Finance
How Income Tax is Calculated in India — Old vs New Regime (FY 2024-25)
A clear guide to income tax calculation in India. Understand tax slabs, deductions, Section 87A rebate, and how to choose between old and new regime.
Every salaried Indian asks the same question in January: “Which regime is better for me?” The answer depends on your deductions. Let’s break down how income tax is actually calculated.
The progressive slab system
India uses progressive taxation — you don’t pay 30% on your entire income. Each portion of income is taxed at its own rate.
New Regime (FY 2024-25)
| Income slab | Rate |
|---|---|
| Up to ₹3,00,000 | Nil |
| ₹3L – ₹7L | 5% |
| ₹7L – ₹10L | 10% |
| ₹10L – ₹12L | 15% |
| ₹12L – ₹15L | 20% |
| Above ₹15L | 30% |
Standard deduction: ₹75,000. Section 87A rebate if taxable income ≤ ₹7L (zero tax).
Old Regime
| Income slab | Rate |
|---|---|
| Up to ₹2,50,000 | Nil |
| ₹2.5L – ₹5L | 5% |
| ₹5L – ₹10L | 20% |
| Above ₹10L | 30% |
Allows deductions: 80C (₹1.5L), 80D, HRA, NPS (80CCD), home loan interest, etc.
Worked example: ₹12,00,000 gross income
New Regime:
Taxable = ₹12,00,000 − ₹75,000 = ₹11,25,000
Tax: 0 + (4L × 5%) + (3L × 10%) + (1.25L × 15%) = 20,000 + 30,000 + 18,750 = ₹68,750
Cess: ₹68,750 × 4% = ₹2,750
Total: ₹71,500Old Regime (with ₹2.5L deductions):
Taxable = ₹12,00,000 − ₹2,50,000 = ₹9,50,000
Tax: 0 + (2.5L × 5%) + (4.5L × 20%) = 12,500 + 90,000 = ₹1,02,500
Cess: ₹1,02,500 × 4% = ₹4,100
Total: ₹1,06,600In this case, the new regime saves ₹35,100. But if deductions exceeded ~₹3.75L, the old regime would win.
When to choose which
- New regime: If your deductions are less than ~₹3.75L (most salaried people without a home loan)
- Old regime: If you claim HRA + 80C + 80D + home loan interest exceeding ₹3.75L
What is cess?
Health and Education Cess is 4% added on top of your computed tax. Everyone pays it regardless of regime.
Section 87A rebate
Under the new regime, if your taxable income (after ₹75K standard deduction) is ₹7,00,000 or below, you get a full rebate — effectively zero tax.
Calculate your exact liability with the OurDailyCalc income tax calculator — it shows slab breakdown, effective rate, and monthly take-home.
TL;DR
- India uses progressive slabs — each portion taxed at its own rate
- New regime: lower rates, no deductions (except ₹75K standard)
- Old regime: higher rates but allows 80C, HRA, home loan deductions
- Compare both to find which saves more for your specific situation
OurDailyCalc Team
OurDailyCalc — beautiful tools for everyday calculations.