How to Calculate Your Income Tax for FY 2025-26

Calculating income tax in India

Knowing how to calculate your income tax is a fundamental skill that every earning individual in India should master. Whether you are salaried, self-employed, or a freelancer, understanding the tax calculation process helps you plan your finances better and avoid surprises during filing season. This guide walks you through the complete process of calculating your income tax for FY 2025-26.

Understanding the Basics of Income Tax Calculation

Income tax in India is calculated on your total income earned during a financial year (April to March). The tax is computed based on income tax slabs, which vary depending on whether you choose the Old Tax Regime or the New Tax Regime. For FY 2025-26, the New Tax Regime is the default regime, but you can opt for the Old Regime if it benefits you more.

Step 1: Calculate Your Gross Total Income

Your Gross Total Income (GTI) is the sum of income from all sources. These sources are categorized under five heads:

Income from Salary — Basic salary, allowances, bonuses, and perquisites.
Income from House Property — Rental income minus municipal taxes and standard deduction.
Profits and Gains from Business or Profession — For self-employed individuals and freelancers.
Capital Gains — Profits from selling shares, mutual funds, property, or other assets.
Income from Other Sources — Interest income, dividends, gifts, and other miscellaneous income.

Add up income from all applicable heads to arrive at your Gross Total Income.

Step 2: Apply Exemptions (Old Regime Only)

If you are using the Old Tax Regime, you can claim exemptions such as HRA (House Rent Allowance) under Section 10(13A), LTA (Leave Travel Allowance) under Section 10(5), and standard deduction of Rs 50,000 on salary income. In the New Regime, most exemptions are not available, but the standard deduction of Rs 75,000 is allowed.

Step 3: Claim Deductions

Under the Old Tax Regime, deductions significantly reduce your taxable income. Key deductions include:

Section 80C — Up to Rs 1.5 lakh for PPF, ELSS, LIC, home loan principal, tuition fees.
Section 80CCD(1B) — Additional Rs 50,000 for NPS contributions.
Section 80D — Up to Rs 25,000 for health insurance (Rs 50,000 for senior citizens).
Section 80TTA/80TTB — Interest from savings accounts.
Section 24(b) — Up to Rs 2 lakh for home loan interest.

Subtract all applicable deductions from your GTI to get your Taxable Income.

Step 4: Apply Tax Slab Rates

For FY 2025-26, the New Tax Regime slabs are:

Up to Rs 4,00,000 — Nil
Rs 4,00,001 to Rs 8,00,000 — 5%
Rs 8,00,001 to Rs 12,00,000 — 10%
Rs 12,00,001 to Rs 16,00,000 — 15%
Rs 16,00,001 to Rs 20,00,000 — 20%
Rs 20,00,001 to Rs 24,00,000 — 25%
Above Rs 24,00,000 — 30%

Under the Old Regime, the slabs are: up to Rs 2.5 lakh — Nil, Rs 2.5 to 5 lakh — 5%, Rs 5 to 10 lakh — 20%, and above Rs 10 lakh — 30%.

Step 5: Add Surcharge and Cess

After calculating the base tax, add Health and Education Cess at 4% of the total tax. If your income exceeds Rs 50 lakh, a surcharge also applies. For income between Rs 50 lakh and Rs 1 crore, the surcharge is 10%. For income above Rs 1 crore, it increases further.

Step 6: Subtract TDS and Advance Tax

From the total tax computed, subtract any TDS (Tax Deducted at Source) already deducted by your employer, bank, or clients. Also subtract any advance tax or self-assessment tax paid during the year. The remaining amount is your tax payable or refund due.

Example Calculation

Suppose your total income is Rs 12,00,000 under the New Regime. The tax would be: Rs 4 lakh (nil) + Rs 4 lakh at 5% (Rs 20,000) + Rs 4 lakh at 10% (Rs 40,000) = Rs 60,000. Add 4% cess = Rs 2,400. Total tax = Rs 62,400. If TDS of Rs 50,000 was already deducted, you pay Rs 12,400 as balance tax.

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