Income Tax for Salaried Employees — FY 2025-26
Updated: 3 June 2026
Salaried employees pay income tax on their net taxable salary after allowable exemptions and deductions. The process: Gross Salary → subtract HRA/LTA exemptions (old regime) and Standard Deduction (₹75,000 new regime / ₹50,000 old regime) → Income from Salary → add other income (FD interest, rental, etc.) → Gross Total Income → subtract deductions (80C, 80D — old regime only) → Net Taxable Income → apply slab rates → subtract Section 87A rebate → add 4% health & education cess = Final Tax. Employers deduct TDS monthly and issue Form 16 at year-end.
₹12.75L
Salaried employees with income up to ₹12.75L pay zero tax in the new regime for FY 2025-26 — thanks to the ₹75,000 standard deduction + Section 87A rebate of ₹60,000.
Step-by-Step Salary Tax Computation
| Step | Item | New Regime (₹) | Old Regime (₹) |
|---|---|---|---|
| 1 | Gross Salary (CTC basis) | 15,00,000 | 15,00,000 |
| 2 | Less: HRA Exemption | Not allowed | (1,20,000) |
| 3 | Less: Standard Deduction | (75,000) | (50,000) |
| 4 | Income from Salary | 14,25,000 | 13,30,000 |
| 5 | Add: Other Income (FD, rent) | 50,000 | 50,000 |
| 6 | Gross Total Income | 14,75,000 | 13,80,000 |
| 7 | Less: 80C (PPF, ELSS, LIC) | Not allowed | (1,50,000) |
| 8 | Less: 80D (health insurance) | Not allowed | (25,000) |
| 9 | Net Taxable Income | 14,75,000 | 12,05,000 |
| 10 | Tax on net taxable income | 1,45,000 | 1,34,500 |
| 11 | Add: 4% Cess | 5,800 | 5,380 |
| 12 | Total Tax Payable | 1,50,800 | 1,39,880 |
In this example with ₹1,95,000 in deductions (HRA + 80C + 80D), the old regime saves approximately ₹10,920. The old regime benefits you only if your total deductions + exemptions are substantial enough to offset the higher slab structure.
New vs Old Regime — When Does Old Regime Win?
| Salary (₹ p.a.) | Deductions Needed to Prefer Old Regime | Verdict at ₹1.5L 80C + ₹25K 80D |
|---|---|---|
| Up to 7,00,000 | Very high — new regime almost always better | New regime wins |
| 7,00,001 – 10,00,000 | ~₹2.5L+ total deductions | Depends on HRA city |
| 10,00,001 – 15,00,000 | ~₹3.5L+ total deductions | Old regime may win with HRA |
| 15,00,001 – 20,00,000 | ~₹4.25L+ total deductions | Old regime wins if HRA high |
| Above 20,00,000 | ~₹5L+ total deductions | Old regime wins with full deductions |
TDS on Salary — How It Works
Employers are legally required to deduct TDS (Tax Deducted at Source) on salary under Section 192. Here is the process:
April: Declare your chosen tax regime, investments planned (80C, 80D), and HRA details to HR/payroll. Monthly: Employer deducts 1/12th of estimated annual tax. January–March: You submit actual investment proof; employer recalculates and adjusts TDS. By 15 June: Employer issues Form 16 with final TDS certificate.
If TDS is short (e.g., you did not submit proofs), you must pay advance tax by 15 March to avoid interest under Section 234B/234C. If excess TDS was deducted, you get a refund when you file your ITR.
Frequently Asked Questions
How is tax deducted from salary (TDS)?
Your employer estimates your total taxable income for the year at the start of each financial year (April). Based on your declared regime, HRA, investments, and other deductions, the employer calculates the projected annual tax and divides it by 12. This amount is deducted monthly as TDS (Tax Deducted at Source) and deposited with the government. You can track it in Form 26AS and AIS on the income tax portal.
What is Form 16 and how do I use it for ITR filing?
Form 16 is a TDS certificate issued by your employer by 15 June each year. It has two parts: Part A shows TDS deducted and deposited quarter-by-quarter; Part B shows a detailed salary breakup — gross salary, exemptions (HRA, LTA), standard deduction, perquisites, deductions (80C, 80D), and net taxable income. Use Form 16 to pre-fill or verify your ITR — all salary figures should match Form 16.
Can I change my tax regime (old vs new) mid-year?
For salaried employees, you can inform your employer of your regime choice at the beginning of the year and change it once during the year. However, the final choice is made at ITR filing. Salaried individuals (without business income) can switch between old and new regimes every year at the time of filing. If you have business income, you can switch only once from old to new regime.
How are perquisites taxed for salaried employees?
Perquisites (perks) are non-monetary benefits given by an employer — company car, rent-free accommodation, club memberships, ESOPs, etc. Their value is added to gross salary and taxed at slab rates. The valuation rules differ by perk type: rent-free accommodation is valued at 10-15% of salary; car perquisite has prescribed rates; ESOPs are taxed on exercise at the difference between FMV and exercise price. Employers include perquisite value in Form 16.
What is the standard deduction for salaried employees in FY 2025-26?
The standard deduction is ₹75,000 under the new tax regime (increased from ₹50,000 in the Union Budget 2024) and ₹50,000 under the old tax regime for FY 2025-26. It is a flat deduction from gross salary — no proof or bills required. It applies to all salaried individuals and pensioners. The family pension standard deduction is ₹25,000 (new regime) or ₹15,000 / 1/3rd of pension (old regime), whichever is lower.
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