1. New Tax Regime Derivation (`Section 115BAC`): Taxable Income = ₹12,00,000 - ₹75,000 = ₹11,25,000. Slab computation: 0% up to ₹3L, 5% on ₹3L-₹6L, 10% on ₹6L-₹9L, 15% on ₹9L-₹12L, 20% on ₹12L-₹15L, and 30% above ₹15L. Base Tax = ₹52,500. Since Taxable Income ≤ ₹7,00,000, 100% Section 87A rebate applies (`-₹$52500`). Add 4% Health & Education Cess (`₹$0`) → Total Tax = ₹0.
2. Old Tax Regime Derivation: Taxable Income = ₹12,00,000 - ₹2,50,000 (Standard Deduction + 80C + Other) = ₹9,50,000. Slab computation: 0% up to ₹2.5L, 5% on ₹2.5L-₹5L, 20% on ₹5L-₹10L, and 30% above ₹10L. Base Tax = ₹1,02,500. Add 4% Health & Education Cess (`₹$4,100`) → Total Tax = ₹1,06,600.
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About the Income Tax Calculator
Indian income tax operates on a progressive slab structure in which successive portions of taxable income are taxed at increasing rates, and since the introduction of the alternative regime under Section 115BAC, most individuals must additionally choose between two parallel systems. The old regime offers lower thresholds but permits a wide range of exemptions and deductions — house rent allowance, specified investments, insurance premiums, home loan interest and more. The new regime offers broader slabs and lower rates but strips away most of those deductions. Neither is universally better: the correct choice depends entirely on how much an individual can actually claim, which is why comparing the two side by side matters more than any general rule of thumb. On top of the computed tax, a health and education cess is applied, and a rebate under Section 87A can eliminate liability entirely for incomes below a threshold. Slab boundaries and rebate limits are set annually in the Union Budget, so any calculation should be checked against the Finance Act for the relevant assessment year.
Mathematical Formula & Logic
Progressive slab taxation with regime comparison.
1. Taxable income:
Taxable Income = Gross Total Income − Exemptions − Deductions
The deductions available differ by regime, which is the entire basis
of the comparison.
2. Slab tax — applied marginally, not to the whole income:
Tax = Σ (income falling within each slab × that slab's rate)
Each rate applies only to the portion of income inside that band. Moving
into a higher slab never reduces take-home pay, because only the excess
above the threshold is taxed at the higher rate.
3. Rebate under Section 87A:
If taxable income does not exceed the prescribed limit, a rebate reduces
the computed tax, frequently to nil. The limit differs between regimes.
4. Health and education cess:
Cess = (Tax after rebate + Surcharge) × 4%
Total Tax Payable = Tax after rebate + Surcharge + Cess
5. Surcharge:
An additional percentage applies to high incomes above notified
thresholds, with marginal relief to prevent the surcharge exceeding
the income that triggered it.
6. Effective versus marginal rate:
Marginal Rate = rate applied to the next rupee earned
Effective Rate = Total Tax ÷ Gross Income
The effective rate is always lower than the marginal rate under a
progressive system.
Step-by-Step Example
Illustrate how marginal slab taxation and the cess combine. The slab boundaries below are illustrative — always confirm the current year's rates.
Suppose taxable income is 1,200,000 and the applicable slabs are nil up to 300,000, then 5 percent, 10 percent, 15 percent and 20 percent on successive bands of 300,000:
1. First 300,000 at nil = 0
2. Next 300,000 (300,001 to 600,000) at 5% = 15,000
3. Next 300,000 (600,001 to 900,000) at 10% = 30,000
4. Next 300,000 (900,001 to 1,200,000) at 15% = 45,000
5. Tax before cess = 0 + 15,000 + 30,000 + 45,000 = 90,000
6. Health and education cess at 4% = 90,000 × 0.04 = 3,600
7. Total tax payable = 90,000 + 3,600 = 93,600
Reading the result:
8. The marginal rate is 15 percent, since the next rupee earned falls in that band.
9. The effective rate is 93,600 ÷ 1,200,000 = 7.8 percent, far below the marginal rate.
10. Crossing into the 15 percent band did not tax the whole income at 15 percent — only the 300,000 above 900,000 was taxed at that rate. This is the most widely misunderstood aspect of slab taxation, and it is why a raise can never reduce net pay.
Regime comparison logic:
11. Compute the same income under the old regime after subtracting every exemption and deduction actually claimable, then compare total tax payable under each. The regime producing the lower figure is the one to elect.
Reference Data & Values
concept
meaning
example at_12L
Marginal rate
Rate on the next rupee earned
15%
Effective rate
Total tax ÷ gross income
7.8%
Cess
Health & education levy on tax
4% of 90,000 = 3,600
Section 87A rebate
Reduces tax to nil below a limit
Not applicable at this income
Surcharge
Extra levy on high incomes
Not applicable at this income
Old regime
Lower slabs, deductions allowed
Better with high HRA / 80C claims
New regime
Wider slabs, most deductions removed
Better with few deductions
Frequently Asked Questions
No, and this is the most persistent misconception about income tax. The system is marginal, meaning each slab rate applies only to the portion of income that falls within that band. If the 15 percent band begins at 900,000 and you earn 1,200,000, only the 300,000 above the threshold is taxed at 15 percent while the lower portions remain taxed at their own lower rates. Earning an additional rupee can never reduce your net income, so a raise or a bonus is always worth taking.
It depends entirely on how much you can actually claim in deductions, so the only reliable method is to compute your liability both ways and compare. The old regime tends to win for taxpayers with substantial house rent allowance claims, a home loan, and full use of the specified investment deductions, because those subtractions outweigh the higher slab rates. The new regime tends to win for those who rent nothing, invest little in eligible instruments, and would therefore forfeit deductions they were never going to claim. Recompute whenever your circumstances change materially.
It is a rebate that reduces computed tax, often to nil, for resident individuals whose taxable income does not exceed a prescribed limit. It differs from a deduction in that it reduces the tax itself rather than the income on which tax is calculated, and it is applied after the slab computation but before the cess. The threshold differs between the two regimes and has been revised repeatedly in successive budgets, so the current limit should be verified against the applicable Finance Act rather than assumed.
It is an additional levy of 4 percent charged on the income tax computed after any rebate, plus surcharge where applicable, and it funds government health and education initiatives. Because it is calculated on the tax rather than on income, it effectively raises every slab rate by a small proportion — a 30 percent slab becomes 31.2 percent once cess is included. It applies to all taxpayers with a liability, and is not eliminated by the Section 87A rebate, since a rebate reducing tax to nil leaves nothing for the cess to apply to.
An exemption removes a component of income from taxation entirely before it enters the computation, such as the exempt portion of house rent allowance. A deduction is subtracted from gross total income to arrive at taxable income, such as eligible investments and insurance premiums. A rebate is subtracted from the computed tax itself rather than from income, as under Section 87A. The distinction matters because a deduction saves tax at your marginal rate while a rebate saves the full amount rupee for rupee.
Slab boundaries, rebate limits and surcharge thresholds are set annually in the Union Budget and have changed frequently in recent years, particularly for the regime under Section 115BAC. Treat the output as a planning estimate that illustrates the structure and the regime comparison rather than as a filing-grade computation. Before filing, confirm the applicable figures for your assessment year against the Income Tax Department's official material or the relevant Finance Act, and consult a qualified tax professional for anything involving capital gains, business income, or foreign assets.