How Taxes Work in India
India has two parallel income tax regimes: the Old Tax Regime with numerous deductions and exemptions, and the New Tax Regime (default from FY 2023-24) with lower rates but fewer deductions. Taxpayers can choose the regime that results in lower tax liability.
Under the New Tax Regime, rates range from 0% to 30% with a standard deduction of ₹75,000. The Old Tax Regime offers higher rates but allows deductions under Section 80C (up to ₹1.5 lakh), Section 80D (health insurance), HRA exemption, and many others that can significantly reduce taxable income.
India also levies a 4% Health and Education Cess on the total tax amount. High earners face a surcharge: 10% on income above ₹50 lakh, 15% above ₹1 crore, 25% above ₹2 crore, and the maximum marginal rate can reach approximately 39%.
New Tax Regime (Default)
The New Tax Regime for FY 2024-25 has these slabs: No tax up to ₹3,00,000. 5% from ₹3,00,001 to ₹7,00,000. 10% from ₹7,00,001 to ₹10,00,000. 15% from ₹10,00,001 to ₹12,00,000. 20% from ₹12,00,001 to ₹15,00,000. 30% above ₹15,00,000. A standard deduction of ₹75,000 is available. A rebate under Section 87A makes income up to ₹7,00,000 effectively tax-free.
Old Tax Regime & Deductions
The Old Tax Regime has three slabs: No tax up to ₹2,50,000, 5% from ₹2,50,001 to ₹5,00,000, 20% from ₹5,00,001 to ₹10,00,000, and 30% above ₹10,00,000. Its advantage is the ability to claim deductions: Section 80C (₹1.5 lakh for PPF, ELSS, life insurance), Section 80D (₹25,000-₹50,000 for health insurance), HRA exemption, LTA, and home loan interest under Section 24.
Provident Fund & Professional Tax
Employee Provident Fund (EPF) contributions are mandatory for most salaried employees at 12% of basic salary (matched by the employer). EPF contributions qualify for Section 80C deduction under the Old Regime. Professional Tax is a state-level tax capped at ₹2,500 per year, deducted monthly from salary. Both reduce your in-hand salary but provide retirement savings and tax benefits.
Surcharge & Cess
A 4% Health and Education Cess is levied on the total tax amount (including surcharge). Surcharge rates are: 10% for income ₹50L-₹1Cr, 15% for ₹1Cr-₹2Cr, 25% for ₹2Cr-₹5Cr (Old Regime) or 15% cap in New Regime. The maximum effective tax rate is approximately 39% under the Old Regime and about 35.88% under the New Regime.
Frequently Asked Questions
Which is better — Old or New Tax Regime in India?
The New Tax Regime is better if you don't have significant deductions (less than ₹3-4 lakh in total deductions). The Old Tax Regime is better if you can claim substantial deductions under 80C (₹1.5L), 80D (₹25-50K), HRA, home loan interest, and others. As a general rule, if your total deductions exceed ₹3.75 lakh, the Old Regime likely saves more tax. Use our calculator to compare both regimes with your specific income.
How much tax do I pay on ₹15 lakh salary in India?
On ₹15 lakh gross salary under the New Tax Regime (after ₹75,000 standard deduction), your tax is approximately ₹1,45,600 plus 4% cess = ₹1,51,424. Under the Old Tax Regime with ₹2.5 lakh in deductions (80C + 80D), your tax would be approximately ₹1,56,000 plus cess. The New Regime is slightly better for this salary unless you have additional deductions like HRA or home loan interest.
What is the take-home pay on ₹10 lakh in India?
On ₹10 lakh CTC, assuming basic salary of ₹5 lakh, under the New Tax Regime your income tax is approximately ₹54,600 (after rebate considerations) plus cess. EPF contribution is ₹60,000 (12% of basic). Professional tax is ₹2,400. After all deductions, your approximate in-hand salary is ₹7.5-₹8.0 lakh per year (₹62,000-₹67,000 monthly).
Is income up to ₹7 lakh really tax-free in India?
Under the New Tax Regime, if your total income after standard deduction is up to ₹7,00,000, you get a full rebate under Section 87A, making your tax liability zero. However, if your income is even ₹1 above ₹7,00,000, you lose the entire rebate and must pay tax on the full amount. This creates a steep cliff effect, so careful tax planning around this threshold is important.
What deductions are available under Section 80C?
Section 80C allows deductions up to ₹1,50,000 for investments in PPF, ELSS mutual funds, 5-year fixed deposits, life insurance premiums, NSC, SSY, tuition fees for children, and EPF contributions. This deduction is only available under the Old Tax Regime. Many salaried employees use a combination of EPF (automatic) and ELSS (voluntary) to maximize the full ₹1.5 lakh limit.