Income Tax for Salaried Employees —
How Salary is Taxed
Slabs for FY 2025-26 (AY 2026-27), the ₹12.75 lakh zero-tax explained, standard deduction, TDS on salary, Form 16, and how to choose between the new and old regime.
A salaried person is taxed on net taxable salary after the standard deduction and any exemptions. For FY 2025-26 (AY 2026-27) the new regime is the default: with the ₹75,000 standard deduction and the Section 87A rebate, a salaried individual pays zero tax up to about ₹12.75 lakh of salary. The old regime (with 80C, HRA etc.) is optional and must be chosen actively.
New Regime Income Tax Slabs (Default)
These are the default slabs for FY 2025-26 announced in Union Budget 2025. The Section 87A rebate makes tax fully NIL up to ₹12,00,000 taxable income; with the ₹75,000 standard deduction a salaried person is effectively nil up to ~₹12.75 lakh salary.
| Taxable Income (₹) | Rate | Tax in slab |
|---|---|---|
| Up to 4,00,000 | Nil | — |
| 4,00,001 – 8,00,000 | 5% | Up to ₹20,000 |
| 8,00,001 – 12,00,000 | 10% | Up to ₹40,000 |
| 12,00,001 – 16,00,000 | 15% | Up to ₹60,000 |
| 16,00,001 – 20,00,000 | 20% | Up to ₹80,000 |
| 20,00,001 – 24,00,000 | 25% | Up to ₹1,00,000 |
| Above 24,00,000 | 30% | On balance |
Plus 4% health & education cess. Surcharge applies at higher incomes (capped at 25% in the new regime). Rebate under Section 87A makes tax nil up to ₹12,00,000 taxable income.
| Taxable Income (₹) — OLD | Rate | Notes |
|---|---|---|
| Up to 2,50,000 | Nil | Basic exemption (below 60) |
| 2,50,001 – 5,00,000 | 5% | 87A rebate nil up to ₹5L |
| 5,00,001 – 10,00,000 | 20% | — |
| Above 10,00,000 | 30% | — |
Optional old regime. Standard deduction ₹50,000; Chapter VI-A (80C, 80D, HRA etc.) available. Senior citizens (60-80) exemption ₹3L; super-senior (80+) ₹5L. Plus 4% cess.
How Salary Tax is Computed
The computation moves from gross salary to final tax. In the new regime most exemptions and Chapter VI-A deductions are not available — you get the ₹75,000 standard deduction and a low-slab structure instead.
Worked example on a ₹15,00,000 gross salary with ₹1,95,000 of old-regime deductions (HRA + 80C + 80D):
New regime (default)
Old regime (optional)
After Budget 2025 the new regime is better for most salaried people unless deductions are very large. For the ₹15L salary above, the new regime is cheaper even with ₹1.95L of old-regime deductions — the old regime only overtakes when HRA plus 80C/80D and home-loan interest together are substantial.
Want the exact number for your salary and city?
Use the Tax Calculator →New vs Old Regime — Which Should You Pick?
The new regime is the default; you must actively opt for the old regime. Salaried individuals (without business income) can switch every year at the time of filing the ITR.
New regime — simpler, lower slabs
- ₹75,000 standard deduction
- Zero tax up to ~₹12.75L salary
- No 80C, 80D, HRA, LTA
- Best for most salaried people
- Default — no form needed
Old regime — deduction-heavy
- ₹50,000 standard deduction
- 80C (₹1.5L), 80D, HRA, LTA allowed
- Home-loan interest under 24(b)
- Better only with large deductions
- Must be actively chosen
Stay in the new regime if
- You have few investments or deductions
- You want zero tax up to ~₹12.75L
- You prefer no proofs or paperwork
- You do not pay rent / claim HRA
Consider the old regime if
- You claim high HRA in a metro city
- You max 80C (₹1.5L) + 80D + NPS
- You pay large home-loan interest
- Total deductions comfortably exceed ~₹4-5L
Not sure which regime saves you more?
Compare Old vs New →TDS on Salary and Form 16
Employers deduct tax at source on salary and issue Form 16. The employer estimates your annual tax, divides it by 12, and deducts it monthly, adjusting once you submit investment proofs.
- April: declare your regime, planned investments and rent/HRA to payroll.
- Monthly: employer deducts roughly 1/12th of estimated annual tax as TDS.
- Jan–Mar: submit actual proofs; the employer recomputes and adjusts TDS.
- By 15 June: employer issues Form 16 (Part A = TDS, Part B = salary breakup).
- Cross-check every figure with your Form 26AS and AIS before you file.
Form 16 is your master document — gross salary, standard deduction, exemptions and TDS should all reconcile with Form 26AS and the AIS. If TDS fell short (proofs submitted late), pay the balance as self-assessment tax before filing to avoid interest under Sections 234B/234C.
Got your Form 16? Let us file your salaried ITR accurately.
File My Salaried ITR →Key Deductions for Salaried Taxpayers
The standard deduction applies in both regimes. The rest of the list below is largely available only in the old regime — one more reason to compare before choosing.
| Deduction | Limit | Regime |
|---|---|---|
| Standard deduction | ₹75,000 (new) / ₹50,000 (old) | Both |
| Section 80C (PPF, ELSS, LIC, EPF) | ₹1,50,000 | Old only |
| Section 80D (health insurance) | ₹25,000 – ₹1,00,000 | Old only |
| HRA exemption | As per rules | Old only |
| Home-loan interest (24b) | ₹2,00,000 | Old only |
| Employer NPS (80CCD(2)) | Up to 14% of salary | Both |
The Income-tax Act, 2025 replaces the 1961 Act with renumbered sections from AY 2026-27; section labels above follow common usage — confirm current section numbers before filing.
- Form 16 from employer
- Form 26AS & AIS reconciled
- Bank & FD interest statements
- 80C / 80D proofs (old regime)
- Rent receipts for HRA (old regime)
- Home-loan interest certificate
- Chosen regime confirmed
- Any TDS shortfall paid
Frequently Asked Questions
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