Key Takeaways
- Tax is computed on taxable income, not on your salary or gross receipts.
- India uses progressive slabs — only the income inside each slab is taxed at that slab's rate.
- Slab limits, rates, rebates and regime rules are revised in the Union Budget; always check the current year.
- TDS and advance tax are prepayments, reconciled when you file your return.
On this page
Start with the structure, not the numbers
Every year the Union Budget can change slab limits, rates, standard deductions and rebates. What does not change is the sequence of the calculation. If you understand the sequence, you can plug in the current year's figures from the Income Tax Department and follow any calculator's working.
Step 1: Total income under the five heads
Indian tax law groups income into five heads: salary, house property, business or profession, capital gains, and other sources (which includes interest on deposits). Each head has its own rules for what counts and what can be set off. Adding the heads together gives your gross total income.
Step 2: Deductions and exemptions
Depending on the regime you choose, certain amounts are removed before tax is applied — for example specified investments and payments under Chapter VI-A, or a standard deduction against salary. The two regimes differ mainly here: one offers lower rates with fewer deductions, the other higher rates with more. What remains is taxable income.
Step 3: Apply the slabs
India's slabs are progressive. Income up to the first threshold is taxed at the lowest rate (often nil); only the portion above that threshold is taxed at the next rate, and so on. A common misunderstanding is that crossing into a higher slab taxes all your income at the higher rate — it does not. Only the slice inside each slab is taxed at that slab's rate.
Step 4: Rebates, surcharge and cess
A rebate may reduce the tax for taxable income below a specified level. Very high incomes attract a surcharge. Finally, a health and education cess is added as a percentage of the tax. The result is your total tax liability for the year.
Step 5: Reconcile with tax already paid
Tax Deducted at Source (TDS) by your employer or bank and any advance tax you paid are subtracted from the liability. If you paid more, you claim a refund when filing; if less, you pay the balance. See What is TDS? for how the deduction side works.
Where deposits and investments fit
Interest on FDs and RDs is added under 'other sources' and taxed at your slab — read how FD and RD interest is taxed. Some instruments, such as PPF, have specific tax treatment that is part of why people compare them with FDs; our What is PPF? guide explains the concept without quoting current limits.
Why we do not print the slabs here
Because they change. A guide that quotes last year's slab looks authoritative and is quietly wrong. Use the official portal or a current-year calculator for the numbers, and use this page for the logic.
Sources
We reference primary and official sources. Rate- and rule-dependent details must be verified against the latest official information.
Related Calculators
Related Guides
How Is Interest on FDs and RDs Taxed?
Interest earned on fixed deposits and recurring deposits is fully taxable as 'income from other sources' at your slab rate. Banks may deduct TDS above thresholds, but you owe tax on the interest either way. The post-tax return is what to compare against alternatives.
taxHow Are Mutual Fund Gains Taxed?
Profit on redeeming mutual fund units is a capital gain. How it is taxed depends on the fund's classification (equity-oriented or not), how long each unit was held, and the rules in force in the year you redeem. This guide explains the moving parts without quoting rates, because they change.
retirementWhat Is the Public Provident Fund (PPF)?
PPF is a long-term, government-backed savings scheme where you contribute each year and earn annually compounded interest at a rate set by the government. Its rules are statutory and change over time.
taxWhat Is TDS (Tax Deducted at Source)?
Tax Deducted at Source (TDS) is a mechanism where the payer of certain incomes — salary, bank interest, rent, professional fees — deducts tax before paying you and deposits it with the government on your behalf. It is a prepayment, not a separate tax.