Every salaried employee eventually asks the same question. How much of my salary is actually taxed? The answer depends on how you calculate taxable income from your gross income, the figure that is almost lower than your CTC because of deduction, exemption, and standard deduction. In this blog we are going to discuss all about taxable income calculation, how to calculate it, and what the difference is between gross salary vs. taxable salary, and show how to work out your taxable salary income under the new and old tax regimes with real examples.
What is taxable salary income?
Your taxable salary income is the portion of your salary after subtraction of exemptions and deductions from your gross salary, and it is this final number, not your CTC or gross pay, on which income tax is actually calculated. Understanding gross salary vs. taxable salary is the first step, because the two are rarely the same:
Gross salary: The total of basic pay, HRA, special allowances, bonuses, and other components before any deductions.
Taxable salary: what remains after allowable exemptions (like HRA) and deductions (like the standard deduction, 80C, and 80D) and subtracted from gross salary.
Net taxable income: Taxable salary combined with income from other heads after which tax slabs are applied.
How are salary components taxed in India?
Before working out your salary income tax calculation, it helps to know how individual salary components are taxed, since not every rupee you receive is treated the same way.
Basic salary: fully taxable, and also the base for HRA, PF, and gratuity calculations
House rent allowances (HRA): partly exempt if you live in a rented apartment; the exemption depends on rent paid, basic salary, and city of residence.
Special allowances: fully taxable, with no exemption available
Leave travel allowances: exempt for actual travel costs within India, subject to conditions, and limited to two claims in a block for four years.
Bonus and incentives: fully taxable in the year they are received.
Employer contribution to PF/NPS: exempt up to prescribed limits; amounts above the limit are taxable as perquisite.
How to calculate taxable income from salary in India: Step by step
If you want to know how to calculate income tax on salary, the process will follow in the same sequence whether you do it manually or use a salary taxable income calculator.
Add up gross salary
Subtract exempt allowances
Subtract the standard deduction
Subtract chapter 6-A deduction (old regime only)
Add income from other heads
Apply the relevant income tax slabs
Standard deduction on salary
Every salaried person and pensioner is eligible for the standard deduction on salary, which is a flat deduction that doesn't require bills or other documentation. It is ₹75,000 under the new tax regime and ₹50,000 under the previous tax regime for FY 2025-26 (AY 2026-27). It is one of the easiest salary tax deductions to claim because it is deducted straight from gross salary before any other computation.
HRA tax exemption
If you receive house rent allowances and live in rented accommodation, part of it can be claimed as exempt under the HRA tax exemption rules but only under the old tax regime, since the newer regime doesn't allow this exemption. The exempt amount is lowest of the following three:
Actual HRA received from the employer
Rent paid minus 10% of basic salary
50% of the basic salary for metro cities and 40% for non-metro cities
Section 80C deduction and other old regime benefits
The old tax regime allows a wider range of Section 80C deductions and other exemptions that directly reduce taxable salary; this is essentially what deduction can be claimed from salary income under the old tax regime
Section 80C: up to ₹150,000 for children's tuition, house loan principal repayment, PPF, ELSS, life insurance payments, and EPF contributions.
Section 80D: up to ₹25,000 for health insurance premiums (or ₹50,000 if senior citizen parents are covered).
Section 80CCD(1B): an additional Rs. 50,000 for contribution to the National Pension System, over and above the 80C limit.
Section 80E: Interest paid on an educational loan, with no upper limit up to 8 years.
Section 80G: donation to eligible charitable institutions and relief funds
Old vs. New Tax Regime: What Changes
Choosing between the old vs. new tax regime comes down to how many deductions you actually claim. The table below gives the new tax regime deduction against the old tax regime, allowing for FY 2025-26
Deduction / Exemption | Old Regime | New Regime |
|---|---|---|
Standard deduction | ₹50,000 | ₹75,000 |
HRA exemption | Allowed | Not allowed |
Section 80C (PPF, ELSS, LIC, etc.) | Up to ₹150,000 | Not allowed |
Section 80D (health insurance) | Up to ₹25,000–₹50,000 | Not allowed |
Section 80CCD(1B) (NPS, own contribution) | Up to ₹50,000 | Not allowed |
Home loan interest (self-occupied, Sec 24) | Up to ₹200,000 | Not allowed |
Income tax slab for FY 2025-26 (AY 2026-27)
The final step in any income tax calculation on salary is applying the income tax slabs. Here are the current slab for individuals below. 60 years of age
Income Slab | Tax Rate |
|---|---|
Up to ₹400,000 | Nil |
₹400,001 – ₹800,000 | 5% |
₹800,001 – ₹1,200,000 | 10% |
₹12,00,001 – ₹16,00,000 | 15% |
₹16,00,001 – ₹20,00,000 | 20% |
₹20,00,001 – ₹24,00,000 | 25% |
Above ₹24,00,000 | 30% |
Old tax regime slabs (individual below 60 years)
Income Slab | Tax Rate |
|---|---|
Up to ₹250,000 | Nil |
₹250,001 – ₹500,000 | 5% |
₹500,001 – ₹1,000,000 | 20% |
Above ₹10,00,000 | 30% |
In the previous system, tax liability was zero for net taxable income up to ₹500,000 with a Section 87A rebate of up to ₹12,500. Under both systems, the computed tax is subject to a 4% health and education cess.
How to calculate taxable salary under the new tax regime: An example
Here is the worked example of how taxable income is under the new tax regime rules for a gross salary of Rs. 18,00,000
Gross salary: 18,00,000
Less: standard deduction: Rs.75,000
Net taxable income: Rs 17,25,000
Tax on Rs. 400,000: NIL
Tax on Rs.400,000-800,000 at 5%: Rs.20,000
Tax on Rs.800,000-12,00,000 at 10%: Rs.40,000
Tax on Rs.12,00,000-16,00,000 at 15%: Rs. 60,000
Tax on Rs. 16,00,000-25,00,000 at 20%: Rs. 25,000
Total tax before cess: Rs.145,000; plus 4% cess = Rs.150,800 total tax payable
Net taxable income calculation: the formula to remember
To summarize the entire process into one formula for net taxable income calculation
Gross salary - exempt allowances - standard deduction - chapter VI-A deduction + income from other heads = net taxable income
Once you have this figure, apply the applicable income tax slab and apply 4% cess to arrive at your final salary tax calculation.
FAQs
What is the main difference between gross salary and taxable salary income?
Gross salary is when you pay before any type of deductions, whereas taxable salary income is what is left after subtracting exempt allowances.
How can I calculate taxable income under the new tax regime?
Firstly, subtract the 75,000 standard deduction to get your net taxable income, then apply the new regime slab rates (nothing up to Rs. 4 lakh, rising in steps to 30% above Rs. 24 lakh). If your net taxable income is up to Rs. 12,00,000, the section 87A rebate brings your tax liability down to nil.
Is it possible to claim HRA and 80C deductions under the new tax regime?
No, there is no possibility to claim HRA and 80C deductions under the new tax regime.
Which tax regime is suitable for me to choose: old or new?
It totally depends on how many deductions you actually claim. If your HRA, 80C, 80D, and home loan interest claims add up to a large amount, the old regime may work out cheaper. If you have few deductions, the new regime’s lower slabs usually result in less tax. The best way to decide is to calculate your liability under both regimes before filing.