How to Calculate Income Tax in India (FY 2025-26)

Last updated: August 2026

Income tax is charged on your taxable income, not your full salary. Your taxable income is what remains after the deductions you're allowed to claim. Understanding that one point clears up most of the confusion.

The slab system

India uses progressive slabs — your income is split into bands, and each band is taxed at its own rate. Earning a little more never pushes your entire income into a higher rate; only the part inside a higher band is taxed more.

A worked example (new regime, salaried)

Take a ₹16,00,000 salary. Subtract the ₹75,000 standard deduction → taxable income ₹15,25,000. Apply the new-regime slabs:

• ₹4L–8L at 5% = ₹20,000
• ₹8L–12L at 10% = ₹40,000
• ₹12L–15.25L at 15% = ₹48,750

That's ₹1,08,750, plus 4% health & education cess (₹4,350) = ₹1,13,100 total tax.

Standard deduction, rebate and cess

Salaried people get a standard deduction (₹75,000 new, ₹50,000 old). The Section 87A rebate makes lower incomes tax-free (up to ₹12L new, ₹5L old). Finally a flat 4% cess is added on the tax.