How to Calculate Income Tax in India?

Understanding Income Tax in India
 

A direct tax, income tax, as the name suggests, is levied on a person's income. The person pays the tax to the government as the government cannot recover it on its own. However, the amount of tax a person has to pay depends on their taxable income and the tax rate, also called the tax slab. The income tax slabs are different and increase with increasing income.

One of the first steps to calculate income tax to understand is to know your taxpayer category for resident individuals.¹

1. People who are under the age of 60. This includes residents and non-residents
2. People who are 60 years and above but below 80 years of age (Senior Citizens)
3. People who are over 80 years of age (Super Senior Citizens).

 

How to Calculate Income Tax?

 

In the 2020 Union Budget, Finance Minister Nirmala Sitharaman unveiled a new tax slab system. The new regime offers increased income tax slabs with reduced rates, allowing taxpayers the flexibility to choose between the new and old systems when filing their taxes. However, this freedom of choice has led to widespread confusion about which option is more beneficial. Understanding the key differences is essential to making a smart decision. Look at the tables below to see which tax regime suits you best.

 

Note: If you do not make a choice, then the new tax regime will become your default regime.

 

How to Calculate Income Tax as per the New Tax Regime?1

 

For the FY 2024-25³, the tax structure for the new regime is as follows:

 

 

Remember: Under the New Tax regime, most deductions and exemptions are no longer available to taxpayers.

However, there has been a change in the tax slabs from 2025-26 as per the latest Budget, which will come into effect from 1^st April 2025^7,*.

 

 

Also, the earlier tax rebate u/s 87A has been hiked from Rs. 7 lakhs to Rs. 12 lakhs. Starting FY 2025-26, individuals with a net taxable income up to ₹12 lakh in a financial year will not have to pay any tax⁷.
 

How to Calculate Income Tax as per the Old Tax Regime?

Here is the breakdown of the income tax slabs for individuals under 60 years of age:¹

 

 

Tax Rate for Senior Citizens2

 

 

Tax Rate for Super Senior Citizens2

 

 

There is no change in the slabs in the Old Tax Regime as per the new Union Budget 2025⁷.

 

Steps to Calculate Income Tax4

 

Now that you know your category and tax slab, let us move on to the steps to calculate income tax.

 

Step 1: Calculate your total income4
 

To calculate your total income, you need to find your gross salary, add the income from other sources (if any), and subtract the standard deductions.

Step 2: Calculate the total tax benefits4
 

Now, compute the tax benefits that you are eligible for. Some examples include exemptions under 80C, investments in ELSS (Equity Linked Savings Scheme), and the Public Provident Fund (PPF).

Step 3: Calculate the tax liability4
 

When you subtract the tax deductions and exemptions from the gross taxable income, you get your net taxable income. As per the old regime, under Section 87A, if your income is upto Rs. 5 lakhs, you get a rebate of Rs. 12,500⁵. If you earn more than Rs. 5 lakhs, then the tax bracket according to your income will apply⁶.

Remember: Under the New Tax Regime, there is a tax rebate upto Rs 25,000 (or if a lower amount is payable) under section 87A for income upto Rs 7 lakhs, and no tax deductions such as 80C, 80D, etc. are applicable⁵. The limit for 87A has been hiked to Rs 12 lakhs from 1^st April 2025 under the New Tax Regime as per the latest Union Budget^7,*, i.e. the rebate has gone upto Rs 60,000⁵.

So, if you opt for the New Tax Regime and have a total taxable amount of upto Rs 7 lakhs (Rs 12 lakhs from 1st April 2025), you are eligible for a rebate of the lower of the two:

a. The total income tax payable, or

b. Rs. 25,000 (Rs 60,000 from 1^st April 2025)

So, if your income falls within the threshold limit, there is no tax liability⁵.

Also, starting FY 2024-25 (AY 2025-26), the standard deduction under the new income tax regime increases from ₹50,000 to ₹75,000, while it remains unchanged under the old tax regime⁸.

If you are looking for some easy and quick steps to calculate income tax., then you can make use of an income tax calculator. Free of charge, these online calculators save you from tedious calculations and give you instant results.

Typically, calculators need information such as your income, the overall deductions and the savings. As prompted, enter your details such as your employment status (whether you are salaried or self-employed), the city you reside in etc. You will have to enter your income, your basic salary, the HRA that you get etc. Then as prompted, enter the investments you have made to know your tax savings.

Once you have entered all the required details, you can click on “Check your Tax”. Your income tax, as per the new and old regimes, can be calculated.

Conclusion
 

Paying your income tax is not just a legal obligation; rather, it is your responsibility as a citizen. The income tax you pay is used to fund the country’s growth and development.

If you are still not sure about how income tax is calculated, you can get professional help. A skilled tax advisor can help you navigate the system, ensuring you only pay what's rightfully yours, not a rupee more!
 

FAQs

1. How do you calculate income tax easily?
   
   

   One of the easiest ways to calculate your income tax is to use an online income tax calculator. You need to enter information like your employment details, your income, your income from other sources, the HRA you receive, the rent you pay, etc. Most online income tax calculators are very easy to use. Just follow the given instructions. And know your tax liability within minutes.
   
   

2. Is 7 lakh income tax-free?
    

   As per the rebate under Section 87A, there is no income tax applicable for income up to 7 lakh.¹
   
   

3. Can I avoid paying income tax?
    

   If your income is upto Rs 7 lakhs, you are eligible for an Income Tax Rebate of applied Income Tax as per slab, upto a maximum of Rs 25,000 under Section 87A⁵. Above that, you would have to pay your income tax as per the income tax slab you fall in. However, various savings and investment products and financial schemes can offer you tax benefits.
   
   

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