Stop 5 of 7
How your tax is calculated
Nine small stops, always in the same order, from your income to your final tax.
Working out income tax is a sequence of steps, always in the same order. This page walks through each one with a worked example. If you'd rather just get an answer for your own income, use the calculator — it follows exactly these steps.
1. Add up your income
Start by adding up your income from each source the law counts for this site: salary or pension, interest from savings or deposit accounts, and other ordinary income.
Worked example
Anita earns a salary of ₹8,10,015 a year, and has no other income. Her income for this step is ₹8,10,015.
2. Subtract the standard deduction
If you have salary or pension income, you can subtract a fixed amount from it — the standard deduction — with no bills or proof needed. It can't reduce your salary income below zero. Anita uses the old regime, where section 19(1) (old law: 16(ia)) sets this at ₹50,000*.
Worked example
Anita's salary of ₹8,10,015, minus the standard deduction of ₹50,000, leaves ₹7,60,015.
3. Subtract deductions (old regime only)
If you use the old regime, you can subtract further amounts for things like provident fund and life insurance payments, health insurance premiums, and home loan interest on a house you live in — each up to its own limit. The new regime does not allow these. See the deductions page for the full list and limits.
Worked example
During the year, Anita puts ₹50,000 into provident fund and life insurance — within the section 123 (old law: 80C) limit of ₹1,50,000*, so all of it counts. Her income after this step is ₹7,10,015.
4. Round the total, to the nearest ₹10*
The amount left after deductions is called your total income. The law rounds it to the nearest multiple of ₹10* — section 516 (old law: 288A) — before working out tax on it.
Worked example
Anita's income after deductions, ₹7,10,015, rounds to ₹7,10,020. Tax is worked out on this rounded amount.
5. Work out tax on the slabs
Total income is taxed in slices ("slabs"): the first slice at one rate, the next slice at a higher rate, and so on. Only the part of your income inside each slab is taxed at that slab's rate. Anita's age and regime put her under Finance Act 2026, First Schedule (old law: Finance Act, First Schedule).
Worked example
On Anita's total income of ₹7,10,020, adding up the tax in each slab gives ₹54,504.
6. Rebate (and marginal relief under the new regime)
If your total income is at or below a set limit, a rebate (a discount on the tax you owe) brings your tax down to zero, for the incomes this site covers. Anita's total income of ₹7,10,020 is above the old regime's rebate limit of ₹5,00,000*, so she gets no rebate — her tax after this step stays at ₹54,504.
Under the new regime, the limit is ₹12,00,000* (section 156(2)(a) (old law: 87A)). Above that limit, marginal relief applies: your tax before cess is capped at the amount by which your income is over the limit; cess is then added on top.
Worked example
Meera earns a salary of ₹12,85,000 under the new regime. After the standard deduction, her total income is ₹12,10,000 — just ₹10,000 above the ₹12,00,000* rebate limit. Tax on her slabs would be ₹61,500, but marginal relief cuts this down to ₹10,000 — no more than her income above the limit.
7. Surcharge on very high incomes (with marginal relief)
Above certain very high levels of total income, an extra surcharge applies to the whole of your tax, at a rate that rises with income — Finance Act 2026, First Schedule (old law: Finance Act, First Schedule) sets the bands under the new regime. Marginal relief applies here too: your tax plus surcharge can't jump by more than your income rises above the band's starting point.
Worked example
Rohan earns a salary of ₹50,80,000 under the new regime, giving a total income of ₹50,05,000 — just over the surcharge band that starts at ₹50,00,000*. Without relief, the surcharge on his tax would be ₹1,08,150. Marginal relief cuts ₹1,04,650 off that, leaving a surcharge of only ₹3,500.
8. Health and Education Cess
After rebate and surcharge, a cess (an additional charge, earmarked for health and education) is added on top, at a rate the Finance Act sets each year (Finance Act 2026, s.3 (old law: Finance Act, s.2)) — currently 4%* of your tax plus surcharge.
Worked example
For Rohan, 4%* cess on his tax plus surcharge adds ₹43,400.
9. Round the final tax
Just like total income, the final tax amount is rounded to the nearest ₹10* — section 516 (old law: 288B).
Worked example
Adding Rohan's tax after rebate, surcharge and cess, then rounding, gives a final tax of ₹11,28,400* for the year.
Every one of these steps runs automatically in the calculator — just enter your own income and it shows you each step for your numbers.
This page covers tax year 2026-27 (1 April 2026 to 31 March 2027). For the official rules, see incometax.gov.in.