This comprehensive guide will demystify salary taxation for the financial year 2024-25 (AY 2025-26), providing key insights into income tax slabs, available deductions, exemptions, and common filing mistakes.
Whether you’re a first-time taxpayer or looking to optimize your tax strategy, this guide will equip you with the knowledge needed to make informed decisions.
Key Insights into Salary Taxation
In India, salary income is governed by the Income Tax Act, 1961.
Salary includes various components such as basic pay, allowances, bonuses, and other forms of compensation. However, some components, like employer contributions to retirement funds, are not fully taxable.
The tax rate applicable to an individual depends on their income level. The government establishes annual income tax slabs, each with different rates.
Currently, taxpayers can choose between two tax regimes:
- Old Tax Regime: Offers more tax deductions and exemptions.
- New Tax Regime: Features lower tax rates with fewer deductions.
Also Read: How can we move between old and new tax regime in India?
Income Tax Slabs for Salaried Individuals in India (FY 2024-25)
As of the FY 2024-25 (assessment year 2025-26), India has two tax regimes for individual taxpayers: the old tax regime and the new tax regime.
Here’s a breakdown of the income tax slabs under each regime.
Income tax slab and rates under the Old Tax Regime applicable to an individual below 60 years for the financial year 2024-25 (AY 2025-26):
| Income Range | Tax Rate | Example Calculation |
| Up to ₹2.5 lakh | No tax | If you earn ₹2 lakh, you pay ₹0 tax. |
| ₹2,50,001 to ₹5,00,000 | 5% | If you earn ₹4 lakh:Tax on ₹2.5 lakh = ₹0Tax on ₹1.5 lakh (₹2,50,001 to ₹4,00,000) = 5% of ₹1.5 lakh = ₹7,500 |
| ₹5,00,001 to ₹10,00,000 | 20% | If you earn ₹7 lakh:Tax on ₹2.5 lakh = ₹0Tax on ₹2.5 lakh (₹2,50,001 to ₹5,00,000) = 5% of ₹2.5 lakh = ₹12,500Tax on ₹2 lakh (₹5,00,001 to ₹7,00,000) = 20% of ₹2 lakh = ₹40,000Total tax = ₹12,500 + ₹40,000 = ₹52,500 |
| Above ₹10,00,000 | 30% | If you earn ₹12 lakh:Tax on ₹2.5 lakh = ₹0Tax on ₹2.5 lakh (₹2,50,001 to ₹5,00,000) = 5% of ₹2.5 lakh = ₹12,500Tax on ₹5 lakh (₹5,00,001 to ₹10,00,000) = 20% of ₹5 lakh = ₹1,00,000Tax on ₹2 lakh (₹10,00,001 to ₹12,00,000) = 30% of ₹2 lakh = ₹60,000Total tax = ₹12,500 + ₹1,00,000 + ₹60,000 = ₹1,72,500 |
Income tax slab and rates under the New Tax Regime
Here are the income tax slabs and rates under the new tax regime applicable to individuals irrespective of their age for FY 2024-25 (AY 2025-26:
| Income Range | Tax Rate | Example Tax Calculation |
| Up to ₹3,00,000 | Nil | No tax applicable. |
| Between ₹3,00,001 and ₹7,00,000 | 5% on the amount exceeding ₹3,00,000 | For ₹5,00,000 income: Tax = 5% of (₹5,00,000 – ₹3,00,000) = ₹10,000 |
| Between ₹7,00,001 and ₹10,00,000 | 10% on the amount exceeding ₹7,00,000, plus previous tax | For ₹8,00,000 income: Tax = ₹10,000 (from previous slab) + 10% of (₹8,00,000 – ₹7,00,000) = ₹21,000 |
| Between ₹10,00,001 and ₹12,00,000 | 15% on the amount exceeding ₹10,00,000, plus previous tax | For ₹11,00,000 income: Tax = ₹21,000 + 15% of (₹11,00,000 – ₹10,00,000) = ₹22,500 |
| Between ₹12,00,001 and ₹15,00,000 | 20% on the amount exceeding ₹12,00,000, plus previous tax | For ₹13,00,000 income: Tax = ₹22,500 + 20% of (₹13,00,000 – ₹12,00,000) = ₹24,500 |
| Above ₹15,00,000 | 30% on the amount exceeding ₹15,00,000, plus previous tax | For ₹16,00,000 income: Tax = ₹24,500 + 30% of (₹16,00,000 – ₹15,00,000) = ₹27,500 |
Rebate Under Section 87A: A Guide to Tax Relief for Eligible Taxpayers
For taxpayers opting for the old tax regime to pay their taxes, with a taxable income up to ₹5 lakh, a rebate of up to ₹12,500 is available, effectively making their tax liability nil.
Under the new tax regime, tax rebate under section 87A is available up to ₹25000, with a taxable income of up to ₹7 lakh.
Surcharge: Additional Tax on High-Income Earners
A surcharge is an extra fee that applies if your net taxable income exceeds a specific threshold. This surcharge is calculated on the income tax due, before considering any additional taxes, such as cess.
Specifically, a surcharge is applicable if your taxable income surpasses ₹50 lakh.
Surcharge Rates Under New Tax Regime (Effective April 1, 2023):
| Income Range | Surcharge Rate |
| Up to ₹50 lakh | Nil |
| More than ₹50 lakh to ₹1 crore | 10% |
| More than ₹1 crore to ₹2 crore | 15% |
| More than ₹2 crore | 25% |
If you opt for the old tax regime for the 2024-25 financial year, the surcharge rates will remain unchanged from previous years.
Surcharge Rates Under Old Tax Regime:
| Income Range | Surcharge Rate |
| Up to ₹50 lakh | Nil |
| More than ₹50 lakh to ₹1 crore | 10% |
| More than ₹1 crore to ₹2 crore | 15% |
| More than ₹2 crore to ₹5 crore | 25% |
| More than ₹5 crore | 37% |
Note: For income derived from capital gains (such as equity shares and dividends), the surcharge is capped at 15%, regardless of total income.
It is also important to understand “marginal relief.” This applies when the surcharge owed exceeds the increase in income over the limit.
Health and Education Cess: An Overview of Additional Tax Contributions
For the financial year 2024-25 (AY 2025-26), individuals in India are subject to a Health and Education Cess of 4% on their total income tax liability (including any surcharge).
Health and Education Cess applies to all individual taxpayers under both the old and new tax regimes. The cess is calculated on the total tax (including any surcharge) before arriving at the final tax payable amount.
For instance, if an individual’s total tax liability (including any surcharge) is ₹1,00,000, the cess would be calculated as follows:
Cess = 4% × Total Tax = 0.04 × 1,00,000 = ₹4,000
If a surcharge is applicable, the cess should be calculated after the surcharge is added.
Taxpayers can choose between these regimes based on their financial situation, considering the benefits of deductions and exemptions in the old regime versus the lower rates in the new regime.
Deductions Available for Salaried Individuals: Maximizing Tax Benefits
Salaried individuals in India can avail themselves of several deductions to reduce their taxable income, if opted for the old regime to pay taxes.
Standard deduction on salary income
In the 2018 budget, the government brought back the Standard Deduction, which replaced the conveyance and medical allowances. For the financial year 2023-24 (AY 2024-25), employees can deduct a flat amount of ₹50,000 from their total income, helping them pay less tax.
In the recent Union Budget for 2023-24, the same ₹50,000 deduction was introduced for the new tax system, where it was previously only available in the old system. Additionally, in the 2024 budget, this amount increased to ₹75,000 for the new tax regime, allowing taxpayers to reduce their taxable income even more.
This means, for the old tax regime, standard deduction remains the same i.e. ₹50,000.
Other popular tax deductions allowed to salaried individual
Here are some of the other most popular deductions:
- Section 80C: Contributions to Public Provident Fund (PPF), Employees’ Provident Fund (EPF), National Savings Certificate (NSC), Equity Linked Savings Scheme (ELSS), Life Insurance Premiums, and more. Maximum Deduction limit is 1.5 lakh rupees.
- Section 80D: Up to ₹25,000 for health insurance premiums paid for self, spouse, and children; up to ₹50,000 for parents (additional ₹25,000 if parents are senior citizens).
- Section 80E: Interest paid on education loans for higher studies is eligible for deduction. No upper limit, but only for a maximum of 8 years.
- Section 24(b): Up to ₹2 lakh on interest paid on home loans for a self-occupied property.
- Section 80TTA: Deduction of up to ₹10,000 on interest earned from savings accounts.
- Section 80GG: If HRA is not received, salaried individuals can claim a deduction for rent paid, subject to certain conditions.
- Section 80G: Contributions to approved charities and funds can provide deductions varying from 50% to 100% of the donation amount.
- Section 80U: Deduction of ₹75,000 for individuals with disabilities, which increases to ₹1.25 lakh for severe disabilities.
Exemptions Available for Salaried Individuals
In India, several exemptions can be claimed on salary income, helping to reduce the overall taxable amount.
Here are some key exemptions available to salaried individuals:
- House Rent Allowance (HRA): For employees living in rented accommodation.The exemption amount is the least of Actual HRA received, Rent paid minus 10% of salary, 50% of salary (for metro cities) or 40% (for non-metro cities).
- Leave Travel Allowance (LTA): For travel expenses incurred while on leave. Exemption is available for travel within India and only for the employee and their family. It can be claimed for two trips in a block of four years.
- Gratuity: Applicable to employees who have completed five years of service.For government employees: Entire gratuity amount is exempt.For non-government employees: Exempt up to the least of ₹20 lakh (as per the latest limit), the actual gratuity received, or 15 days’ salary for every completed year of service.
- Contributions to Provident Fund (PF): The employer’s contribution (up to 12% of basic salary) to the Employees’ Provident Fund (EPF) is tax-exempt. Taxable if it exceeds 7.5 lakh rupees in a financial year.
- Bonus: Bonuses received are fully taxable, but certain exemptions may apply for those below specific income thresholds.
- Meal Coupons: If provided by the employer, meal vouchers/coupons are tax-exempt up to a limit of ₹50 per meal.
- Children’s Education Allowance: Up to ₹100 per month per child for a maximum of two children.
Under the new tax regime, taxpayers can benefit from lower tax rates but must forego most deductions and exemptions that were available in the old regime.
Individuals must weigh the benefits of the lower tax rates against the potential tax savings from deductions in the old regime to choose the one that best suits their financial situation.
Professional Tax
Professional Tax is a tax on jobs that state governments charge, similar to how the central government charges income tax.
The highest amount a state can charge for professional tax is ₹2,500. Usually, your employer takes this tax out of your salary and sends it to the state government.
You can also deduct professional tax when filing your income tax return.
Filing Income Tax Returns and Compliance
Filing income tax returns (ITR) in India is a crucial process for salaried individuals.
First find out which income tax return form is applicable to you. For individuals with income from salary, one house property, and other sources (like interest), ITR-1 might be applicable.
ITR-2 applicable for individuals with income from salary and more than one house property or capital gains.
For individuals with income from business/profession and salary income, ITR-3 is applicable.
For those opting for the presumptive taxation scheme for business or professional income in addition to salary, taxpayers can opt for ITR-4.
After selecting the income tax return form applicable to you, collect all relevant documents such as Form 16 from your employer (contains salary details and TDS deductions), Bank statements for interest income, Details of other income (if any)., Investment proofs for claiming deductions (e.g., Section 80C), and Aadhar number and PAN card.
The financial year in India runs from April 1 to March 31.
Typically, the due date for filing ITR for salaried individuals is July 31 of the assessment year (the year following the financial year). For example, for FY 2023-24, the due date is July 31, 2024.
Similarly, for the financial year 2024-25, the due date of filing income tax return is July 31, 2025.
If you missed the due date of 31st July, then you can file a belated return on or before 31st December of the following financial year.
The government may extend the due date, so always check official announcements.
Filing income tax returns is a critical responsibility that can also yield benefits, such as a smoother loan process and the ability to claim tax refunds. Ensure to stay updated on tax regulations and income tax return filing deadlines each year!
Common Mistakes Salaried Individuals Should Avoid: Tips for Accurate Tax Filing
When filing income tax returns, salaried individuals often make certain common mistakes that can lead to issues or missed benefits.
Here are some key mistakes to avoid:
- Choosing the wrong ITR form based on income sources.Ensure you select the appropriate form.
- Not reporting all income sources, such as interest from savings accounts or freelance work. Include all income to avoid penalties for underreporting.
- Failing to claim eligible deductions (like Section 80C) or exemptions (like HRA). Review all possible deductions and exemptions you qualify for to maximize tax savings.
- Providing incorrect details like PAN, name spelling, or bank account numbers. Double-check all personal information to ensure accuracy.
- Not adhering to deadlines for filing returns or verifying ITR. Keep track of important deadlines and set reminders.
- Failing to maintain necessary documents like Form 16, investment proofs, and bank statements.Organize all relevant documents before starting the filing process.
- Not verifying the ITR within the stipulated time after filing. Use available methods (Aadhaar OTP, net banking) to verify promptly.
- Miscalculating taxable income or tax liability.
- Overlooking information from previous returns that may affect current filings.Review past returns for consistency in income and deductions.
- Not claiming refunds for excess TDS deducted.Check Form 16 and calculate if you are eligible for a refund, and file accordingly.
Avoiding these common mistakes can lead to a smoother filing process and potentially reduce your tax liability. If needed, consider consulting a tax professional for personalized advice!
Frequently Asked Questions (FAQs)
Take Home Salary vs. CTC: What is the difference?
Your job might come with extra benefits like food coupons or a cab service in addition to your salary. The total cost to the company includes all these benefits plus your salary.
Here’s an example of what your total salary package (CTC) might look like in your offer letter:
CTC Breakdown
| Components | Amount |
| Basic salary | ₹3,50,000 |
| Special allowance | ₹1,20,000 |
| HRA | ₹90,000 |
| Medical insurance | ₹6,000 |
| PF (12% of basic) | ₹42,000 |
| Performance bonus | ₹80,000 |
| Total CTC | ₹6,88,000 |
Payslip Breakdown
| Taxable Salary Components | Amount |
| Basic salary | ₹3,50,000 |
| Special allowance | ₹1,20,000 |
| HRA | ₹90,000 |
| Bonus received | ₹80,000 |
| Total salary | ₹6,40,000 |
| Less: 12% EPF | ₹42,000 |
| Less: Tax payable* | ₹17,000 |
| Take home salary | ₹5,81,000 |
Your CTC Includes:
a. Monthly salary.
b. Retirement benefits like PF and gratuity.
c. Non-cash benefits such as office cab service, medical insurance paid by the company, free meals at work, a phone provided by the company, and bill reimbursements.
Your Take-Home Salary Includes:
a. Your gross salary each month.
b. Minus: Provident fund deduction and medical insurance.
c. Minus: Income tax you need to pay (after accounting for deductions under Section 80).
How Does TDS on Salary Work?
TDS stands for Tax Deducted at Source. This means your employer takes out a part of your salary each month and sends it to the income tax department for you. They decide how much TDS to take out based on your total salary for the year and any investments you have that can save you tax.
For people who have a job, TDS is a big part of how they pay their income tax. Your employer will give you a TDS certificate called Form 16, usually around June or July, which shows how much tax was taken out of your salary each month.
Also, if you earn interest from a fixed deposit at the bank, they might deduct tax at the source. Normally, they deduct TDS at 10% on your fixed deposit interest. However, if the bank doesn’t have your PAN (Permanent Account Number), they may deduct TDS at a higher rate of 20%.
What is Form 16?
Form 16 is a certificate that shows the Tax Deducted at Source (TDS) from your salary. The income tax department requires all employers to take out TDS from their employees’ salaries and send it to the government. This certificate gives you important information about your earnings and the TDS that was deducted.
Form 16 has two parts:
- Part A: This part includes details about you (the employee) and your employer, like names, addresses, PAN (Permanent Account Number), TAN (Tax Deduction and Collection Account Number), and the amount of TDS deducted.
- Part B: This part includes information about your total salary, any other income you may have, deductions you are allowed, and the total tax you need to pay.
What is Form 26AS?
Form 26AS is a summary of the taxes that have been deducted from your income and the taxes you have paid. It is provided by the Income Tax Department.
This form shows:
- The amount of tax that has been deducted from your income by others (like your employer or banks).
- Details of any tax you have paid directly.
- Information about any tax refunds you have received during the financial year.
You can access Form 26AS from the Income Tax Department’s website.
What is AIS?
AIS stands for Annual Information Statement. It is a summary of all your financial transactions reported to the income tax department. It includes information like:
- Income from your salary
- Interest earned from savings accounts, fixed deposits, or recurring deposits
- Money made from selling mutual funds or stocks
- Sale of property as reported by the sub-registrar
- Purchases of fixed deposits, mutual funds, stocks, or property
- Money received from abroad
- Cash deposits over ₹10 lakhs in a year
- Credit card payments over ₹10 lakhs in a year
- Details of taxes you paid, like self-assessment tax and advance tax
- Information about any tax refunds you received
It is very important to check the details in both Form 26AS and AIS before you file your income tax return. If there are any differences between these forms and your tax return, you may receive a notice from the tax department.
Does Salary Cover All Types of Pension?
Yes, salary includes pension. A pension is money paid to you by your employer or former employer. If your employer has a pension policy as part of your job contract, that pension is taxed as salary.
However, if your pension comes from a policy with a life insurance company, it is not taxed as salary. Instead, it is taxed under a different category called “Other sources.”
What Are Allowances, and Are They All Taxable?
Allowances are parts of your salary given for specific purposes. For example, House Rent Allowance (HRA) is provided to help employees pay for their housing.
Most allowances are taxable, which means you have to pay tax on them, unless they are specifically exempt. For instance, HRA and Leave Travel Allowance (LTA) are examples of allowances that can be exempt from tax under certain rules.
What Are Perquisites, and How Are They Taxed?
Perquisites are benefits that employees receive because of their job. These are extra benefits on top of their salary. For example, things like free housing or company cars are considered perquisites.
These perquisites can be either taxable (meaning you have to pay tax on them) or non-taxable (meaning you don’t pay tax on them) depending on what they are. The rules for how to value and tax perquisites are outlined in Rule 3 of the Income Tax Rules, 1962.
If your employer hasn’t taken any taxes from your salary, it could be because your income is below the taxable limit or for other reasons.
Are Salary Arrears Taxable?
Yes, arrears of salary are indeed taxable, meaning that any arrears of salary you receive will be added to your total income for the year and taxed accordingly.
However, you can seek relief under Section 89 of the Income Tax Act. This provision allows taxpayers to claim relief for additional tax burden arising from receiving salary in arrears.
To utilize this benefit, you must calculate the tax on your total income without the arrears and compare it to the tax calculated with the arrears included.
The difference can help you determine the relief amount you can claim. It’s important to properly document the arrears and the calculation to ensure accurate filing and maximize your tax benefits.
Can I Use Losses from My Rental Property and Business to Reduce My Salary Income
Yes, you can use losses from your rental property to offset your salary income, which can help reduce your overall tax liability.
This means that if you incurred a loss on your rental property, you can deduct that amount from your total salary income when calculating your taxable income.
However, it’s important to note that business losses cannot be used to reduce salary income; they can only be set off against income from the same business or other heads of income as permitted by tax regulations.
Can I Claim a Basic Tax Exemption of Rs 2.5 Lakh for Each Job If I Worked for Two Employers in the Same Year?
No, the Rs 2.5 lakh exemption applies to your total income for the entire year, not separately for each job.
This means you must combine the income you earned from both employers and then determine if your total income exceeds the basic exemption limit.
You can then claim the exemption from this combined total. It’s essential to assess your overall earnings to accurately apply the exemption and ensure you are meeting your tax obligations.
I worked for two employers in the same year, and since my income was below the exemption limit, they didn’t deduct any tax. Do I need to pay taxes myself?
Yes, even if your employers didn’t deduct tax from your salary because your income was below the exemption limit, you may still have a tax liability if your total taxable income exceeds the exemption threshold after applying all deductions.
In such cases, you are responsible for paying this tax yourself through what is known as Self Assessment Tax. It’s important to calculate your total income, consider any eligible deductions, and determine if you owe any taxes to ensure compliance with tax regulations.
Can I claim HRA benefits if I rent a place from my wife?
It’s not a good idea to do this for tax benefits. The purpose of the HRA exemption is to help employees who need to live near their work or in a different city for their job. If you pay rent to your wife and then claim HRA, it might not be seen as legal because husbands and wives usually don’t have a business relationship. If the tax department looks into it, they may see it as trying to avoid taxes.
Which ITR form should a salaried person use to file their taxes?
If you’re a salaried person and your total income is up to Rs. 50 lakhs and you have only one house property, you can use ITR 1 to file your taxes.
