How to calculate income tax for 2026-27: four worked examples under both regimes

To calculate income tax for tax year 2026-27, add up income from each head, subtract the deductions your regime allows, apply the slab rates to slab-rate income and the special rates to capital gains, subtract any rebate, add 4% cess, and then deduct TDS and advance tax already paid. The four illustrative examples below follow those steps exactly. They show that a salaried resident on ₹12.75 lakh pays nil under the new regime, that an ₹18 lakh earner with ₹5.25 lakh of claims still pays less under the new regime, that a senior pensioner with ₹12 lakh of pension and interest pays nil under the new regime but about ₹1.3 lakh under the old, and that capital gains tax is payable even when the rebate wipes out slab tax.

All figures are illustrative. They assume residents, no surcharge (income below ₹50 lakh) and the rates in force for tax year 2026-27 under the Income-tax Act, 2025.

The calculation in seven steps

1. Gross total income. Salary (after exempt allowances in the old regime), house property, business, capital gains, other sources.
2. Deductions. New regime: ₹75,000 standard deduction on salary, employer NPS and a few others. Old regime: ₹50,000 standard deduction plus investment, insurance, NPS, interest and other deductions.
3. Split income into slab-rate income and special-rate income.
4. Slab tax on slab-rate income. Special-rate tax on capital gains (20%, or 12.5% above ₹1.25 lakh for listed equity).
5. Rebate (residents): new regime up to ₹60,000 if total income ≤ ₹12 lakh, with marginal relief above that; old regime up to ₹12,500 if total income ≤ ₹5 lakh. The rebate reduces slab tax only.
6. Cess at 4% on tax (plus surcharge above ₹50 lakh).
7. Prepaid taxes. Subtract TDS, TCS and advance tax to get the balance payable or refund.

Example 1: salaried, ₹12.75 lakh, new regime

If the same person had a ₹50,000 bonus (gross ₹13,25,000), total income would be ₹12,50,000. Slab tax would be ₹67,500, but marginal relief caps it at ₹50,000 (the excess over ₹12 lakh). With cess that is ₹52,000. So the bonus costs more in tax than it adds, a well-known quirk just above the limit. An employer NPS contribution of ₹50,000 (allowed in the new regime) would bring total income back to ₹12 lakh and tax to nil.

Example 2: ₹18 lakh salary plus ₹60,000 FD interest

Claims available in the old regime: investments ₹1,50,000 (PF and PPF), health insurance ₹25,000 for self and family plus ₹50,000 for senior parents, own NPS ₹50,000, home loan interest on a self-occupied flat ₹2,00,000, professional tax ₹2,500.

Despite ₹5.25 lakh of claims, the new regime saves ₹57,460. The old regime would need claims of roughly ₹6.6 lakh beyond the standard deduction at this income to break even. The old vs new regime guide has the full table. The bank's 10% TDS on the interest (₹6,000) and the salary TDS are subtracted from the final figure.

Example 3: senior pensioner aged 65

Pension ₹9,00,000, interest from deposits ₹3,00,000, health insurance premium ₹50,000 (senior citizen).

New regime. ₹12,00,000 − ₹75,000 standard deduction = ₹11,25,000. Slab tax ₹20,000 + ₹32,500 = ₹52,500, fully cancelled by the rebate. Tax ₹0.

Old regime. ₹12,00,000 − ₹50,000 standard deduction − ₹50,000 deposit-interest deduction for seniors (old 80TTB) − ₹50,000 health insurance = ₹10,50,000. Senior slabs: nil to ₹3 lakh, 5% to ₹5 lakh = ₹10,000; 20% on ₹5 lakh = ₹1,00,000; 30% on ₹50,000 = ₹15,000. Slab tax ₹1,25,000, with cess ₹1,30,000.

Banks deduct TDS on interest above ₹1 lakh for seniors. Here that is ₹30,000 at 10%, all refundable under the new regime once a return is filed.

Example 4: salary plus capital gains

Salary ₹8,00,000; long-term gains on equity funds ₹2,00,000; short-term gains on shares ₹40,000. New regime.

1. Salary after standard deduction: ₹7,25,000. Total income including gains: ₹9,65,000, within ₹12 lakh.
2. Slab tax on ₹7,25,000 = ₹16,250, cancelled by the rebate.
3. Long-term gains: (₹2,00,000 − ₹1,25,000) × 12.5% = ₹9,375.
4. Short-term gains: ₹40,000 × 20% = ₹8,000.
5. Tax before cess ₹17,375; with cess ₹18,070.

The rebate does not cover special-rate tax. See the capital gains examples for loss set-off and harvesting.

Checking your own figures

• Use the new regime calculator and old regime calculator for slab-rate income.
• Use the capital gains calculator for gains.
• Compare the result with the tax computed in the e-filing portal's return utility. If they differ, look for a missed income line in your Annual Information Statement.

Other guides in this section: take-home salary, deductions under the 2025 Act, HRA, home loan interest, tax-saving investments and the ITR documents checklist.

When to consult a professional

These examples do not cover business income, foreign income, agricultural income (which affects the rate on other income), clubbing of a spouse's or child's income, or incomes above ₹50 lakh where surcharge and marginal relief on surcharge apply.

Frequently asked questions

Why is my employer's TDS different from these figures?

Employers use your declared regime and the proofs you submit. They may not know about interest or capital gains. The return settles the difference.

Do I round off the tax?

Total income is rounded to the nearest ₹10 and tax to the nearest ₹10 in the return utility, so small differences are normal.

Is agricultural income taxed?

It is exempt, but under the old and new regimes it can increase the rate on other income if both exceed set limits. Get advice if you have significant farm income.

Sources

• Income Tax Department: tax rates, sections 19, 156 and 202 of the Income-tax Act, 2025
• Income Tax e-filing portal: return utilities and tax calculator