Calculating your income tax isn't one formula — it's a sequence of steps: add up your income, subtract what you're allowed to deduct, pick a regime, then apply the slabs. Here's the exact order the Income Tax Department actually uses.
Add up your gross total income
Start with income from all sources: salary, house property (rental income), capital gains, business/profession income, and "other sources" like interest. This total is your Gross Total Income (GTI).
Subtract exemptions built into your salary
Before deductions even come in, certain salary components are exempt outright — HRA (House Rent Allowance) up to the eligible limit, LTA (Leave Travel Allowance), and the standard deduction (₹75,000 under the New Regime for FY 2025-26). What's left is your taxable salary.
Choose your regime — Old or New
This is the fork in the road. The New Regime has lower rates but very few deductions. The Old Regime has higher rates but lets you claim 80C (₹1.5L), 80D (health insurance), home loan interest, and more. Run both and compare — see our Old vs New Regime Calculator.
Subtract Chapter VI-A deductions (Old Regime only)
If you've chosen the Old Regime, subtract eligible deductions — 80C investments (PPF, ELSS, life insurance), 80D (health insurance premiums), 80CCD(1B) (NPS), and any others you qualify for. This gives you your Total Taxable Income.
Apply the slab rates
Tax is calculated slab by slab, not as a flat percentage of your whole income — each portion of your income is taxed at the rate for that slab only. See our full slab tables for both regimes.
Add cess, subtract rebate
Add 4% Health & Education Cess on the tax computed. If your total taxable income is below the rebate threshold (₹7L under New Regime via Section 87A), your tax liability may be reduced to zero.
Worked example
| Item | Amount |
|---|---|
| Gross salary | ₹12,00,000 |
| Standard deduction (New Regime) | − ₹75,000 |
| Taxable income | ₹11,25,000 |
| Tax as per New Regime slabs | ≈ ₹71,250 |
| + 4% Cess | + ₹2,850 |
| Total tax payable | ≈ ₹74,100 |
Skip the manual math — get your exact number in seconds.
Use the India Income Tax Calculator →A common mistake
Many people calculate tax on their gross salary instead of taxable income after deductions — which overstates their liability significantly. Always work through the full sequence above, not just the headline slab rate.
This is a simplified walkthrough of the general calculation method — it doesn't cover every deduction, surcharge tier, or edge case (like capital gains taxed at special rates). For your exact figure, use our calculator or consult a CA.