Income Tax for Salaried Employees — How Salary is Taxed

The default new-regime slabs are: up to ₹4 lakh Nil; ₹4-8 lakh 5%; ₹8-12 lakh 10%; ₹12-16 lakh 15%; ₹16-20 lakh 20%; ₹20-24 lakh 25%; and above ₹24 lakh 30%, plus 4% health and education cess. The Section 87A rebate makes the tax nil up to ₹12,00,000 taxable income.

Section 87A gives a rebate that reduces your tax to nil if your taxable income is within the limit. In the new regime for FY 2025-26 the limit is ₹12,00,000 of taxable income (so a salaried person is effectively nil up to ~₹12.75 lakh salary after the ₹75,000 standard deduction). In the old regime the 87A limit is ₹5,00,000 of taxable income.

The new tax regime is the default from AY 2026-27. If you do nothing, your salary is taxed under the new regime. To use the old regime you must actively opt for it. Salaried individuals without business income can switch between the two regimes every year at the time of filing their ITR.

Start with gross salary, subtract the standard deduction (₹75,000 new / ₹50,000 old) and any allowed exemptions (HRA, LTA in the old regime), add any other income (interest, rent), subtract Chapter VI-A deductions (80C, 80D — old regime only) to get net taxable income, apply the slab rates, subtract the Section 87A rebate, and add 4% health and education cess to arrive at the final tax.

For FY 2025-26 the standard deduction is ₹75,000 in the new regime and ₹50,000 in the old regime. It is a flat deduction from salary income with no bills or proof required, and it also applies to pensioners. Family pension has a separate standard deduction of ₹25,000 (new) or ₹15,000 (old).

Yes. A health and education cess of 4% is added to the income tax (after the 87A rebate) in both regimes. At higher incomes a surcharge also applies before cess; in the new regime the top surcharge is capped at 25%.

For most salaried people the new regime is now cheaper because of the ₹75,000 standard deduction and the ₹12 lakh 87A rebate, and it needs no proofs. The old regime wins only when you have large deductions — high metro HRA plus a full ₹1.5 lakh 80C, 80D, NPS and home-loan interest — that together comfortably exceed roughly ₹4-5 lakh. Compare both before you decide.

Yes, if you are salaried without business income. You can switch between the old and new regimes each financial year at the time of filing your ITR. You may indicate a choice to your employer for TDS during the year, but the final regime is locked when you file. Taxpayers with business income can move from old to new only once.

No. HRA exemption, LTA, and most Chapter VI-A deductions (80C, 80D) are not available in the new regime. If you pay significant rent and want to claim HRA, you must opt for the old regime and compare whether the deductions outweigh the old regime's higher slab rates.

Your employer estimates your total taxable income for the year based on your declared regime, HRA and planned investments, computes the annual tax, and deducts one-twelfth of it each month as TDS under Section 192. When you submit actual proofs in the last quarter, the employer recalculates and adjusts the remaining deductions. You can track TDS in Form 26AS and the AIS.

Form 16 is the TDS certificate your employer issues by 15 June. Part A shows quarter-wise TDS deposited; Part B shows a detailed salary breakup — gross salary, exemptions, standard deduction, deductions and net taxable income. Use it to pre-fill and verify your ITR; every salary figure should reconcile with Form 16 and with Form 26AS/AIS.

If TDS falls short — for example because you submitted proofs late or had other income — you must pay the balance as advance tax by 15 March or as self-assessment tax before filing, to avoid interest under Sections 234B and 234C. If excess TDS was deducted, you claim it back as a refund when you file your ITR.

Perquisites are non-monetary benefits from an employer — company car, rent-free accommodation, ESOPs, club memberships. Their prescribed value is added to gross salary and taxed at slab rates. Rent-free accommodation is valued as a percentage of salary, car perquisites have fixed rates, and ESOPs are taxed on exercise at the difference between fair market value and the exercise price. The value is shown in Form 16.

Yes. Interest from fixed deposits, savings accounts, rental income and capital gains are added to your salary income and taxed. Banks deduct TDS on FD interest above the threshold, which you can see in Form 26AS. Report all such income in your ITR even if TDS was already deducted — the final tax is computed on your total income.

In most cases yes. TDS is only an advance collection; filing the ITR reconciles it with your actual tax, lets you claim refunds of excess TDS, and is required if your income exceeds the basic exemption or you meet other filing conditions. Filing also creates the income record you need for loans, visas and refunds.