How to Calculate Income Tax on Salary with ExampleHow to Calculate Income Tax on Salary with Example

Income tax is an instantaneous tax, that is, levied on any person’s or entity’s salary for the duration of a financial year. It is at once paid to the government, like all the different direct taxes. In this article we will tell you How to Calculate Income Tax on Salary with an Example. The net taxable Salary is taken into consideration to calculate the tax legal responsibility of the individual or entity based on the salary slabs given by the Salary-tax Department for the financial year.

The amount of tax paid relies upon the money earned by the individual in that precise economic year. The major spotlight of the Budget related to taxpayers was the Rebate under Section 87A being expanded to ₹7 Lakh earlier, which was ₹5 Lakh i.E. Salary up to ₹7 Lakh p.A.

What is income tax on Salary?

According to the Income Tax Act of 1961, every salaried person needs to pay an amount from their Salary as tax to the country. This amount of tax is referred to as income tax. The regulation consists of many provisions and versions with subsections describing the information on tax bills, deductions, and computations. A lot of deductions under subsections 80C to 80U are available. After subtracting all the available tax-saving provisions and deductions, the very last amount is paid to the government because of the income tax on Salary.

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How to Calculate Income Tax on Salary?

Here we will tell you How to Calculate Income Tax on Salary with example, Calculating income tax on Salary may be breakdown into 5 steps:

  • Calculate your gross Salary

The first step in calculating income tax is to calculate your gross Salary. Gross Salary can be defined as the total money earned by the person through all assets. The gross Salary consists of a basic Salary slip, house lease allowance (HRA), interest, and different Salaries for the duration of the financial year.

  • Arrive at your net taxable Salary by getting rid of deductions

Once you’ve calculated the gross Salary, the following step is to eliminate deductions to arrive at your net taxable Salary. Deductions along with provident fund, medical insurance, house loan interest, and other investment-related deductions can be subtracted to arrive at your net taxable Salary.

  • Arriving at your net taxable Salary

After arriving at the net taxable Salary in 2nd step, the following step is to calculate the tax slab below which your Salary falls. The tax slab relies upon the net taxable Salary and the tax fee similar to the tax slab.

  • Calculate your taxes

The income tax slab rates can be found on the authentic government website, and the taxes may be calculated with the use of tax calculators. The taxable Salary is calculated by using the tax rate corresponding to the tax slab at the net taxable Salary.

  • Consolidate your net tax

The final step in this procedure is to consolidate your net tax. The net tax consists of income tax, and other fees.

Example of calculation of Income tax on Salary

It is very easy to calculate income tax. The method for calculating income tax on Salary is as follows. Let us tell you by Example.

If Mr. Gupta has a salary of ₹27,000 per month and does not use more allowance and has every year assets of ₹25000 and total exemptions of ₹85,000, then income tax in India.

Basic Salary27000 * 12= 3,24,000
DA0 * 12= 0
EA0 * 12= 0
Gross Salary = 3,24,000
Total deductions general exemptions 1,05,000
Net Salary = 2,19,000

Various deductions to calculate income tax on Salary

Here is a list of the numerous deductions taken into consideration under income tax legal guidelines to calculate income tax on Salary.

Employees staying in rented homes can claim deductions for the same under the old tax regime. The income tax deductions are the least of the following:

  1. Total HRA paid
  2. Actual rent paid much less than 10% of the basic salary
  3. 50% of Salary for metro cities or 40% of Salary for non-metro cities

Employees can declare LTA as much as the amount of real rate incurred (payments to be produced), twice in a period of 4 years. The LTA covers travel costs. Further, it doesn’t cover prices incurred for personal reasons, which include enjoyment, meal fees, shopping, or leisure.

  • Standard Deduction

In the meantime price range of 2019, the overall limit of total deduction below income tax has been elevated to Rs. 50,000.

  • Section 80C, 80CCD (1), and 80CCC

There are tax financial savings options in which salaried employees can invest and declare an income tax deduction on Salary as much as Rs. 1.5 lacs. Some of the investments covered under the sections cited above include Employee Provident Fund (EPF), Life Insurance Premium, Equity Linked Savings Scheme (ELSS), Pension schemes, and many others.

  • Deductions Against Loans

The major and interest paid closer to the home loan are eligible for deduction under section 80E subject to a maximum limit of Rs. 1.50 lacs. Employees can declare deductions for interest paid on home loans for as much as Rs. 2.0 lacs under phase 24.

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Exemption on Total Income tax

  • Section 87A: For Salary under Rs.5 lakh, a tax exemption of as much as Rs.12,500 is permissible.
  • Section 80CCD(1B): If you invest in a country-wide pension machine, then you could declare a tax exemption of as much as Rs.2 lakh.
  • Section 80C: If you spend money on any tax saver scheme, ULIP, PPF, financial savings certificate, ELSS, etc. Then you could claim a tax deduction of as much as Rs.1.5 lakh in your interest salary.
  • Section 80D: You can declare a tax exemption of up to Rs.20,000 on your medical insurance. If you’re a senior citizen, then you can declare up to Rs.50,000.
  • Section 80E: 100% rebate on education loans for up to 8 years.
  • Section 80G: Any donation made to any charitable company is exempt from being taxed.
  • Section 80TTA and Section 80 TTB: Interest accumulated from financial savings accounts can be exempted from being taxed for amounts up to Rs.10,000. Senior residents will not be required to pay any tax for amounts up to Rs.50,000.
  • Section 80GG: Salary spent in the direction of the payment of house rent is exempted from being taxed.


By many, income tax is checked out as an important term. With ever-changing tax legal guidelines and several factors – tax exemption, tax rebate, tax deduction, tax saving, and so on – to decipher, most of the time we do not even recognize what portion of our Salary is being taxed, and the way we can save a little money.


1. What are the components to calculate taxable Salary?

The formulation to calculate taxable Salary is Gross Salary – Deductions = Taxable Salary. This method subtracts deductions from gross Salary to reach taxable Salary.

2. How to calculate income tax for the financial year 2024-25?

Income tax for the fiscal year 2024-25 can be computed by determining gross Salary, deducting eligible prices and exemptions, applying the relevant tax rates, and accounting for any tax credits.

3. How is Salary calculated for income tax?

Salary for income tax functions is calculated by adding up the numerous salary components which include basic Salary, HRA, bonus, and different allowances. Deductions along with provident price range, health insurance, and other investment-related deductions are then subtracted from the gross Salary to calculate the net taxable Salary.

4. Is income tax-free for Rs? 7.5 lakh salary?

In the Budget of 2023, it was declared that a person’s salary as much as Rs 7 lakh in a financial year could be exempt from paying taxes. Additionally, the maximum rebate limit under Section 87A of the Salary-tax Act, 1961 was raised from Rs 12,500 to Rs 25,000 in the same price range declaration.