How to Calculate Income Tax on Salary for 2024–2025?

Calculating income tax on salary is a critical aspect of financial planning for every salaried individual paying taxes. As we approach the fiscal year 2024–2025, understanding income tax calculation becomes essential to optimize tax savings to ensure compliance with the tax laws in India.

This blog outlines a straightforward approach to calculating income tax on salary for the financial year 2024–2025, considering the most recent tax slabs and regulations.

How Tax is Calculated on Salary for 2024–2025?

Here is a step-by-step approach to how to calculate income tax on salary for 2024-2025:

Step 1: Determine Your Gross Salary

Your gross salary includes all your earnings before any deductions, such as basic salary, house rent allowance (HRA), special allowances, and any other income. It is crucial to aggregate all these components to determine your total gross income.

Step 2: Calculate Exempted Allowances and Deductions (Old Regime)

Specific allowances and deductions are exempt from tax under the Old regime of the Income Tax Act.

1. HRA: It is an allowance paid by the employer to employees, to support the cost of living. If you are paying rent for accommodation, a portion of your Salary or fixed amount as HRA is exempt from tax based on specific conditions.
2. Standard Deduction: A standard deduction of ₹50,000 is allowed for salaried employees.
3. Section 80C Deductions: Investments and expenses under Section 80C (like PPF, ELSS, NSC, life insurance premiums, tuition fees, etc.) are deductible up to ₹1,50,000.
4. Health Insurance Premium (Section 80D): Premiums paid for health insurance and medical checkup expenses provide additional deductions.

Step 3: Calculate Net Taxable Income

Subtract the exempted allowances and deductions from your gross salary to arrive at your net taxable income.

Step 4: Apply the Applicable Tax Slabs

For the financial year 2024–2025, India offers two tax regimes – the old regime with higher tax rates but more deductions and exemptions and the new regime with lower tax rates but fewer deductions and exemptions.

Check both income tax calculation examples with the income tax calculator tool to choose the regime that is more beneficial for you and apply the corresponding tax slabs to your net taxable income.

Old Tax Regime Slabs

New Tax Regime Slabs

Step 5: Calculate Tax Payable

Apply the tax rates on your net taxable income according to the chosen tax regime's slabs. Remember to account charges for cess and surcharge if applicable.

Step 6: Account for TDS and Other Taxes Paid

Subtract any Tax Deducted at Source (TDS) and any advance tax you have paid from your total tax liability to get the final tax payable or refundable.

Step 7: File Your Income Tax Return

Use the calculated tax payable to file your income tax return (ITR) before the due date. You can file your ITR online through the Income Tax Department's e-filing portal.

Conclusion

Calculating your income tax on salary for the fiscal year 2024–2025 requires a systematic approach, taking into account your gross income, allowable deductions, and the tax regime that best suits your financial situation.

At PNB MetLife, we offer a free online tax calculator to check how to calculate income tax on salary with examples.With that, it is imperative to stay updated with the latest tax regulations and slabs to ensure accurate computation and compliance.