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Tax Formula

Income Tax Formula

Published on July 05, 2026 • Last updated July 05, 2026

Mathematical Equation

$$\text{Net Taxable Income} = \text{Gross Income} - \text{Deductions}$$ $$\text{Total Tax} = \text{Slab Tax} - \text{Rebate} + \text{Cess\ (4\%)}$$

Variable Definitions

Gross Income

Gross Income

Total income from Salary, House Property, Capital Gains, and Other Sources

Deductions

Deductions

Deductible savings and expenditures (e.g., Sec 80C, 80D, HRA for Old regime, Standard Deduction)

Slab Tax

Slab Tax

Progressive tax computed by applying tax bracket rates to taxable income

Rebate

Rebate

Section 87A rebate for taxable income below specified limits

Cess

Cess

Health and Education Cess of 4% applied to the calculated tax liability

Detailed Explanation

Income tax is computed progressively based on income tax slabs. Taxpayers can choose between the Old Regime (which allows major deductions but has higher tax rates) and the New Regime (which has lower rates but restricts most deductions).

How to Calculate: Step-by-Step

1. Calculate Gross Total Income by summing all income sources. 2. Subtract applicable deductions to find Net Taxable Income. 3. Apply progressive tax slab rates to determine basic tax. 4. Apply Section 87A rebate and marginal relief if eligible. 5. Add 4% Health & Education Cess to find the total tax liability.

Worked Calculation Example

Let's calculate the tax for a salaried individual earning INR 12,00,000 under the New Regime: - Gross Salary = INR 12,00,000 - Standard Deduction = INR 75,000 - Net Taxable Income = INR 11,25,000 - Since Net Income is under INR 12,00,000, Section 87A rebate applies. - Net Tax Liability = INR 0.

Common Use Cases

  • Annual tax planning and deduction optimization
  • Deciding between Old and New Tax Regimes

Frequently Asked Questions

Section 87A rebate provides tax relief to individuals whose taxable income does not exceed a specified threshold, making their effective tax liability zero.

Marginal Relief provides relief when taxable income slightly exceeds the rebate threshold, ensuring that the increase in tax is not higher than the increase in income.

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