Whether you're opting for the old regime (with its juicy deductions like 80C) or the streamlined new regime (lower rates but fewer perks), we'll cover everything based on the latest updates as of August 20, 2025. We'll use data from official sources like the Income Tax Department and trusted sites to ensure accuracy. Plus, we'll show you how to pick the best regime for your salary. Let's dive in and make tax season less taxing!
What is Income Tax on Salary?
Income tax on salary is the government's share of your earnings, calculated under the Income Tax Act, 1961. For salaried folks, it's deducted as TDS (Tax Deducted at Source) by your employer monthly, based on your Form 16. The final amount is settled when you file your ITR (Income Tax Return) by July 31, 2026, for FY 2025-26 (AY 2026-27).
Key heads for salaried income:
- Salary Components: Basic pay, HRA (House Rent Allowance), DA (Dearness Allowance), bonuses, and perks.
- Other Income: Interest, rentals, or capital gains added to total taxable income.
Pro Tip: Always declare investments early via Form 12BB to reduce TDS surprises.
Old Tax Regime vs New Tax Regime: Which One to Choose?
India has two regimes post-Budget 2020, with the new one as default since FY 2023-24. But you can switch! The old regime offers deductions (e.g., 80C up to ₹1.5 lakh), while the new has lower rates but skips most exemptions.
Income Tax Slabs for FY 2025-26
Old Tax Regime Slabs (For Individuals Below 60 Years)
No changes here—same as previous years.
| Income Slab (₹) | Tax Rate |
|---|---|
| Up to 2,50,000 | Nil |
| 2,50,001 - 5,00,000 | 5% |
| 5,00,001 - 10,00,000 | 20% |
| Above 10,00,000 | 30% |
- Rebate u/s 87A: Up to ₹12,500 if taxable income ≤ ₹5 lakh (effectively tax-free up to ₹5 lakh).
- Standard Deduction: ₹50,000 on salary.
- Deductions Available: Yes (80C, 80D, etc.).
New Tax Regime Slabs (Updated in Budget 2025 – Default Regime)
- Rebate u/s 87A: Up to ₹60,000 if taxable income ≤ ₹12 lakh (not for special rate incomes like LTCG).
- Standard Deduction: ₹75,000 on salary (new perk!).
- Deductions Available: Limited—only employer NPS (80CCD(2) up to 14% of salary), family pension deduction (₹25,000), and a few others. No HRA, LTA, or 80C.
- Calculate Gross Salary: Basic + Allowances + Bonuses.
- Subtract Exemptions: HRA (use HRA calculator), LTA, etc. (old regime only).
- Apply Standard Deduction: ₹50,000 (old) or ₹75,000 (new).
- Add Other Income: Rentals, interest (minus exemptions like ₹10,000 on savings interest u/s 80TTA, old only).
- Claim Deductions: 80C (₹1.5 lakh max, old only), 80D (health insurance), etc.
- Get Taxable Income: Gross - Exemptions - Deductions.
- Apply Slabs: Calculate tax per slab.
- Add Cess & Surcharge: If applicable.
- Subtract Rebate & TDS: Final liability.
- Gross Salary: ₹15,00,000
- Exemptions: HRA ₹1,80,000 (actual rent-based), Standard Deduction ₹50,000 → Taxable Salary: ₹13,20,000 - ₹1,80,000 - ₹50,000 = ₹10,90,000
- Deductions: 80C ₹1,50,000 + 80D ₹25,000 = ₹1,75,000
- Taxable Income: ₹10,90,000 - ₹1,75,000 = ₹9,15,000
- Up to ₹2.5L: Nil
- ₹2.5L-₹5L: 5% = ₹12,500
- ₹5L-₹9.15L: 20% on ₹4.15L = ₹83,000
- Total Tax: ₹95,500
- Cess 4%: ₹3,820
- Final: ₹99,320 (No rebate as >₹5L)
- Gross Salary: ₹15,00,000
- Exemptions: None (no HRA)
- Standard Deduction: ₹75,000 → Taxable Salary: ₹14,25,000
- Deductions: None (except employer NPS if any)
- Taxable Income: ₹14,25,000
- Up to ₹4L: Nil
- ₹4L-₹8L: 5% on ₹4L = ₹20,000
- ₹8L-₹12L: 10% on ₹4L = ₹40,000
- ₹12L-₹14.25L: 15% on ₹2.25L = ₹33,750
- Total Tax: ₹93,750
- Cess 4%: ₹3,750
- Final: ₹97,500 (Rebate? Income >₹12L, so no full rebate)
- 80C Limit: ₹1.5 lakh (PPF, ELSS, NSC, home loan principal).
- 80D: Up to ₹25,000 (self) + ₹50,000 (parents' health insurance).
- 80E: Education loan interest (no limit).
- 24(b): Home loan interest up to ₹2 lakh (self-occupied).
- HRA Exemption: Min of actual HRA, 50% salary (metro), or rent - 10% salary.
- Employer NPS (80CCD(2)): Up to 14% salary (new regime too).
- Q: How is tax deducted from salary? Employers use TDS based on your declarations. Final adjustment in ITR.
- Q: Which regime is better for salaried with high deductions? Old, if 80C/80D exceed slab savings in new.
- Q: What's the 80C deduction limit? ₹1.5 lakh (old only).
- Q: Can I switch regimes? Yes, annually for non-business; file on time.
- Q: Eligibility to file ITR? If income > ₹2.5L (old)/₹4L (new), or other criteria like foreign assets.
| Income Slab (₹) | Tax Rate |
|---|---|
| Up to 4,00,000 | Nil |
| 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% |
Switching: File Form 10-IEA if opting out of new regime (for business income, once-in-lifetime switch back).
Step-by-Step: How to Calculate Income Tax on Salary
Use ITR forms: ITR-1 (simple salary up to ₹50 lakh), ITR-2 (multiple sources).
Income Tax Calculation on Salary with Examples (FY 2025-26)
Let's take Raj, 35, with ₹15 lakh annual salary (basic ₹10 lakh, HRA ₹3 lakh, others ₹2 lakh). Investments: ₹1.5 lakh in 80C, ₹25,000 health insurance (80D). No other income.
Example 1: Old Regime
Tax Calculation:
Example 2: New Regime
Tax Calculation:
Comparison: Old saves ₹1,820. But if Raj has fewer deductions, new might win.
For ₹10 lakh salary: New regime could be tax-free up to ₹12 lakh after rebate!
Key Deductions & Exemptions for Salaried Employees
Under Old Regime Only
Common to Both
Use our tips: Invest in NPS for extra 80CCD(1B) ₹50,000 (old only).
Tools to Simplify: Income Tax Calculators
Skip spreadsheets—use free tools like the Income Tax Department's calculator or third-party ones from ClearTax/Groww. They compare regimes instantly.
FAQs: Your Burning Questions Answered
There you have it—a no-fluff guide to mastering income tax on salary for FY 2025-26. File early to avoid penalties, and consult a CA for complex cases. Got questions? Drop a comment! Happy saving! 📊