How to Calculate Income Tax on Salary for FY 2026-27

Income tax on salary is calculated after determining your taxable income and applying the tax rates for your chosen regime. The calculation can differ because the new and old regimes have different slabs, deductions and exemptions.

The key points to remember are:

• The new tax regime is the default regime for individual taxpayers.
• The new regime provides a standard deduction of Rs. 75,000 for salaried taxpayers.
• The new-regime tax slabs for FY 2026-27 start with a Nil rate up to Rs. 4 lakh.
• The highest new-regime slab rate is 30% on taxable income above Rs. 24 lakh.
• A resident individual with taxable income up to Rs. 12 lakh may be eligible for a rebate of up to Rs. 60,000 under Section 87A.
• A salaried taxpayer with gross salary up to Rs. 12.75 lakh can have zero tax under the new regime, subject to the applicable conditions, because of the Rs. 75,000 standard deduction and Section 87A rebate.
• The old regime continues to have different slabs based on age and allows several deductions and exemptions that are restricted or unavailable under the new regime.

The final amount you need to pay can also depend on surcharge, Health and Education Cess, tax deducted at source (TDS), and other applicable provisions.

The basic process is:

Salary income + other taxable income − eligible deductions and exemptions = taxable income

You then apply the relevant tax slabs to your taxable income. After calculating the tax, you apply any eligible rebate and add applicable surcharge and 4% Health and Education Cess.

Finally, you adjust the tax already paid, such as TDS deducted by your employer, to determine whether you have any further tax to pay or a refund is due.

The exact calculation depends on whether you use the new or old tax regime.

Start by identifying the salary income that is taxable for the year. Your salary can include several components, such as:

• Basic salary
• Dearness allowance, where applicable
• House Rent Allowance (HRA)
• Leave Travel Allowance (LTA)
• Bonus
• Commission
• Other taxable allowances
• Taxable perquisites

Not every component is taxed in the same way. Some allowances or benefits may be exempt or partly exempt if the relevant conditions are met.

Your payslips and Form 16 can help you identify the salary income reported by your employer.

Your salary may not be your only taxable income.

You may also have income from sources such as:

• Interest from savings accounts or fixed deposits
• Rental income
• Capital gains
• Income from a business or profession
• Dividends
• Other taxable income

The applicable tax treatment depends on the type of income. Some income, such as certain capital gains, may be taxed at special rates instead of the normal slab rates.

Therefore, do not assume that every type of income can simply be added and taxed at the same slab rate.

A standard deduction reduces your salary income before tax is calculated.

For FY 2026-27, the standard deduction under the new regime is Rs. 75,000. Under the old regime, the standard deduction is Rs. 50,000, subject to the applicable provisions.

For example, if your eligible salary income is Rs. 10 lakh and you use the new regime:

Salary income = Rs. 10,00,000

Less: Standard deduction = Rs. 75,000

Balance salary income = Rs. 9,25,000

This amount is then considered along with your other taxable income and applicable deductions.

The exemptions and deductions you can claim depend largely on the tax regime you choose.

What can you claim under the new tax regime?

The new regime has fewer deductions and exemptions than the old regime. The standard deduction of Rs. 75,000 is available to eligible salaried taxpayers.

Certain other deductions can also apply in specific situations. For example, an eligible employer contribution to NPS can qualify for a deduction subject to the applicable conditions.

Popular deductions such as those under Section 80C are generally not available under the new regime.

What can you claim under the old tax regime?

The old regime allows several deductions and exemptions, subject to their respective conditions.

These can include deductions for:

• Eligible investments under Section 80C
• Health insurance premiums under Section 80D
• Certain education loan interest under Section 80E
• Eligible NPS contributions
• Certain home loan interest
• Other deductions allowed under the applicable provisions

Exemptions such as HRA may also be available under the old regime when the required conditions are met.

Do not claim a deduction simply because you have incurred an expense. Check whether the deduction is available under your chosen regime and whether you satisfy its conditions.

After applying the deductions and exemptions allowed under your chosen regime, you arrive at your taxable income.

For example, suppose your salary income is Rs. 15 lakh and you are using the new regime. If you only claim the Rs. 75,000 standard deduction and have no other relevant adjustments:

Salary income = Rs. 15,00,000

Less: Standard deduction = Rs. 75,000

Taxable income = Rs. 14,25,000

You then apply the new-regime slabs to Rs. 14.25 lakh.

Your taxable income is therefore different from your gross salary.

For FY 2026-27, the new tax regime has seven income slabs. The following table shows the rates applicable to individual taxpayers:

These are slab rates. This means that if your taxable income is Rs. 15 lakh, the entire Rs. 15 lakh is not taxed at 15%. Each portion of income is taxed at the rate applicable to its slab.

Old tax regime slabs

The old tax regime continues to have different basic exemption limits based on age.

For an individual below 60 years of age, the slabs are:

Senior citizens and super senior citizens have different basic exemption limits under the old regime.

A rebate reduces the tax calculated on your taxable income.

For FY 2026-27, a resident individual under the new regime can claim a rebate of up to Rs. 60,000 where taxable income does not exceed Rs. 12 lakh, subject to the applicable conditions. The old regime provides a rebate of up to Rs. 12,500 where taxable income does not exceed Rs. 5 lakh.

The rebate is applied after calculating tax under the applicable slabs.

It is important to understand that the Rs. 12 lakh limit refers to taxable income, not simply your gross salary.

For a salaried taxpayer under the new regime, the Rs. 75,000 standard deduction means gross salary of up to Rs. 12.75 lakh can result in zero tax, subject to the applicable rebate conditions.

Some taxpayers may have to pay surcharge depending on their total income.

The surcharge rates can vary according to the income level and tax regime. For most salaried taxpayers with income below Rs. 50 lakh, surcharge does not apply.

A 4% Health and Education Cess is added to the income tax and applicable surcharge.

For example, if your income tax after applicable rebates is Rs. 50,000 and no surcharge applies:

Health and Education Cess = Rs. 50,000 × 4% = Rs. 2,000

Tax including cess = Rs. 52,000

Your employer may deduct TDS from your salary during the year.

TDS is not an additional tax. It is tax already collected from your salary and paid to the government on your behalf.

After calculating your total tax liability, compare it with the TDS already deducted.

Further tax payable = Final tax liability − Tax already paid

If your TDS is higher than your final tax liability, you may be eligible for a refund after filing your income tax return.

Consider a salaried individual with a gross salary of Rs. 15 lakh for FY 2026-27. Assume the person chooses the new tax regime and has no other taxable income or eligible adjustments apart from the standard deduction.

The first step is to calculate taxable income:

The next step is to apply the new-regime slabs. The following calculation shows how the tax is spread across the slabs:

This example assumes there is no surcharge, special-rate income, rebate or other adjustment. The actual tax liability can differ depending on your income and applicable provisions.

TDS stands for Tax Deducted at Source. Your employer may deduct tax from your salary during the year and deposit it with the government.

The employer generally considers your estimated annual salary, eligible deductions and the tax regime applicable to you while calculating TDS.

The TDS shown in your Form 16 can then be compared with your final tax liability when you file your income tax return.

For salary income from FY 2026-27 onwards, the Income-tax Act, 2025 applies from 1 April 2026.

The new and old regimes differ mainly in their tax rates and the deductions and exemptions they allow.

The following table provides a basic comparison:

The better choice depends on your income, eligible deductions, exemptions and individual circumstances. You can compare the tax payable under both regimes before making your choice.

Most salary payments are taxable unless a specific exemption or exclusion applies.

Common taxable components can include basic salary, bonus, commission, overtime and certain allowances.

Some components may receive different tax treatment. For example, HRA and LTA can have exemptions under the applicable provisions and conditions. Certain employer-provided benefits may also be treated as taxable perquisites.

Therefore, do not calculate tax by simply adding every amount shown in your salary slip. Check the tax treatment of each component.

An income tax calculator can help you estimate your tax liability without doing every calculation manually.

To use one, enter the information requested by the calculator. This may include your income, age, tax regime, deductions and other relevant details.

You can use the Income Tax Calculator to estimate your tax liability based on the applicable tax rules.

Remember that a calculator provides an estimate based on the information you enter. Your actual tax liability can depend on your complete income details and the provisions applicable to you.