How income tax works
India taxes income in slabs: each slice of income is taxed at its own rate. Understanding that one idea removes most tax anxiety.
Slabs, not a single rate
Under the new regime for FY 2025-26 and FY 2026-27, the first ₹4 lakh of taxable income is taxed at 0%, the next ₹4 lakh at 5%, then 10%, 15%, 20% and 25% on each subsequent ₹4 lakh, and 30% above ₹24 lakh.
Moving into a higher slab only raises the rate on the income inside that slab, never on everything. A raise can never make you worse off after tax.
Taxable income ₹17,25,000 → tax ₹1,50,800 (8.4% effective).
From salary to taxable income
Start with gross income from all sources: salary, interest, rent, business. Subtract the standard deduction (₹75,000 in the new regime, ₹50,000 in the old) and any deductions your regime allows. What's left is taxable income.
Then apply the slabs, subtract any rebate under section 87A, add a surcharge if income is above ₹50 lakh, and finally add a 4% health and education cess.
The ₹12 lakh rebate
In the new regime, a rebate of up to ₹60,000 means no tax at all if taxable income is ₹12 lakh or less. For a salaried person, that's a gross salary of up to ₹12.75 lakh after the standard deduction. Just above ₹12 lakh, marginal relief makes sure you never pay more tax than the income above ₹12 lakh.
Key takeaways
- 1Each slab's rate applies only to income within it.
- 2Taxable income = gross − standard deduction − allowed deductions.
- 3New regime: no tax up to ₹12 lakh taxable income.
Try it with your own numbers
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Educational content, not investment advice. Figures are illustrative.