How income tax is calculated in India
India runs two parallel tax systems. The New regime offers wider, lower slabs but strips out most deductions and exemptions. The Old regime keeps the familiar deductions — Section 80C, 80D, HRA, home-loan interest — but taxes income at higher rates. Your tax is computed under both and you pay whichever is lower.
In both systems, tax is progressive: income is sliced into bands and each band is taxed at its own rate. You do not pay the top rate on your entire income — only on the part that falls in the top band.
Slabs for FY 2025-26 (New regime)
| Taxable income | Rate |
|---|---|
| Up to ₹4,00,000 | 0% |
| ₹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% |
A ₹75,000 standard deduction applies to salary, and a Section 87A rebate zeroes the tax if taxable income is ₹12,00,000 or less. A 4% cess is added to the final tax.
The Old regime uses a ₹2,50,000 basic exemption (₹3,00,000 for those aged 60–80, ₹5,00,000 for 80+), then 5% to ₹5 lakh, 20% to ₹10 lakh and 30% above — with a ₹50,000 standard deduction and an 87A rebate up to ₹12,500 if taxable income is ₹5 lakh or less.
Worked example
Take a salaried person earning ₹15,00,000 a year with ₹2,00,000 of Old-regime deductions, aged below 60.
New regime: taxable income = 15,00,000 − 75,000 = ₹14,25,000. Tax = 0 (first 4L) + 5% of 4L (₹20,000) + 10% of 4L (₹40,000) + 15% of 2.25L (₹33,750) = ₹93,750. With 4% cess ≈ ₹97,500.
Old regime: taxable income = 15,00,000 − 50,000 − 2,00,000 = ₹12,50,000. Tax = 5% of 2.5L (₹12,500) + 20% of 5L (₹1,00,000) + 30% of 2.5L (₹75,000) = ₹1,87,500. With cess ≈ ₹1,95,000.
Here the New regime saves about ₹97,500 — because the deductions claimed are not large enough to overcome the higher Old-regime rates.
When the Old regime still wins
The Old regime tends to win when your deductions are substantial — a full ₹1.5 lakh under 80C, ₹50,000 NPS under 80CCD(1B), ₹25,000–₹50,000 health insurance under 80D, and especially ₹2 lakh of home-loan interest plus a sizeable HRA exemption. Add those up and the taxable base under the Old regime can fall far enough to beat the New regime's lower rates. Always compare both — which is exactly what this tool does.
Figures are estimates for FY 2025-26 (AY 2026-27) and are not a substitute for professional tax advice.