A practical guide to salary and tax calculations
The gap between the salary written in your offer letter and the money that reaches your bank account catches almost everyone out. Between provident fund, professional tax, gratuity accrual, and income tax deducted at source, the cash in hand can be a fifth lower than the headline figure. These calculators take that package apart component by component so you can see where the money goes and plan around it.
Formula
Tax payable = (slab tax - Section 87A rebate) x 1.04
- Slab tax is computed progressively, so each rate applies only to the income within that band
- The Section 87A rebate currently wipes out tax entirely up to ₹12 lakh of taxable income under the new regime, capped at ₹60,000
- The 1.04 multiplier is the 4 per cent health and education cess charged on tax after rebate
Slab rates apply to slices, not to your whole income
The most persistent misunderstanding about Indian income tax is the belief that crossing into a higher slab taxes all your income at that higher rate. It does not. If you earn ₹15 lakh of taxable income under the new regime, the first ₹4 lakh is taxed at nothing, the next ₹4 lakh at 5 per cent, the following ₹4 lakh at 10 per cent, and only the final ₹3 lakh at 15 per cent.
The practical result is that your effective tax rate is always well below your top slab rate. On ₹15 lakh taxable income the total comes to ₹1,09,200 including cess, an effective rate of about 7.3 per cent even though the top slab touched is 15 per cent. A raise never leaves you worse off.
Choosing between the old and new regimes
The new regime offers wider slabs and a generous rebate but strips out most deductions, allowing only a ₹75,000 standard deduction for salaried taxpayers. The old regime has narrower slabs and a higher top-rate entry point but permits 80C investments, 80D health premiums, HRA exemption, and home loan interest.
As a rough guide, the new regime wins for people who do not have a large rent outgo or home loan and who were only using 80C because they had to. The old regime can still win for someone paying substantial rent in a metro while also servicing a home loan and maxing out 80C and 80D. The only reliable way to decide is to compute both with your actual numbers, which is what the income tax calculator does side by side.
The rebate threshold creates a sharp edge
Under the new regime, taxable income of exactly ₹12 lakh attracts ₹60,000 of slab tax which the Section 87A rebate cancels completely, leaving zero tax. Add the ₹75,000 standard deduction and a gross salary of ₹12.75 lakh can land at nil liability.
Just above that line the rebate disappears entirely, so tax jumps from nothing to tens of thousands over a very small increase in income. The Finance Act provides marginal relief to soften this cliff, which this calculator does not model. If your income lands within a few thousand rupees of the threshold, check the marginal relief provision or ask a tax professional before assuming the full jump applies.
What gets deducted before tax even starts
Your employee provident fund contribution is typically 12 per cent of basic salary plus dearness allowance, matched by your employer. The employer share is split, with a portion going to the pension scheme subject to a statutory wage ceiling. Gratuity accrues at roughly 4.81 per cent of basic but only becomes payable after five years of continuous service.
Because so much of this is pegged to basic salary rather than total cost to company, two offers with identical CTC can produce noticeably different take-home pay depending on how the structure splits basic, allowances, and employer contributions. The PF and gratuity calculators let you test a specific structure rather than guess.
HRA exemption is the lowest of three numbers
House rent allowance exemption under the old regime is not simply the HRA in your payslip. It is the least of three figures: the actual HRA received, rent paid minus ten per cent of basic salary, and fifty per cent of basic for metro cities or forty per cent elsewhere. Most salaried taxpayers are limited by the second of these.
Rent paid above ₹1 lakh a year generally requires the landlord's PAN to be reported. HRA exemption is unavailable under the new regime, which is often the deciding factor for people paying high rent in Mumbai, Delhi, Kolkata, or Chennai.
Worked example: ₹15.75 lakh salary under the new regime
- Gross salary
- ₹15,75,000
- Standard deduction
- ₹75,000
- Taxable income
- ₹15,00,000
- Slab tax before rebate
- ₹1,05,000
- Health & education cess (4%)
- ₹4,200
- Total tax payable
- ₹1,09,200
The slab tax breaks down as nil on the first ₹4 lakh, ₹20,000 on the ₹4–8 lakh band, ₹40,000 on ₹8–12 lakh, and ₹45,000 on the remaining ₹3 lakh at 15 per cent. The effective rate against gross salary works out to about 6.9 per cent.