India’s income tax system is structured around progressive tax slabs designed to tax individual earnings fairly and transparently. For the financial year 2025-26, the government has introduced updated tax rates and reforms in the latest Union Budget aimed at simplifying the tax landscape while offering taxpayers options to optimize their liabilities. In this article, we’ll help you understand how income tax works in India and how to use an income tax calculator India effectively.
Based on our experience guiding global businesses through Indian tax compliance, we’ll provide clear, practical insights into the latest tax slabs, deductions, and regimes. Whether you’re new to Indian taxation or need the most current information, this guide will equip you to calculate taxes accurately and plan efficiently.
What is an Income Tax Calculator?[toc=Introduction]
An income tax calculator is a simple online tool that helps you estimate your tax liability based on your income and deductions. From our experience guiding global businesses, we can attest that using a reliable tax calculator in India makes tax planning easier and more accurate.
It automatically applies the latest tax slabs and rules, saving you from complex manual tax calculations. Whether you have salary income, rental income, or other sources, the calculator helps you quickly see how much tax you owe and compare different tax regimes.
In short, it’s an essential tool for anyone dealing with Indian income tax.
How to use Wisemonk’s Online Income Tax Calculator?[toc= How to use]
Using Wisemonk’s online income tax calculator is simple and quick, even if you’re new to Indian tax rules. Here’s how we recommend you proceed:
- Select the financial year you want to calculate tax for (e.g., FY 2025-26).
- Choose your age group, since tax rates can vary for different age categories.
- Enter your total income details-this includes salary, rental income, interest, and any other sources.
- Add your deductions and exemptions, such as investments under Section 80C, health insurance premiums, or home loan interest.
- Submit the information and click Calculate to get your estimated tax liability.
The calculator will show your tax under both the old and new tax regimes, helping you decide which option benefits you more.
Wisemonk’s tool is user-friendly and updated with the latest Union Budget changes, making it a reliable choice for global businesses and individuals needing accurate income tax estimates.
What are the latest income tax slabs in India for FY 2025-26?[toc=Income Tax Slabs]
Every eligible taxpayer in India can choose between the new tax regime and the old tax regime each financial year. The new regime is now the default, but if you prefer the old regime (which allows more deductions and exemptions), you can opt for it when filing your tax return or, for salaried employees, by informing your employer at the start of the year. This flexibility is especially important for global businesses and U.S.-based employers, as it lets your Indian employees optimize their tax liability based on their unique situation.
New Tax Regime
The new tax regime, as updated in the Union Budget 2025, is designed for simplicity and offers broader tax slabs with limited deductions. Here are the latest tax slabs for FY 2025-26 (AY 2026-27).
Key features:
- The basic exemption limit is now ₹4 lakh.
- The tax rebate under Section 87A has increased to ₹60,000, so most individuals with taxable income up to ₹12 lakh will pay zero tax. For salaried individuals, the standard deduction of ₹75,000 means the zero-tax threshold can go up to ₹12.75 lakh.
- Most traditional deductions (like 80C, HRA, LTA) are not available, except for the standard deduction and a few employer-related benefits.
- The same tax slabs apply to all individuals, regardless of age.
If your employees have significant deductions or prefer the traditional system, they can opt for the old tax regime each year.
Key features:
- Allows a wide range of deductions and exemptions (Sections 80C, 80D, HRA, etc.).
- The standard deduction for salaried individuals is ₹50,000.
- The old regime can be beneficial for those with substantial investments or eligible expenses.
- Senior citizens (aged 60 and above) and super senior citizens (aged 80 and above) benefit from higher basic exemption limits.
Surcharge and Cess (Both Regimes)
For higher incomes, a surcharge applies on the calculated tax:
- The new regime caps the highest surcharge at 25%, while the old regime can go up to 37% for very high income.
- After surcharge, a 4% health and education cess is added to the total tax.
It’s essential for employers and employees alike to review both tax regimes each year, as the best choice depends on individual income profiles and eligible deductions. Using an updated income tax calculator can make this comparison quick and accurate, ensuring compliance and optimal tax planning for your team.
How to calculate income tax? (With Example)[toc=Example Calculation]
Now that we’ve reviewed the current tax slabs, let’s walk through the practical steps to calculate income tax in India for FY 2025-26. We’ll keep this as straightforward as possible, so you can apply it confidently-whether for payroll, compliance, or personal planning.
%20-%20visual%20selection.png)
Step 1: Calculate Gross Total Income
Add up all sources of income: salary, rental income, interest, dividends, and any other taxable earnings.
Step 2: Subtract Allowable Deductions
- New Tax Regime: Only a few deductions are allowed, mainly the standard deduction of ₹75,000 for salaried individuals and pensioners. Other limited deductions include employer’s NPS contribution and family pension deduction (lower of 1/3rd of pension or ₹25,000).
- Old Tax Regime: You can claim a wide range of deductions and exemptions, such as:
- Standard deduction of ₹50,000 for salaried individuals
- Section 80C (up to ₹1.5 lakh for investments)
- Section 80D (health insurance premiums)
- HRA, LTA, home loan interest, NPS (additional ₹50,000 under Sec 80CCD(1B)), and more
Step 3: Arrive at Net Taxable Income
Net Taxable Income= Gross Total Income - Deductions
Step 4: Apply the Appropriate Tax Slabs
Use the tax slabs for your chosen regime (new or old) to calculate tax on each portion of your income.
Step 5: Add Surcharge and Cess
- If your income exceeds certain thresholds, calculate surcharge as per the rates.
- Add 4% health and education cess on the total tax (including surcharge).
Example:
Let’s walk through a practical example so you can see exactly how income tax is calculated in India for FY 2025-26. We’ll use a detailed salary structure and show the tax calculation under both the new and old tax regimes, highlighting the differences in deductions and exemptions.
Rahul’s annual compensation and income details are as follows. His salary package is made up of a basic salary of ₹12,00,000, a House Rent Allowance (HRA) of ₹6,00,000, a special allowance of ₹2,52,000, and Leave Travel Allowance (LTA) of ₹20,000. In addition to his salary, Rahul earns ₹8,000 as interest from his savings account and ₹12,000 as interest from a fixed deposit.
Rahul pays ₹40,000 per month in rent for his Bengaluru apartment. Over the year, he has also made several investments and incurred expenses that are relevant for tax purposes: ₹50,000 in a Public Provident Fund (PPF), ₹20,000 in Equity Linked Savings Scheme (ELSS), ₹8,000 towards a LIC premium, and ₹12,000 for medical insurance.
Step 1: Calculate Gross Total Income
To start, Rahul adds up all his salary components:
- Basic Salary: ₹12,00,000
- HRA: ₹6,00,000
- Special Allowance: ₹2,52,000
- LTA: ₹20,000
This brings his total salary income to ₹20,72,000 for the year.
Next, he includes his other sources of income:
- Interest from Savings Account: ₹8,000
- Interest from Fixed Deposit: ₹12,000
Combined, these add ₹20,000 to his income.
So, Rahul’s Gross Total Income for the financial year is:
=₹20,72,000 (salary)+₹20,000 (other income)
=₹20,92,000
This figure forms the starting point for determining his taxable income under both the new and old tax regimes. In the next steps, we’ll see how deductions and exemptions affect his tax calculation under each regime.
Step 2: Identify Deductions and Exemptions
Now, the deductions Rahul can claim depend on which tax regime he chooses:
- New Regime: Only a few deductions are allowed, mainly the standard deduction of ₹75,000 for salaried individuals.
- Old Regime: He can claim the standard deduction of ₹50,000, HRA exemption (since he pays rent), LTA exemption (if he submits bills), Section 80C investments, Section 80D (medical insurance), and Section 80TTA (savings account interest).
Step 3: Compute Net Taxable Income Under Both Regimes
Let’s see how Rahul’s net taxable income shapes up under each regime. Here’s a side-by-side comparison:
Note: HRA exemption is estimated based on Rahul’s rent and salary structure; actual exemption may vary slightly depending on city and other factors.
Step 4: Apply Tax Slabs and Calculate Tax
New Tax Regime (FY 2025-26):
- Add 4% Cess: ₹2,04,250 × 4% = ₹8,170
- Total Tax Payable: ₹2,04,250 + ₹8,170
- = ₹2,12,420
B. Old Tax Regime:
- Add 4% Cess: ₹1,54,100 × 4% = ₹6,164
- Total Tax Payable: ₹1,54,100 + ₹6,164
- = ₹1,60,264
Under the new regime, Rahul’s total tax liability comes to ₹2,12,420, while under the old regime, it’s ₹1,60,264. This substantial difference is primarily because the old regime allows Rahul to claim multiple deductions and exemptions-such as HRA, LTA, Section 80C investments, medical insurance, and savings account interest-which are not available under the new regime (except for the higher standard deduction).
What does this mean for you or your employees?
- If you or your team members have substantial eligible deductions and exemptions, the old regime may result in lower tax outgo.
- If there are few deductions or you prefer a simpler, more straightforward calculation, the new regime-with its higher standard deduction-might be more convenient, even if the tax is slightly higher.
From our experience guiding global businesses, we recommend always comparing both regimes each year, as the best option depends on each individual’s salary structure and eligible deductions.
What deductions and exemptions are allowed under the New Tax Regimes (FY 2025-26)?[toc=Deductions & Exemptions]
One of the most important differences between India’s old and new tax regimes is the set of deductions and exemptions you can claim. Understanding what’s allowed under each regime is crucial for accurate tax planning-especially for employers structuring compensation or employees deciding which regime to choose. The new tax regime is designed for simplicity, so it allows very few deductions and exemptions. Here’s what you can claim:
- Standard Deduction: ₹75,000 for salaried individuals and pensioners.
- Employer’s Contribution to NPS (Section 80CCD(2)): Up to 14% of basic salary plus dearness allowance for central/state government employees, and up to 10% for others.
- Transport Allowance for Specially Abled: Allowed for differently-abled employees.
- Family Pension Deduction: Lower of ₹15,000 or one-third of pension received.
- Agniveer Corpus Fund Contributions: Deductible for eligible armed forces personnel.
- Section 80JJAA: Deduction for additional employee cost for new employment (mainly for businesses)
- Interest on Let-Out House Property: Allowed as per actuals (not for self-occupied property).
Most popular deductions-like HRA, LTA, Section 80C (investments), Section 80D (medical insurance), Section 80TTA (savings account interest), and donations under Section 80G-are not available under the new regime.
What deductions and exemptions under the Old Tax Regime?[toc-hide]
The old regime is far more flexible, allowing a wide range of deductions and exemptions:
- Standard Deduction: ₹50,000 for salaried individuals and pensioners.
- House Rent Allowance (HRA): Exempt if you pay rent and meet certain conditions.
- Leave Travel Allowance (LTA): Exempt for travel within India, subject to submission of bills.
- Section 80C: Up to ₹1,50,000 for investments in PPF, ELSS, life insurance, EPF, NSC, children’s tuition, home loan principal, and more.
- Section 80D: Up to ₹25,000 (or ₹50,000 for senior citizens) for medical insurance premiums.
- Section 80TTA/80TTB: Up to ₹10,000 (or ₹50,000 for senior citizens) for interest on savings accounts or deposits.
- Section 24(b): Up to ₹2,00,000 for interest paid on home loan (self-occupied property).
- Section 80E: Interest paid on education loans (no upper limit, for up to 8 years).
- Section 80G: Donations to approved charities (subject to limits).
- Professional Tax, Entertainment Allowance, Children’s Education Allowance, and more.
In short, the old regime is ideal for those who can claim substantial deductions and exemptions, while the new regime is best for those who prefer simplicity or have minimal eligible claims.
From our experience helping global businesses paying employees in India, we recommend reviewing your eligible deductions each year. If you or your employees have significant investments, insurance, or rent payments, the old regime may offer more savings. If not, the new regime’s simplicity and higher standard deduction may be preferable.
What are the benefits of using an Income Tax Calculator?[toc=Benefits]
Using an income tax calculator isn’t just about crunching numbers-it’s about making tax planning easier, more accurate, and more strategic for both employers and employees. Based on our experience helping global businesses manage payroll and compliance in India, here are some of the top benefits:
- Accuracy and Error Reduction: Manual tax calculations are prone to mistakes, especially with India’s changing tax rules and multiple deductions. An income tax calculator automatically applies the latest tax slabs, deductions, and cess, ensuring your tax liability is calculated correctly every time.
- Time-Saving and Convenience: Calculating taxes by hand or spreadsheet can be tedious and time-consuming. With an online calculator, you simply enter your income and deduction details, and get instant results-saving valuable time for HR teams, payroll managers, and employees alike.
- Better Financial and Tax Planning: Knowing your tax liability in advance allows you to plan investments, structure salaries, and manage cash flow more effectively. Calculators often highlight potential tax-saving opportunities, helping you or your employees make smart financial decisions throughout the year.
- Confidentiality and Data Security: Online calculators keep your financial data private, reducing the risk of sensitive information being lost or misused compared to manual or paper-based calculations.
In short, an income tax calculator is a practical, reliable tool that streamlines compliance, supports smarter financial planning, and empowers both employers and employees to make informed decisions-no matter how complex the tax landscape may seem.
How Wisemonk helps with Income Tax Calculation in India?[toc=How Wisemonk helps]
.png)
Wisemonk makes income tax calculation in India easy and accurate for global businesses. As a trusted Employer of Record (EOR) in India, we help global companies hire, pay, and manage employees without the need for a local entity. Our team specializes in accurate income tax calculation, salary structuring, and ensuring every deduction and benefit is handled correctly for your India-based workforce.
If you need support with income tax calculations, payroll compliance, or understanding Indian tax rules, talk to us. We make tax calculation simple, compliant, and worry-free-so you can focus on growing your business.
Alongside tax and payroll, Wisemonk also assists with background verification, building offshore teams, GCC setup, and company registration in India. For any help with paying employees or navigating Indian tax laws, reach out to Wisemonk-your local partner for seamless India operations.
Reach out to us for expert assistance with income tax calculation, payroll compliance, or any aspect of paying employees in India.
FAQs
Does everyone have to file their income tax returns in India?
No, only individuals and entities whose income exceeds the maximum exemption limit for their age and tax regime must file returns. However, filing is mandatory for those seeking refunds or meeting specific criteria (like foreign assets or directorships)
Does the income tax calculator calculate TDS?
No, an income tax calculator estimates your total annual tax liability. TDS (Tax Deducted at Source) is calculated separately based on specific transactions and salary payments.
How do I calculate income tax on arrear salary?
Add the arrear to your current year’s income, calculate tax, and then use Section 89 relief to reduce tax if the arrears relate to previous years. This ensures you’re not overtaxed due to timing differences.
How can the Income Tax Calculator be used?
Simply enter your income, deductions, and select the tax regime. The calculator will estimate your tax liability under both old and new regimes for easy comparison.
What was the standard deduction specified in the Union Budget of 2025?
For FY 2025-26, the standard deduction is ₹75,000 under the new regime and ₹50,000 under the old regime, available to salaried individuals and pensioners.
What is the maximum non-taxable income limit for FY 2025-26?
Under the new regime, income up to ₹4,00,000 is tax-free. With rebates and standard deduction, most salaried individuals can have up to ₹12,75,000 as non-taxable income. For the old regime, the basic exemption is ₹2,50,000, with higher limits for senior citizens.
What is the difference between exemption and deduction?
Exemptions reduce your taxable income at the source (like HRA or LTA), while deductions are specific amounts you can subtract from your gross income (like Section 80C investments) before calculating tax.
Can I use the income tax calculator for previous financial years?
Most calculators allow you to select past years, but always ensure you’re using the correct tax slabs and rules for the relevant year.
Are there special tax benefits for senior and super senior citizens?
Yes, under the old regime, senior citizens (60+) and super senior citizens (80+) have higher basic exemption limits. Under the new regime, the same slabs apply to all ages.