How Indian income tax slabs work
Indian income tax is charged in slabs: each band of income is taxed at its own rate, so a higher slab rate applies only to the income above that threshold, never to your entire income. On top of the slab tax sits a 4% health and education cess, and below it a rebate that can wipe out tax altogether at lower incomes.
Formula
Tax = slab tax − rebate (87A) + 4% cess on the balance
- New regime slabs: nil up to ₹4 lakh, then 5%, 10%, 15%, 20%, 25%, and 30% above ₹24 lakh
- Old regime slabs: nil up to ₹2.5 lakh, then 5%, 20%, and 30% above ₹10 lakh
- Rebate under section 87A: up to ₹60,000 if taxable income is ₹12 lakh or less (new regime)
- Cess of 4% applies to the tax remaining after the rebate
Why ₹12 lakh can mean zero tax
Under the new regime, slab tax on a taxable income of exactly ₹12 lakh comes to ₹60,000 — ₹20,000 from the 5% band and ₹40,000 from the 10% band. The section 87A rebate is capped at ₹60,000 for incomes up to that level, so the entire liability is cancelled.
Add the standard deduction available to salaried taxpayers and a gross salary somewhat above ₹12 lakh can still land at zero tax. The rebate disappears once taxable income crosses the threshold, which is why the jump just above it feels abrupt.
A worked example at ₹15 lakh
On a taxable income of ₹15 lakh, the new regime charges nothing on the first ₹4 lakh, ₹20,000 on the next ₹4 lakh at 5%, ₹40,000 on the next ₹4 lakh at 10%, and ₹45,000 on the remaining ₹3 lakh at 15%. That is ₹1,05,000, plus ₹4,200 of cess — ₹1,09,200 in total, an effective rate of 7.3%.
The same ₹15 lakh under the old regime attracts ₹2,62,500 of slab tax plus ₹10,500 cess, or ₹2,73,000. The old regime only competes once deductions reduce your taxable income substantially.
Which regime suits you
For the ₹15 lakh case above, you would need roughly ₹5.4 lakh of deductions under the old regime to match the new regime’s liability. That is achievable for someone paying significant rent in a metro, a home loan, and full section 80C investments — and out of reach for most other taxpayers.
The practical approach is to add up the deductions you genuinely claim, run both regimes here, and pick the lower figure. Salaried taxpayers can generally choose each year, while those with business income face restrictions on switching back.
What this calculator does not model
It applies slab rates, the 87A rebate, and cess to the taxable income you enter. It does not compute surcharge, which applies at higher income levels, nor capital gains taxed at special rates, nor marginal relief for incomes just above the rebate threshold or surcharge thresholds.
Tax rules also change with each Budget. Treat the output as an estimate for planning and confirm your final liability with the current rules or a tax professional before filing.
New versus old regime at ₹15 lakh taxable
- New regime — slab tax
- ₹1,05,000
- New regime — cess
- ₹4,200
- New regime — total
- ₹1,09,200
- Old regime — slab tax
- ₹2,62,500
- Old regime — total with cess
- ₹2,73,000
- Deductions needed to break even
- ≈ ₹5.4 lakh
Without large deductions the new regime is cheaper by ₹1.64 lakh at this income level. With ₹5.4 lakh or more of legitimate deductions, the old regime pulls ahead.