How to Calculate Taxable Income on Your Salary FY 2026-27?

The New Tax Regime simplifies tax calculation by not allowing most exemptions and deductions. The only permissible deductions are the standard deduction and professional tax.

1. Step 1: Calculate your Gross Salary

Gross salary is the total salary components you received from your employer. Gross salary comprises basic salary, dearness allowance (if applicable), house rent allowance (HRA), leave travel allowance (LTA), etc. Any bonuses you receive are also included in your gross salary. Under the New Regime, your HRA and LTA are both fully taxable. Thus, no exemptions apply to either of these allowances.

1. Step 2: Subtract Standard Deduction

Once you determine your total gross salary, you can deduct your standard deduction from it. The standard deduction is Rs.75,000 for private sector salaried employees and pensioners; and Rs.1,00,000 for central government employees and pensioners.

1. Step 3: Subtract Professional Tax (if applicable)

If you paid professional tax during the year, you may also deduct it from the amount computed after the standard deduction. Professional tax qualifies as a deductible item under both the New Regime and the Old Regime.

Example: If your gross annual income is Rs.15,00,000, you must deduct the standard deduction of Rs.75,000 and professional tax of Rs.2,400 before arriving at the taxable net salary of Rs.14,22,600.

Note: In the New Tax Regime, there are no other deductions or exemptions available like Section 80C investments, health insurance under Section 80D, HRA and LTA or interest from savings under Section 80TTA.

Method 2: Calculation of Taxable Salary Under the Old Tax Regime

The Old Tax Regime allows for multiple deductions and exemptions which makes it advantageous to an individual who has invested money or is entitled to receive allowances.

1. Step 1: Find Out Your Gross Salary

As in the New Regime, begin with your gross salary which is comprised of all components of salary including basic pay, allowances, bonuses and all other components of salary.

1. Step 2: Determine what parts of your salary are taxable

There are some of the components of salary that are exempt from tax. A few examples of the most common exemptions from taxes are as follows:

Leave Travel Allowance (LTA) Exemption: Any travel that has been taken by you for purposes described in the Income Tax Act.

1. HRA Exemption: The least of the following is exempt from taxation:
   1. 1. The actual amount of HRA received,
   2. 2. The amount of rent paid minus 10% of the basic salary,
   3. 3. 50% of your basic salary if you live in a metropolitan city (40% if you live outside of a metropolitis), or
   4. 4. The amount of rent paid or the amount of rent paid is greater than 50% of your basic salary, and thus the HRA exemption is restricted to the lowest of these four amounts.

1. Step 3: Deduct Standard Deductions and any Professional Tax

Following the completion of the previous two steps you may then take the Rs.50,000 standard deduction and deduct professional tax from your income.

1. Step 4: Adding Other Types of Income:

Next, you will add any (potential) other types of income considering these different forms of income (e.g., interest on money in bank accounts; interest on fixed deposits; rent received from letting out property; capital gains; etc.). The combined total of these will form the Gross Total Income (GTI).

1.  Step 5- Claiming Section VI‐A Deductions

You will have several sources through which you can deduct from your taxable income Section VI‐A such as:

Section 80C - Investment made for your own benefit in the following programs or plans that you contribute to will qualify you for a maximum deduction of Rs.1,50,000 in one financial year; The PPF, ELSS, Life Insurance, NSC and 5 year fixed deposit.

Section 80CCC - Contributions made into a pension fund that fall under Section 80C qualify, so long as it is part of the Rs.1,50,000 limit.

Section 80CCD(1B) - If you contribute an additional amount to a pension fund you can claim up to an additional Rs.50,000 deduction in a single financial year.

Section 80D - Deductions available for your contribution to health insurance will range from Rs.25,000 for yourself/spouse/dependent children and additional Rs.25,000 for insuring your parents' health care.

Section 80E - There is no maximum limit for the deduction for interest on education loans.

Section 80TTA -  Interest from savings accounts can be deducted up to Rs.10,000

Section 24(b) - Interest paid during a financial year for home loans taken out on property where you reside cannot exceed Rs.2,00,000 each year.

1. Step 6- Taxable Net Income

The amount you have left after deducting all Section VI‐A deductions from your GTI. This is how much of your earnings will now be taxed using the Old Regime bracket rates.

Example: Let's say your gross annual income is Rs.15,00,000. If you qualify, you may claim HRA exemption Rs.1,20,000, standard deduction Rs.50,000 and professional tax deducted Rs.2,400. If you have Rs.10,000 interest from your savings account, your GTI would be Rs.13,37,600 and you would be able to claim 80C (Rs1,50,000), 80D (Rs.25,000) and 80TTA (Rs.10,000) as deductions. The net taxable income would be Rs.11,52,600.

Notes:

1. Some benefits, like the transport allowance for a physically handicapped employee or the part of the employer's contribution to NPS, are still available as tax deductions under the New Regime.

1. Professional Tax can be claimed as a deduction under both regimes; they differ by location within the country.

1. HRA will be taxed in the New Regime, while it will only be exempt in the Old Regime if certain conditions are satisfied.

1. To be eligible for the Old Regime, you must elect to be on the Old Regime each tax year.

1. If you want to use the Old Regime, you must submit supporting documentation for all of your deductions and exemptions; under the New Regime, you have very limited requirements for paperwork.

What is Salary Income?

Salary income is the remuneration paid by an employer to an employee for services rendered over a specific period, typically on a monthly basis. It includes all forms of earnings, allowances, perquisites, and retirement benefits that an employee receives.

Calculating Tax Deductions

The next step involves considering various deductions available under Chapter VI A of the Income Tax Act from your gross taxable income. For instance, section 80C allows deductions of up to Rs. 1.5 lakh against investments and expenses. This includes payments for:

1. LIC Premium
2. EPF and PPF Contributions
3. ELSS Investments
4. NPS Investments
5. Tax-saving FD Investments

1. Sukanya Samriddhi Yojana Investments
2. ULIP Investments
3. Approved Superannuation Fund Contributions
4. Tuition Fees for Colleges, Schools, etc.
5. Senior Citizen Saving Scheme Investments

1. Housing Loan Principal Repayments

Contributions to pension funds under section 80CCC and NPS under 80CCD (1) also fall under the Rs. 1.5 lakh deduction limit. There are other deductions as well:

1. Medical insurance premiums and medical expenditure under section 80D
2. Expenses on disabled dependents under section 80DD
3. Expenditures on specific diseases under section 80DDB

1. Expenditures on higher education-related under section 80E
2. Interest on Electric Vehicle Loan under section 80EEB
3. Donations under section 80G
4. Interest on Home Loans under sections 80EE and 80EEA

After making all the applicable deductions, you will arrive at your taxable income from your salary. The income tax rate will be based on the tax slab applicable for the assessment year. You can use a Tax Planning calculator to determine the amount of tax you need to pay based on your investments and income. You can conveniently ensure timely tax payments, as many banks simplify the process through Net Banking.

You can log in to your Net Banking account to pay various taxes. Please be mindful that deductions and tax rates may differ depending on the tax regime you select, either the existing tax regime or the new tax regime. For expert guidance on investment and tax-related matters, consult your financial advisor to maximise the benefits of available tax-saving opportunities.

Computation of Net Salary of an Employee

For computing Total income from various sources, the incomes are classified into:

• Salaries
• Income or loss from property
• Profit and gain from business
• Income from capital gains
• Income from other sources

This gives you an aggregate income. All the eligible deductions, allowance and reliefs are calculated on each heads.

Gross Total Income= A+B+C+D+E

Total Taxable Income= Gross Total Income- Deductions allowed from income

Total Tax Payable= Tax on Total Income- Rebates and relief allowed under Income Tax Act.

What Kind of Income is Subject to Income Tax?

The Income Tax Act, 1961, has classified income into five heads. They are as follows:

1. Income from salary
2. Income from capital gains
3. Income from profession or business
4. Income from house property
5. Income from other sources