Income tax in India can feel overwhelming — tax slabs, deductions, exemptions, old vs new regime, cess, surcharges… the list goes on. This guide explains how income tax actually works in India, how your taxable income is calculated, and how to use our calculator to get a clear, accurate estimate of your tax liability for FY 2025-26.
Who This Guide Is For
- 👨💼 Salaried professionals looking to understand their tax liability
- 🧑💻 Freelancers & consultants planning their tax payments
- 🏠 Home loan borrowers maximizing deductions
- 📈 Tax planners & investors comparing regimes
What Is Income Tax?
Income tax is a direct tax levied by the Government of India on income earned by individuals and entities during a financial year. It is governed and administered by the Income Tax Department under the Income Tax Act, 1961.
Income tax is direct because you pay it directly to the government. Unlike indirect taxes (GST), it cannot be transferred to another person.
Types of Income Taxpayers in India
1️⃣ Individual
Salaried employees, freelancers, business owners
2️⃣ Hindu Undivided Family (HUF)
Joint family entity with ancestral property
3️⃣ Firms & LLPs
Partnership firms and limited liability partnerships
4️⃣ Companies
Private limited, public limited companies
5️⃣ Trusts & Associations
Charitable trusts, societies, associations
Our Calculator Focus
Five Heads of Income in India
Under Indian tax law, all income is classified into five heads:
💼 Income from Salary
Wages, bonuses, allowances, perquisites from employment
🏠 Income from House Property
Rental income, deemed rent from self-occupied property
💼 Business or Profession
Income from self-employment, freelancing, trading
📈 Capital Gains
Profit from sale of assets (stocks, property, mutual funds)
💰 Income from Other Sources
Interest, dividends, lottery winnings, crypto income
Most salaried individuals primarily deal with Salary income, Interest income, and sometimes Capital gains.
Financial Year vs Assessment Year
📅 Financial Year (FY)
The year in which you earn the income
April 1, 2024 to March 31, 2025
📊 Assessment Year (AY)
The year in which you pay tax on that income
April 1, 2025 to March 31, 2026
Example
How Taxable Income Is Calculated (Step-by-Step)
Calculate Gross Total Income
Add up all income from all sources: Salary + Bonuses + Interest + Rental + Capital Gains + Other Sources
Subtract Exemptions & Standard Deduction
- • Standard deduction (₹50,000 Old / ₹75,000 New)
- • HRA exemption (if applicable)
- • LTA exemption (if applicable)
Apply Deductions (Chapter VI-A)
- • Section 80C – PF, ELSS, LIC (up to ₹1.5L)
- • Section 80D – Health insurance
- • Section 80CCD(1B) – NPS (additional ₹50K)
- • Section 80E, 80G, etc.
Compute Taxable Income
After exemptions and deductions, the remaining amount is your taxable income
Apply Income Tax Slabs
Tax slabs differ based on the tax regime selected (Old vs New)
Formula: Taxable Income = Gross Total Income - Exemptions - Deductions
Old vs New Tax Regime (Key Difference)
🟢 Old Tax Regime
Allows exemptions & deductions (80C, 80D, HRA, etc.)
Higher tax rates
BEST FOR:
- • People with home loan
- • High 80C / NPS / HRA claims
- • Significant tax-saving investments
🔵 New Tax Regime
Lower tax slab rates
No major exemptions or deductions
BEST FOR:
- • Simple salary structure
- • Minimal investments
- • No house rent / home loan
Use Our Calculator
Income Tax Slabs FY 2025-26
🔵 New Regime Tax Slabs
| Income Range | Tax Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 - ₹8,00,000 | 5% |
| ₹8,00,001 - ₹12,00,000 | 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% |
✓ Section 87A Rebate: Up to ₹60,000 if income ≤ ₹12L (effective ₹4L exempt)
🟢 Old Regime Tax Slabs
| Income Range | Tax Rate |
|---|---|
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 - ₹5,00,000 | 5% |
| ₹5,00,001 - ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
✓ Section 87A Rebate: ₹12,500 if income ≤ ₹5L
Note: Senior citizens (60-79) get ₹3L exemption, Super seniors (80+) get ₹5L exemption
Common Deductions & Exemptions
Important
Section 80C
Max ₹1,50,000Investment in PPF, ELSS, EPF, Life Insurance, NSC, Tuition fees, Home loan principal
✓ Old Regime Only
Section 80CCD(1B)
Max ₹50,000Additional NPS contribution (over and above 80C limit)
✓ Old Regime Only
Section 80CCD(2)
Max 14% of BasicEmployer's NPS contribution
✓ Works in BOTH regimes
Section 80D
Max ₹25k / ₹50kHealth insurance premiums (Self: ₹25k, Parents: ₹25k | Senior: ₹50k each)
✓ Old Regime Only
Section 80E
No LimitInterest on education loan (for 8 years from repayment start)
✓ Old Regime Only
Section 80G
50-100%Donations to approved charitable institutions (percentage varies by institution)
✓ Old Regime Only
Section 24(b)
Max ₹2,00,000Home loan interest (self-occupied property, old regime only)
✓ Full interest deductible if let-out property (both regimes)
Understanding Cess & Surcharge
🏥 Health & Education Cess
4% cess is added on (Tax + Surcharge)
Applies to everyone, regardless of regime or income level
📊 Surcharge
• Up to ₹50L: Nil
• ₹50L - ₹1Cr: 10%
• ₹1Cr - ₹2Cr: 15%
• ₹2Cr - ₹5Cr: 25%
• Above ₹5Cr: 25-37%
Final Tax = (Tax × Surcharge %) + Tax + [(Tax + Surcharge) × 4% Cess]
TDS vs Final Tax Liability
Many people confuse TDS (Tax Deducted at Source) with their actual tax liability. Here's the difference:
💼 TDS (Tax Deducted at Source)
- ✓ Tax deducted by employer monthly
- ✓ Based on projected annual income
- ✓ Advance payment mechanism
- ✓ May not account for all deductions
📊 Final Tax Liability
- ✓ Calculated during ITR filing
- ✓ Based on actual income earned
- ✓ Includes all deductions & exemptions
- ✓ Determines refund or additional payment
Key Takeaway
- • If TDS > Final Tax → You get a refund
- • If TDS < Final Tax → You need to pay additional tax
Our calculator estimates your final tax liability, not just TDS, giving you a complete picture of your actual tax obligation.
Calculate Your Income Tax (FY 2025-26)
Use our calculator to get accurate estimates for FY 2025-26. Enter your income sources, deductions, and instantly see which regime saves you more money.
Want More Features?
The embedded calculator above shows a quick estimate. For detailed comparison with:
- Old vs New Regime side-by-side comparison
- All deductions under Section 80C, 80D, etc.
- HRA, LTA, and standard deduction calculations
- Detailed tax slab breakdown
Why Most People Miscalculate Their Tax
Common Mistakes to Avoid
- Ignoring Employer PF & Gratuity
CTC includes employer contributions that aren't taxable. Always use Gross Salary, not CTC.
- Wrong HRA Calculation
HRA exemption is the minimum of three values, not just rent paid minus 10% of basic.
- Assuming Full 80C Automatically Applies
You only get 80C deduction on actual investments made, not the maximum ₹1.5L limit.
- Not Comparing Tax Regimes
New regime isn't always better. Compare both to find the optimal choice.
- Forgetting 4% Cess
Cess is mandatory and adds to your final tax bill. Never forget it in calculations.
- Using TDS as Final Tax
TDS is just advance tax. Your actual liability may be different based on all income sources.
Common Income Tax Myths (Debunked)
❌ Myth: "New regime is always better"
✅ Reality: It depends on your deductions. If you have significant 80C, 80D, HRA, or home loan interest, old regime may save more tax.
❌ Myth: "TDS deducted = final tax liability"
✅ Reality: TDS is only advance tax. Your final liability depends on total income from all sources and deductions claimed.
❌ Myth: "Tax planning = tax evasion"
✅ Reality: Legitimate deductions under 80C, 80D, etc. are encouraged by law. Planning within legal framework is smart, not illegal.
❌ Myth: "I don't need to file ITR if TDS was deducted"
✅ Reality: ITR filing is mandatory if income exceeds basic exemption, regardless of TDS. It's also needed to claim refunds.
❌ Myth: "Standard deduction is same for everyone"
✅ Reality: Standard deduction differs by regime - ₹50,000 in Old Regime, ₹75,000 in New Regime (FY 2025-26).
File Tax Smartly, Not Blindly
Before Filing Your ITR
- Calculate tax under both regimes using our calculator
- Understand deductions you actually qualify for
- Verify Form 16 from employer
- Gather proofs for all deduction claims (80C, 80D, etc.)
- Check Form 26AS for TDS credit
- Download AIS (Annual Information Statement)
- Compare calculated tax with TDS deducted
- Keep investment proofs ready
✅ Benefits of Using Our Calculator Before Filing
- • Plan Better: Know your tax liability in advance
- • Save Legally: Identify optimal deductions and regime
- • Avoid Surprises: No unexpected tax demands
- • Make Smarter Decisions: Investment planning based on tax impact
Frequently Asked Questions
Which tax regime should I choose?▼
It depends on your deductions. Use our calculator to compare both. Generally, old regime is better if you have home loan, high 80C investments, or HRA. New regime is better for simple salary with minimal investments.
Can I switch between old and new regime?▼
Yes, salaried individuals can switch every year. However, if you have business income, you can switch only once during your lifetime (except the first year).
What happens if my TDS is more than actual tax?▼
You'll get a refund after filing ITR. The excess TDS will be credited to your bank account after processing by the Income Tax Department.
Is Section 80C available in new regime?▼
No, Section 80C and most deductions are not available in new regime. Only standard deduction (₹75,000) and employer NPS (80CCD2) are allowed in new regime.
How is capital gains taxed?▼
Short-term capital gains on equity are taxed at 15-20%. Long-term capital gains on equity above ₹1.25L are taxed at 12.5%. Other assets have different rates. Our calculator handles all capital gains types.
Do senior citizens get tax benefits?▼
Yes, in old regime: Senior citizens (60-79) get ₹3L basic exemption, super seniors (80+) get ₹5L. They also get ₹50,000 interest deduction under 80TTB. In new regime, there's no special exemption for seniors.
When is the ITR filing deadline?▼
For individuals (non-audit cases): July 31 of the assessment year. For businesses requiring audit: October 31. Late filing attracts penalty of ₹5,000 (₹1,000 if income < ₹5L).
Take Control of Your Taxes
Income tax doesn't have to be confusing. With the right calculator and understanding, you can plan better, save legally, and avoid surprises.
Calculate Your Tax Now →Important Disclaimer
This guide provides general information about income tax in India for FY 2025-26. Tax laws are complex and subject to change. Always consult a qualified Chartered Accountant or tax professional for personalized advice and accurate ITR filing.