How to calculate taxable income for a salaried person?

Formula: Gross Salary minus HRA exemption minus Standard Deduction (₹75,000 for FY 2025-26 under new regime) minus Professional Tax minus other exemptions = Net Salary Income. Add income from other sources (interest, rental). Subtract Chapter VI-A deductions (80C, 80D etc.) under old regime. The result is taxable income.

Is interest income added to taxable income?

Yes. Interest income from savings accounts, fixed deposits, recurring deposits and bonds is added to your total income and is fully taxable (except savings account interest up to ₹10,000 deductible under Section 80TTA under the old regime).

How does income from house property affect taxable income?

Rental income from let-out property is added to total income. However, you can deduct 30% standard deduction on rental income plus interest on home loan (no upper limit for let-out property). A self-occupied property is treated as Nil income; home loan interest is deductible up to ₹2 lakh/year under the old regime.

How to Calculate Taxable Income in India 2026

Q: What is taxable income in India?

Taxable income is the portion of your total income on which income tax is actually calculated. It is arrived at by subtracting all eligible exemptions (like HRA, LTA) and deductions (like 80C, 80D) from your gross total income.

What is Taxable Income? The Basics

Taxable income is the portion of your total annual earnings on which income tax is actually calculated. It is always less than your gross income because the Income Tax Act allows you to subtract various exemptions and deductions first.

Important for AY 2026-27: The income tax slab structure is different for Old Regime vs New Regime. Under the New Regime, the basic exemption limit is ₹3,00,000 and tax is NIL up to ₹7,00,000 after the rebate under Section 87A (Budget 2024). Choose your regime wisely before calculating taxable income.

Old Tax Regime More exemptions and deductions available (HRA, 80C, 80D, LTA etc.). Better if you have large investments and rent payments

New Tax Regime (Default) Lower tax rates, standard deduction of ₹75,000 but most exemptions and deductions not available. Better for those with fewer investments

5 Heads of Income in India

Under the Income Tax Act 1961, all income is classified under five heads. Your total taxable income is the sum of net income from all applicable heads:

1 Salaries — Basic salary, allowances (DA, TA, etc.), perquisites, bonuses, pension. HRA, LTA and standard deduction reduce this head

2 House Property — Rental income from let-out property (minus 30% standard deduction + home loan interest). Self-occupied property = NIL income

3 Business & Profession — Net profit from business after allowable expenses. For freelancers, consultants, doctors, lawyers etc.

4 Capital Gains — Profit from sale of property, shares, mutual funds, jewellery etc. STCG taxed at 20%, LTCG at 12.5% above ₹1.25 lakh

5 Other Sources — Interest from FD, savings account, dividend income, lottery winnings, gifts above ₹50,000 etc.

Step-by-Step Formula to Calculate Taxable Income

Follow these steps to calculate your taxable income for FY 2025-26:

Step 1 Start with Gross Salary
= Basic + DA + HRA + TA + Special Allowance + Bonus + all other allowances

Step 2 Subtract Exemptions (Old Regime only)
Minus HRA exemption (Section 10(13A))
Minus LTA exemption (Section 10(5))
Minus Children Education Allowance (₹100/child/month, max 2 children)

Step 3 Deduct Standard Deduction
₹75,000 under New Regime | ₹50,000 under Old Regime

Step 4 Deduct Professional Tax paid
As per state-specific rates (e.g., ₹2,500/year in Maharashtra)

Step 5 = Net Income from Salary

Step 6 Add Income from Other Heads
+ House property income (or loss up to ₹2 lakh set-off against salary)
+ Capital gains
+ Other sources (FD interest, dividends etc.)

Step 7 = Gross Total Income (GTI)

Step 8 Subtract Chapter VI-A Deductions (Old Regime only)
Minus 80C (max ₹1,50,000): PPF, ELSS, LIC, EPF, NSC etc.
Minus 80D (max ₹25,000–₹50,000): Health insurance premium
Minus 80TTA (max ₹10,000): Savings account interest
Minus 80E: Education loan interest (no limit)
Minus 80G: Donations to eligible funds

Step 9 = Total Taxable Income
Apply tax slab rates to compute income tax payable

Key Deductions to Reduce Taxable Income

Section 80C — ₹1.5 Lakh PPF (Public Provident Fund), ELSS mutual funds, LIC premium, 5-year FD, NSC, Sukanya Samriddhi, home loan principal, children tuition fees

Section 80D — ₹25,000–₹75,000 Health insurance premium: ₹25,000 for self/spouse/children + ₹25,000 for parents (₹50,000 if senior citizens)

Section 80CCD(1B) — ₹50,000 Additional NPS contribution over and above 80C limit — extra ₹50,000 deduction

Section 24(b) — ₹2 Lakh Home loan interest on self-occupied property (unlimited for let-out)

Section 80E Full interest paid on education loan for higher education — no upper limit for 8 years

Under the New Tax Regime, most of the above deductions (except NPS employer contribution under 80CCD(2) and standard deduction) are NOT available. The trade-off is lower slab rates and a full rebate up to ₹7 lakh income.

Worked Example AY 2026-27 (Old vs New Regime)

Old Regime Taxable Income Gross Salary: ₹12,00,000
Less HRA Exempt: ₹1,56,000
Less Standard Deduction: ₹50,000
Less Professional Tax: ₹2,500
Net Salary: ₹9,91,500
+ FD Interest: ₹30,000
GTI: ₹10,21,500
Less 80C: ₹1,50,000
Less 80D: ₹25,000
Taxable Income = ₹8,46,500
Tax payable: ~₹87,300 + cess

New Regime Taxable Income Gross Salary: ₹12,00,000
Less Standard Deduction: ₹75,000
Net Salary: ₹11,25,000
+ FD Interest: ₹30,000
Taxable Income = ₹11,55,000
Tax payable: ~₹91,500 + cess
(No 80C/80D deductions allowed)

In this example, the Old Regime saves more tax due to HRA + 80C + 80D deductions. However, if the person had no significant deductions, the New Regime would be better. Use our free CA consultation to determine your optimal regime.

Frequently Asked Questions

What is taxable income in India?

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Taxable income is your total income after subtracting all eligible exemptions (like HRA, LTA) and deductions (like 80C, 80D) from your gross income. Income tax is calculated on this net figure using the applicable tax slab rates.

What is the standard deduction for FY 2025-26?

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For FY 2025-26 (AY 2026-27), the standard deduction is ₹75,000 under the New Tax Regime (increased from ₹50,000 in Budget 2024). Under the Old Tax Regime, standard deduction remains ₹50,000 for salaried individuals and pensioners.

Is FD interest taxable in India?

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Yes. Fixed deposit interest is fully taxable under “Income from Other Sources” at your applicable slab rate. TDS is deducted at 10% by the bank if interest exceeds ₹40,000 per year (₹50,000 for senior citizens). Submit Form 15G/15H if your income is below the taxable limit to avoid TDS.

How much income is tax-free in India 2026?

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Under the New Regime, income up to ₹7,00,000 is effectively tax-free after the Section 87A rebate. Under the Old Regime, income up to ₹5,00,000 is tax-free after rebate. The basic exemption limits are ₹3,00,000 (New) and ₹2,50,000 (Old) before rebate.

Can I switch between old and new tax regime every year?

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Salaried individuals can switch between old and new tax regimes every year at the time of filing ITR. However, those with business income can only switch once from old to new regime (and can switch back only once). The new regime is now the default — you must actively opt for old regime in your ITR.