Receiving your salary is satisfying — it rewards the time and effort you’ve invested at work. That satisfaction can quickly fade when a significant portion is lost to taxes. Understanding how salary is taxed and which deductions you can claim helps you reduce that burden legally and efficiently.
Income
Your salary comprises various components such as gross salary, provident fund contributions, insurance, leave pay, gratuity, Employee State Insurance and Labour Welfare Fund contributions. For tax purposes, the amounts an employee receives are classified under “Income from Salaries.”
Identify the income tax slab that applies to you and declare your investments promptly to your employer. Timely declaration ensures your employer accounts for eligible investments when computing Tax Deducted at Source (TDS), reducing the chance you’ll need to file for a refund later.
Tax Calculation
Taxes are assessed on an individual’s annual income. The financial year for tax purposes runs from April 1 to March 31 of the following year. The year in which income is earned is called the “Previous Year,” and the year in which that income is assessed is the “Assessment Year.”
Income Tax Slab Rates
Income tax is progressive, with higher rates applying as income increases. All rates mentioned here are subject to Education Cess of 2% and SHEC of 1% on the computed tax. Under Section 87A, a rebate is available for individuals with annual income below ₹5 lakh.
Income Tax Slabs for male individuals below 60 and HUF:
| Income Tax Slabs | Income Tax Rates |
| Total income less than ₹ 2,50,000. | – NIL – |
| Total income greater than ₹ 2,50,000 but less than ₹ 5,00,000. | 5% of the amount exceeding ₹ 2,50,000. |
| Total income greater than ₹ 5,00,000 but less than ₹ 10,00,000. | 20% of the amount exceeding ₹ 5,00,000. |
| Total income greater than ₹ 10,00,000. | 30% of the amount exceeding ₹ 10,00,000. |
Income Tax Slabs for female individuals below 60:
| Income Tax Slabs | Income Tax Rates |
| Total income less than ₹ 2,50,000. | – NIL – |
| Total income greater than ₹ 2,50,000 but less than ₹ 5,00,000. | 5% of the amount exceeding ₹ 2,50,000. |
| Total income greater than ₹ 5,00,000 but less than ₹ 10,00,000. | 20% of the amount exceeding ₹ 5,00,000. |
| Total income greater than ₹ 10,00,000. | 30% of the amount exceeding ₹ 10,00,000. |
Income Tax Slabs for senior citizens (age 60 to below 80):
| Income Tax Slabs | Income Tax Rates |
| Total income less than ₹ 3,00,000. | – NIL – |
| Total income greater than ₹ 3,00,000 but less than ₹ 5,00,000. | 10% of the amount exceeding ₹ 3,00,000. |
| Total income greater than ₹ 5,00,000 but less than ₹ 10,00,000. | 20% of the amount exceeding ₹ 5,00,000. |
| Total income greater than ₹ 10,00,000. | 30% of the amount exceeding ₹ 10,00,000. |
Income Tax Slabs for super senior citizens (age 80 and above):
| Income Tax Slabs | Income Tax Rates |
| Total income less than ₹ 5,00,000. | – NIL – |
| Total income greater than ₹ 5,00,000 but less than ₹ 10,00,000. | 20% of the amount exceeding ₹ 5,00,000. |
| Total income greater than ₹ 10,00,000. | 30% of the amount exceeding ₹ 10,00,000. |
Deductions
Several sections of the Income Tax Act allow you to invest or spend in ways that reduce your taxable income. Common and useful deductions include:
1. Public Provident Fund (PPF): Contributions to PPF qualify for deduction under Section 80C.
2. Life Insurance Premiums: Premiums paid for life insurance for self, spouse and children are eligible under Section 80C; policy maturity proceeds may be tax-exempt subject to policy terms.
3. National Savings Certificate (NSC): Investments in NSC qualify under Section 80C. The scheme is secure; interest is taxable but reinvested interest may also qualify for deduction.
4. Bank Fixed Deposits (FDs): Tax-saving FDs with a five-year lock-in qualify under Section 80C. Interest earned on FDs is taxable.
5. Senior Citizen Savings Scheme (SCSS): Senior citizens can claim deductions under Section 80C for SCSS investments; interest earned is taxable.
6. Post Office Time Deposit (POTD): Five-year post office time deposits are eligible under Section 80C; interest is taxable.
7. Unit-linked Insurance Plans (ULIP): ULIP premiums for self, spouse and children qualify for deductions under Section 80C.
8. Home Loan EMIs: Principal repayment in home loan EMIs is deductible under Section 80C.
9. Mutual Funds & ELSS: Investments in eligible mutual funds and ELSS schemes qualify for Section 80C deductions.
10. Stamp Duty and Registration Charges: Stamp duty and registration fees paid for property transfer qualify under Section 80C.
11. Retirement Savings Plans: Contributions to retirement plans, including the National Pension Scheme and certain insurance retirement plans, are eligible for deductions.
12. Tuition Fees: Tuition fees for up to two children for full-time education in India qualify under Section 80C. This excludes donations and development fees.
13. Medical Insurance Premiums: Health insurance premiums for self, spouse and children qualify under Section 80D. Limits vary by age, with higher limits for senior citizens.
14. Infrastructure Bonds: Investments in eligible infrastructure bonds can offer deductions under Section 80CCF where applicable.
15. Charitable Contributions: Donations to approved charitable organizations can be claimed under Section 80G. Ensure donations are declared within the required timeline.
16. Treatment of Disabled Dependents: Medical and related expenses for disabled dependents may qualify under Section 80DD.
17. Preventive Health Check-ups: Expenses up to ₹5,000 for preventive health check-ups for you or family members may be claimed under Section 80D subject to overall limits.
18. Interest on Education Loan: Interest paid on education loans for higher education of self, spouse, children or a student under your guardianship is deductible under Section 80E.
19. House Rent Paid: Salaried individuals who do not own a residence at the place of employment may be eligible for deduction on house rent under Section 80GG, subject to conditions.
Income Tax E-Filing
Any tax refund due after TDS will be processed only after you file your income tax return for that assessment year. This includes refunds of TDS on rent or interest deducted by banks on fixed deposits. E-filing your ITR, TDS return and other returns simplifies the process and reduces paperwork; filing online is generally faster and more convenient.
Understanding how taxes are calculated and which investments and expenses qualify for deductions helps you plan your finances better and reduce your taxable income legitimately. Use these options to optimize take-home pay while staying compliant with tax laws.