculating the Taxes Imposed

Tax is calculated on your taxable income as per the following tax slabs and rates:

Below are the income tax slabs for the old tax regime:

Taxpayers under the age of 60

Income slabs Tax rate
Up to ₹ 2.5 lakh NIL
₹ 2.5 lakh - ₹ 5 lakh 5% above ₹ 2.5 lakh
₹ 5 lakh - ₹ 10 lakh ₹ 12,500 + 20% above ₹ 5 lakh
> ₹ 10 lakh ₹ 1,12,500 + 30% above ₹ 10 lakh

Taxpayers between the ages of 60 and 80

Income slabs Tax rate
Up to ₹ 3 lakh NIL
₹ 3 lakh - ₹ 5 lakh 5% above ₹ 3 lakh
₹ 5 lakh - ₹ 10 lakh ₹ 10,000 + 20% above ₹ 5 lakh
> ₹ 10 ₹ 1,10,000 + 30% above ₹ 10 lakh

Taxpayers over the age of 80

Income slabs Tax rate
Up to ₹ 5 lakh NIL
₹ 5 lakh - ₹ 10 lakh 20% above ₹ 5 lakh
> ₹ 10 ₹ 1,00,000 + 30% above ₹ 10 lakh

Below are the income tax slabs for the new tax regime:

Income slabs Tax rate
Up to ₹ 2.5 lakh NIL
₹ 2,50,001 - ₹ 5 lakh 5% above ₹ 2,50,000
₹ 5,00,001 - ₹ 7.5 lakh ₹ 12,500 + 10% above ₹ 5 lakh
₹ 7,50,001 - ₹ 10 lakh ₹ 37,500 + 15% above ₹ 7.5 lakh
₹ 10,00,001 - ₹ 12.5 lakh ₹ 75,000 + 20% above ₹ 10 lakh
₹ 12,50,001 - ₹ 15 lakh ₹ 1,25,000 + 25% above ₹ 12.5 lakh
Above 15 lakhs ₹ 1,87,500 + 30% above ₹ 15,00,000

Consolidating your Net Tax

Below is how you can consolidate your net tax with the help of a tax calculation example:

Below are the income tax slabs for the new tax regime:

Component Amount (₹)
Gross salary ₹ 15,50,000
HRA and LTA Deduction ₹ 2,50,000
Standard deduction ₹ 50,000
Net salary ₹ 12,50,000
Income from other sources ₹ 10,000
Gross taxable income ₹ 12,60,000
80C deduction ₹ 1,50,000
80CCD(1B) deduction ₹ 50,000
80D ₹ 15,000
80TTA ₹ 10,000
Total deductions ₹ 2,25,000
Total taxable income ₹ 10,35,000

What are the Sources of Income?

Below is a list of incomes considered for the computation of income tax from salary:

  1. Salaries
  2. Income from house property
  3. Profits and gains from business or profession
  4. Capital gains
  5. Income from other sources, which includes:
    • Dividend income
    • Winnings from lotteries, etc.
    • Winnings from online games (in the nature of lotteries, etc.)
    • Interest on securities
    • Rental income of machinery, plant or furniture
    • Composite rental income from letting out plant, machinery, furniture
    • Sum received under Keyman insurance policy
    • Deemed income of a closely held company
    • Interest on compensation or enhanced compensation
    • Deemed income

Exemption on Total Income Tax

Below are some of the widely used exemptions considered for the computation of income tax from salary:

  1. 1. Section 80C

  2. Investments made in equity-linked saving schemes, payments towards life insurance premiums, principal sum of a home loan, PPF and others

  3. 2. Section 80CCC

  4. Payments made towards pension funds

  5. 3. Section 80CCD(1)

  6. Payments made towards Atal Pension Yojana or other government-notified pension schemes

  7. 4. Section 80CCE

  8. Total deduction under Sections 80C, 80CCC and 80CCD(1)

  9. 5. Section 80CCD(1B)

  10. Investments in NPS apart from Section 80CCE

  11. 6. Section 80CCD(2)

  12. Employer’s contribution towards NPS apart from Section 80CCE

  13. 7. Section 80TTA

  14. Deduction on interest from savings accounts

  15. 8. Section 80TTB

  16. Deduction on interest from deposits held by senior citizens

  17. 9. Section 80GG

  18. Income tax deduction on house rent paid for assesses not falling under deduction for HRA.

  19. 10. Section 80E

  20. Deduction on interest paid on education loan

  21. 11. Section 80EEA

  22. Deduction in respect of interest on loan taken for certain house property

  23. 12. Section 80D

  24. Deduction on medical insurance premium

  25. 13. Section 80DD

  26. Deduction for medical treatment of a dependent with a disability

  27. 14. Section 80DDB

  28. Deduction for medical treatment for the treatment of specified diseases or ailments

  29. 15. Section 80U

    Deduction for disabled individuals

  30. 16. Section 80G

  31. Deduction in respect of donations to certain funds, charitable institutions, etc.

  32. 17. Section 80GGB

  33. Deduction in respect of contributions given by companies to political parties.

  34. 18. Section 80GGC

  35. Deduction on donations by a person to political parties

  36. 19. Section 80RRB

  37. Deduction on income via royalty of a patent




People like you also read ...

* Tax benefits are subject to conditions prescribed under Sections 80C, 80D, 10(10D), 115BAC and other provisions of the Income Tax Act, 1961. Goods and Services Tax and Cesses will be charged extra as per prevailing rates. Tax laws are subject to amendments made thereto from time to time. Please consult your tax advisor for more details.

COMP/DOC/Apr/2024/24/5794

Back to Top