How Tax Slabs Impact Your Salary: Understanding Deductions, Take-Home Pay, and Savings

Taxes are a part of every salaried person's life. When you earn money, a portion of it goes to the government as income tax. How much tax you pay depends on the tax slab your yearly income falls into. Tax slabs are different income ranges, each with a specific tax rate. Understanding these slabs helps you calculate your take-home salary, plan deductions and save money smartly.

Our tax system provides two options: the New Tax Regime and the Old Tax Regime, each offering unique benefits and trade-offs.

Income Tax Slabs for FY 2025-26

Your income tax liability depends on which tax regime you choose. Here are the tax slabs for both the new and old tax regimes.

New Tax Regime

• Up to ₹4,00,000 – No tax
• ₹4,00,001 to ₹8,00,000 – 5%
• ₹8,00,001 to ₹12,00,000 – 10%
• ₹12,00,001 to ₹16,00,000 – 15%
• ₹16,00,001 to ₹20,00,000 – 20%
• ₹20,00,001 to ₹24,00,000 – 25%
• Above ₹24,00,000 – 30%

Old Tax Regime (Based on Age)

For individuals below 60 years

• Up to ₹2,50,000 – No tax
• ₹2,50,001 to ₹5,00,000 – 5%
• ₹5,00,001 to ₹10,00,000 – 20%
• Above ₹10,00,000 – 30%

For senior citizens (60-80 years)

• Up to ₹3,00,000 – No tax
• ₹3,00,001 to ₹5,00,000 – 5%
• ₹5,00,001 to ₹10,00,000 – 20%
• Above ₹10,00,000 – 30%

For super senior citizens (80+ years)

• Up to ₹5,00,000 – No tax
• ₹5,00,001 to ₹10,00,000 – 20%
• Above ₹10,00,000 – 30%

Your choice between these two regimes depends on your salary, deductions and overall tax-saving strategy.

How tax slabs affect your take-home salary

Your take-home salary is the amount you receive after deductions like tax, provident fund (PF), and professional tax. The tax slabs determine how much of your income is taxable and at what rate.

For example:

If you earn ₹1000,000 per year under the New Tax Regime, your tax liability will be:

• 0% on the first ₹4,00,000
• 5% on the next ₹4,00,000 (₹20,000)
• 10% on the next ₹2,00,000 (₹20,000)
• Total Tax = ₹40,000

Under the Old Tax Regime, your tax liability for the same income would be:

• 0% on the first ₹2,50,000
• 5% on the next ₹2,50,000 (₹12,500)
• 20% on the next ₹5,00,000 (₹1,00,000)
• Total Tax = ₹1,12,500

The New Tax Regime benefits those with fewer deductions, while the Old Tax Regime is better for individuals who claim exemptions.

Deductions that lower your taxable income

Certain deductions help reduce taxable income, especially under the Old Tax Regime.

• Standard Deduction: Salaried employees and pensioners get a ₹75,000 deduction.
• Section 80C: Investments in EPF, PPF, NSC, ELSS, life insurance, and principal repayment of home loans (Up to ₹1.5 lakh deduction).
• Section 80D: Health insurance premium (Up to ₹25,000 for self and family; ₹50,000 if covering senior citizens).
• Section 80E: Interest on education loans (No limit on deduction).
• Section 80CCD (1B): NPS contributions (Up to ₹50,000 additional deductions).
• Home Loan Interest: Deduction under Section 24 (Up to ₹2 lakh for self-occupied property).

How TDS (Tax Deducted at Source) works

TDS is the tax deducted by employers before paying your salary. If your estimated annual income is taxable, your employer deducts TDS and deposits it with the government.

You can check your TDS details in Form 16 (issued by your employer) and Form 26AS (available on the Income Tax website) to ensure the correct amount is deducted. If excess tax is deducted, you can claim a refund when filing your Income Tax Return (ITR).

Choosing between the Old and New Tax Regime

The decision to choose between the Old and New Tax Regimes depends on your financial situation.

• If you have significant deductions (such as investments, home loans, and medical insurance), the Old Tax Regime may be more beneficial.
• If you prefer a simplified structure with lower tax rates and fewer exemptions, the New Tax Regime might be a better choice.

For instance, if you earn ₹12 lakh per year and claim deductions under 80C, 80D, and home loan interest, you may pay less tax under the Old Regime. However, if you don’t have any major deductions, the New Regime might help you save more money. 

This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.