Taxable Income in India

Taxable income in India is the income on which you calculate your tax liability after accounting for eligible exemptions and deductions. It can include salary, business profits, rental income, interest and capital gains. The amount depends on your income sources, residential status and chosen tax regime.

• Income sources: India classifies taxable income under five heads, including salary, house property and capital gains.
• Tax calculation: Subtract eligible exemptions and deductions from your income to arrive at taxable income.
• New tax regime: Eligible resident individuals with taxable income up to Rs. 12 lakh can receive a rebate of up to Rs. 60,000 for FY 2025-26.
• Standard deduction: Eligible salaried taxpayers can claim Rs. 75,000 under the new regime or Rs. 50,000 under the old regime.
• Home loan benefits: The old regime allows eligible deductions for home loan principal repayment and interest.

Understanding these provisions helps you calculate your tax liability, compare available regimes and avoid claiming deductions that do not apply to your circumstances.

Taxable income is the part of an individual's or entity's income on which tax is calculated. It is not the same as total earnings because certain types of income are exempt, while eligible deductions reduce the amount subject to tax.

Here is how it works:

1. Identify your income: Include salary, business profits, rent, interest, capital gains and other applicable income sources.
2. Exclude exempt income: Certain income is fully or partially exempt under provisions such as Section 10 of the Income Tax Act, 1961.
3. Apply eligible deductions: Subtract deductions permitted under the relevant income heads and Chapter VI-A, according to the chosen tax regime.

The amount remaining after applicable adjustments and deductions is your taxable income. The calculation applies to individuals, companies, Hindu Undivided Families (HUFs), local authorities and other recognised taxpayer categories, subject to their respective tax rules.

Taxable income in India includes two main categories: earned income from employment or business activities and unearned income from investments, property or other sources. Both are subject to applicable exemptions and deductions under the Income Tax Act, 1961.

The taxable income meaning covers earnings from different sources, as shown below.

Income from selling investments, such as shares or property, may also be taxable as capital gains. The applicable tax depends on the asset type, holding period and available exemptions.

The Income Tax Act allows some income to be excluded from taxation or reduced through two mechanisms:

1. Deductions: These include the standard deduction, a fixed amount available to eligible salaried employees and pensioners, and specific deductions under Chapter VI-A for qualifying investments or expenses. Their availability depends on the chosen tax regime.

   
   
2. Exemptions: Certain types of income are fully or partially exempt from tax, mainly under Section 10 of the Income Tax Act. Exempt income is excluded when calculating taxable income, subject to applicable conditions.

Taxable income in India includes earnings from salary, business, property, investments and other sources. Income received during a financial year may be subject to tax unless it qualifies for an exemption under the Income Tax Act, 1961. Different sources of income have specific tax rules, deductions and exemptions.

• Employee compensation: Salary, wages, bonuses, commissions and other employer payments fall under Income from Salary (Sections 15–17). Taxable perquisites may include rent-free accommodation, a company car for personal use and certain stock options.
• Income from business and investments: Business profits, freelance earnings and professional fees are generally taxable as business or professional income. Investment profits may be taxed as capital gains. Rental income generally falls under Income from House Property, which allows a 30% standard deduction from net annual value under Section 24(a) and eligible interest deductions under Section 24(b).
• Income from partnerships: Partnership firms are taxed separately. A partner's remuneration and interest received from the firm are generally taxable as business income. However, the partner's share of the firm's profit is generally exempt under Section 10(2A).
• Income from corporations: Companies pay tax separately as legal entities. Dividends received by shareholders are generally taxable under Income from Other Sources. Directors' salaries and sitting fees are taxable according to the nature of the payment.

To calculate taxable income in India, add your income from all applicable sources and subtract eligible exemptions, adjustments and deductions. The remaining amount is your taxable income, which determines your tax liability under the chosen tax regime. Follow these steps to calculate your taxable income accurately for the financial year.

Step 1 — Identify your residential status

Determine whether you are Resident and Ordinarily Resident (ROR), Resident but Not Ordinarily Resident (RNOR), or Non-Resident (NR).

An ROR is generally taxed on worldwide income. An RNOR is taxed on Indian income and specified foreign income, including income from a business controlled in India or a profession set up in India. A non-resident is generally taxed on income received, deemed received, accrued or deemed to accrue in India.

Step 2 — Calculate income under all five heads

• Income from Salary — Sections 15–17
• Income from House Property — Sections 22–27
• Profits and Gains from Business or Profession — Sections 28–44
• Capital Gains — Sections 45–55A
• Income from Other Sources — Section 56 onwards

Account for applicable exemptions and deductions under each income head.

Step 3 — Calculate gross total income

Add the income calculated under the five heads after accounting for permitted loss adjustments and set-offs.

Gross Total Income = Salary Income + House Property Income + Business/Professional Income + Capital Gains + Income from Other Sources

Step 4 — Choose a tax regime and claim eligible deductions

Under the old regime, eligible taxpayers can claim deductions such as:

• Section 80C: Up to Rs. 1.50 lakh for qualifying investments, insurance premiums, tuition fees and eligible home loan principal repayments.
• Section 80D: Health insurance deductions of Rs. 25,000 or Rs. 50,000 for applicable categories, subject to eligibility.
• Section 80E: Qualifying education loan interest without a fixed monetary ceiling, for up to eight assessment years.
• Standard deduction: Up to Rs. 50,000 for eligible salaried taxpayers.

Eligible HRA and LTA exemptions may also apply under the old regime.

Under the new regime, most Chapter VI-A deductions and several exemptions are unavailable. However, eligible salaried taxpayers can claim a standard deduction of Rs. 75,000. Employer contributions to the National Pension System (NPS) under Section 80CCD(2) may qualify up to 14% of salary under the new regime, subject to conditions. Other permitted deductions include those under Sections 80CCH(2) and 80JJAA.

Step 5 — Calculate net taxable income

Net Taxable Income = Gross Total Income − Eligible Chapter VI-A Deductions

Exempt income, the standard deduction and other eligible income-head adjustments are accounted for before arriving at gross total income.

Round the resulting total income to the nearest Rs. 10 under Section 288A.

Step 6 — Compute your tax liability

Apply the relevant income tax slabs and special tax rates, where applicable. Account for eligible rebates, marginal relief and surcharge. Add the 4% health and education cess as applicable.

Step 7 — Adjust taxes already paid

Subtract eligible Tax Deducted at Source (TDS), advance tax and other available tax credits from the final liability.

Step 8 — Calculate the refund or balance payable

If taxes already paid exceed your final liability, you may receive a refund. Otherwise, pay the outstanding amount as self-assessment tax.

Example of taxable income calculation

Consider a salaried professional in Pune earning Rs. 12 lakh annually during FY 2025-26. Assume there is no other income, no additional deduction and no income taxed at special rates.

The example shows how the standard deduction reduces taxable salary and the Section 87A rebate can eliminate the remaining tax liability.

Under the old regime, the same individual would need to calculate eligible exemptions and deductions separately. Comparing the final tax payable under both regimes is more useful than comparing slab rates alone.

Taxable income refers to earnings on which income tax is calculated after applicable deductions and exemptions. Non-taxable income refers to earnings that are exempt from tax under the Income Tax Act, 1961. Understanding this difference helps you identify which income sources are taxable and report them correctly when filing your income tax return.

Last updated: 22nd October 2026

Common non-taxable income examples

• Agricultural income: Generally 100% exempt under Section 10(1), although it may influence the tax rate on certain non-agricultural income.
• Gratuity received on retirement: Fully or partially exempt under Section 10(10), subject to employment category and applicable limits.
• Life insurance maturity proceeds: Exempt under Section 10(10D) when the policy meets prescribed conditions.
• Eligible gifts: Gifts received from specified relatives and certain other exempt receipts may qualify for exclusion under Section 56(2)(x).

Qualifying long-term capital gains under Section 112A receive separate tax treatment. For FY 2025-26, eligible gains up to Rs. 1.25 lakh are not taxed under that section. This is a capital gains tax threshold, not a Section 10 exemption.

Dividends from Indian companies are generally taxable in the shareholder's hands. Any applicable TDS threshold does not make the dividend itself tax-exempt.

Income tax slabs in India for FY 2025-26 (AY 2026-27) determine the tax rates applicable to different income levels. The old and new tax regimes have different slabs, rates and deduction benefits. Understanding these differences helps you compare both regimes and calculate your income tax liability accurately.

New tax regime (FY 2025-26)

Under Section 87A, eligible resident individuals with taxable income up to Rs. 12 lakh can receive a rebate of up to Rs. 60,000 on income taxed at normal slab rates. The rebate does not apply to tax on certain income taxed at special rates.

Old tax regime (FY 2025-26)

For individuals below 60 years of age, the following tax slabs apply:

Under the old regime, eligible resident individuals with total income up to Rs. 5 lakh can claim a Section 87A rebate of up to Rs. 12,500. Higher basic exemption limits apply to eligible resident senior citizens.
 

Which tax regime should you consider?

The new regime may be suitable if you have limited eligible deductions and prefer lower slab rates. The old regime may be more beneficial if you qualify for substantial deductions, including Sections 80C, 80D and applicable home loan interest benefits.

For example, a salaried homebuyer paying eligible home loan interest and principal may have more deductions under the old regime. However, those deductions do not automatically make it the cheaper option.

Calculate your final tax liability under both regimes before making a decision. Your income level, eligible deductions and special-rate income can affect the outcome.

Yes, home loans can reduce taxable income through eligible principal and interest deductions under the old tax regime. The available benefits depend on the loan purpose, property use and applicable conditions.

• Section 80C: Eligible home loan principal repayments qualify within the overall Rs. 1.50 lakh deduction limit.
• Section 24(b): Interest on a qualifying home loan for a self-occupied property may be deductible up to Rs. 2 lakh annually, subject to conditions.
• Sections 80EE and 80EEA: Eligible first-time homebuyers with loans sanctioned during the specified periods may qualify for additional interest deductions of up to Rs. 50,000 or Rs. 1.50 lakh respectively, subject to conditions.

These deductions generally do not apply to a self-occupied property under the new tax regime. Different rules apply to let-out properties.

How much tax can a home loan deduction save?

Consider a salaried borrower in Mumbai who pays Rs. 1.20 lakh towards eligible home loan principal and Rs. 1.80 lakh towards qualifying interest during a financial year.

Assume the borrower chooses the old regime and has sufficient taxable income to use the deductions. The example also assumes no other Section 80C claims reduce the available limit.

The Rs. 3 lakh deduction does not mean Rs. 3 lakh in tax savings. If the entire deduction reduces income taxed at 30%, the illustrative tax saving would be Rs. 90,000 before cess.

Actual savings depend on the borrower's taxable income, applicable slabs and other deductions. The total tax payable under the new regime should also be compared before choosing the old regime.

Deductions under Chapter VI-A and exemptions under Section 10 of the Income Tax Act, 1961, can reduce taxable income in India. Key benefits include Section 80C deductions up to Rs. 1.50 lakh, health insurance deductions under Section 80D, education loan interest deductions under Section 80E, and the standard deduction for salaried taxpayers.

The following table explains four common deductions and their applicable limits for FY 2025-26.

Most Chapter VI-A deductions require the old tax regime, making regime selection important for accurate taxable income calculation.

Certain types of non-taxable income in India are fully or partially exempt under Section 10 and other provisions of the Income Tax Act, 1961. These include agricultural income, eligible gratuity payments and qualifying Life Insurance Corporation (LIC) policy maturity proceeds.

The following table explains common exemptions and their applicable conditions for FY 2025-26.

Exempt income may still require disclosure in your Income Tax Return (ITR). These exemptions can reduce taxable income before eligible deductions are applied. Section 112A provides a separate capital gains tax threshold rather than a Section 10 exemption.

A home loan can help reduce your taxable income through eligible deductions under the old tax regime. Section 80C allows deductions for qualifying principal repayments within the Rs. 1.50 lakh overall limit. Section 24(b) permits interest deductions of up to Rs. 2 lakh annually for an eligible self-occupied property, subject to conditions.

Bajaj Finance Home Loan offers interest rates starting from 7.25% p.a.*  for salaried applicants and loan amounts of up to Rs. 15 crore*, subject to eligibility. These financing options can help you plan your property purchase while considering applicable tax benefits.

Before applying, assess the equated monthly instalment (EMI), total interest cost and repayment tenure. You can use the home loan EMI calculator to estimate your repayment and choose a loan amount that fits your budget.

Check your home loan offer with Bajaj Finance to explore your borrowing options and plan repayments according to your financial needs.