Do you want to know how to calculate income tax on salary in sheets? If yes, we will share every detail about the process along with the examples for your better understanding.
Under the Budget 2025 update, Section 87A has increased the rebate limit to ₹12 lakh for FY 2025-26 in New Tax Regime cases. Therefore, salaried individuals up to ₹12,75,000 will have a nil tax liability post standard deduction of ₹75,000 and rebate of ₹12 lakh.
Are you still among those people who think calculating income tax on salary is a really difficult task? If yes, then we would like to advise you that it is a big misconception that calculating the tax is a really difficult process. Honestly saying, if you know everything about the components and formulas of calculating income tax, then it can be the easiest thing to do. Also, having complete information about income tax and other segments can help you save a lot of bucks in taxes. Most of the people who are unaware of the facts related to income tax end up paying more tax than they are supposed to pay.
Lack of information is the main reason behind all this. So, now we will share with you the formulas through which you can calculate income tax on your salary. We will share an example with you and will also tell you how to calculate income tax in sheets.
Calculating Income Tax: Key Components
When figuring out your income tax, there are several essential components to remember. Here is a list of these components:
Income and Assessment Years
- The Financial Year (FY) is the year in which you earn income – from April 1 to March 31. The Assessment Year (AY) is the following year when this income is assessed and taxes are filed.
Salary Breakdown
A salary consists of multiple components, some of which are taxable while others may be partially or fully exempt. Understanding these components helps in calculating taxable income accurately.
- Basic Salary- Completely or fully taxable and it represents the basic piece of salary.
- House Rent Allowance (HRA)- It can be exempted up to a limit for employees who pay rent and satisfy certain conditions.
- Leave Travel Allowance (LTA) – This is exempt for actual travel expenses incurred within India, as per rules.
- Special allowances – Fully taxable and given for various work-related expenses.
- Dearness Allowance (DA) – Fully taxable and applicable mainly to government and PSU officials.
- Performance bonuses & incentives- Fully taxable in the year of receipt.
- Provident Fund (PF) Contribution – Employer’s contribution to EPF is tax-free up to 12% of one’s basic salary; interest on PF beyond the prescribed limit is taxable.
- Gratuity – Exempt under Income Tax rules up to ₹20 lakh for non-government employees.
- Professional Tax – Deduced by the employer and allowed to be deducted from the salary income.
Taxable Income
Taxable income includes all earnings from different sources:
Your gross total income includes income from these 5 sources. Some components may be partially or fully exempt under certain sections.
| Income Source | Description |
| Income from Salary | Salary, allowances, leave encashment, etc. |
| Income from House Property | Earnings from rented or self-occupied property |
| Income from Business/Profession | Profits from business or profession |
| Income from Capital Gains | Profits from the sale of assets |
| Income from Other Sources | Interest, gifts, pension, etc. |
Deductions
Section 80 of the Income Tax Act allows deductions for investments in mutual funds, life insurance, PPF, and more. These reduce your total taxable income.
TDS (Tax Deducted at Source)
TDS is deducted by employers from salaries and is reflected in Form 26AS. It ensures tax compliance by collecting tax at the source of income.
Note: As per Budget 2023-24, the TDS rate on taxable EPF withdrawals (without PAN) has been reduced from 30% to 20%.
Tax Calculation
The applicable tax rates depend on whether you opt for the old or new tax regime. Below are the tax slabs for both, For salaried individuals below 60 years, the tax rates under the old regime are
| Income Slab (₹) | Old Regime Tax Rate |
| Up to 2.5 lakh | Nil |
| 2.5 lakh – 5 lakh | 10% |
| 5 lakh – 10 lakh | 20% |
| Above 10 lakh | 30% |
The applicable tax rates under the new regime are
| Income Slab (₹) | New Regime Rate FY 2025-26 | Income Slab (Rs) | New Tax Regime Rate FY 2024-25 |
| Up to 4 lakh | Nil | Up to 3 lakh | Nil |
| 4 lakh – 8 lakh | 5% | 3 lakh – 7 lakh | 5% |
| 8 lakh – 12 lakh | 10% | 7 lakh – 10 lakh | 10% |
| 12 lakh – 16 lakh | 15% | 10 lakh – 12 lakh | 15% |
| 16 lakh – 20 lakh | 20% | 12 lakh – 15 lakh | 20% |
| 20 lakh – 24 lakh | 25% | Above 15 lakh | 30% |
| Above 24 lakh | 30% | – |
For FY 2025-26, the rebate under Section 87A has been enhanced to ₹12 lakh, but the slabs are not changed.
What Is Income Tax?
According to the Income Tax Act, of 1961, every person earning a salary in India must pay an amount from their salary to the country as tax. This amount of tax is termed income tax. The law consists of many variations and amendments, and many deductions are available under Section 80TTA. We will be sharing every detail related to it in this blog post.
How to Calculate Income Tax on Salary
If Mr. Verma earns a monthly salary of ₹1,97,916 after a standard deduction of ₹75,000 and has an additional income of ₹20,000 from other sources, his total taxable income amounts to ₹23.70 lakh annually. Based on the applicable tax slabs and after including cess, the total income tax payable is determined accordingly. Here’s how the income tax is calculated based on the applicable slabs:
Formula for Total Gross Income Calculation
To calculate the Total Gross Income, sum up all sources of income after applicable deductions.
Formula:
Application:
Here, the Salary Income is considered after a standard deduction of ₹75,000, and any additional earnings (such as interest, rental income, or freelance work) are added under Income from Other Sources.
Income Details:
| Category | Amount | Total |
| Salary income (after standard deduction of ₹75,000) | ₹23.50 lakh | – |
| Income derived from other sources | ₹20,000 | – |
| Total gross income | – | ₹23.70 lakh |
| Total Tax to be paid | – | ₹2,93,500 |
Formula for Total Gross Income Calculation
To calculate the Total Gross Income, sum up all sources of income after applicable deductions.
Formula:
Application:
Here, the Salary Income is considered after a standard deduction of ₹75,000, and any additional earnings (such as interest, rental income, or freelance work) are added under Income from Other Sources.
| Income Slab | Tax Rate | Total |
| Up to ₹4 lakh | Exempted | ₹0 |
| More than ₹4 lakh and up to ₹8 lakh | 5% | ₹20,000 |
| More than ₹8 lakh and up to ₹12 lakh | 10% | ₹40,000 |
| More than ₹12 lakh and up to ₹16 lakh | 15% | ₹60,000 |
| More than ₹16 lakh and up to ₹20 lakh | 20% | ₹80,000 |
| More than ₹20 lakh and up to ₹23.50 lakh | 25% | ₹87,500 |
| More than ₹23.50 lakh | 30% | ₹6,000 |
| Cess | 4% of total tax | ₹11,740 |
| Total tax to be paid | – | ₹3,05,240 |
How to Calculate Income Tax on Salary With an Example in Sheets
Now, we would like to share the method of how to service income tax on salary in sheets. We will be using the same example that we have used above. Firstly, we will show you how to derive taxable income from gross income. Then, we will tell you how to calculate income tax on taxable income. It is a really simple task, and you will easily understand everything.
Step 1: Firstly, open the sheet with details about any person’s income. It will look like the one below.
Step 2: As you want to calculate the tax and taxable income using a salary tax calculator, so you have to make two rows. One for the taxable income and the other for the tax.
Step 3: Select the cell where you want your calculated result to be shown and subtract the exemptions and deductions from the gross income. Write the formula =B2-B3-B4 inside the formula bar, and then you have to press the enter key.
Step 4: Now, you will finally get the taxable income which is 2,19,000.
According to the income tax slabs, 5% tax is applicable on income below 2.5 lakh. As the taxable income which we have got lies between ₹1.5 lakh and ₹2.5 lakh, therefore, 5% tax will apply to this income.
Step 5: Now, you have to calculate the tax on the taxable income that has been derived earlier. Apply the formula =B6*5/100 in cell B7.
Step 6: Then, you have to press the Enter key, and you will get the income tax value in column B7. Here, the tax value we have got is 10,950. So, this is the amount you have to pay as the tax on your income.
How to Calculate the Income Tax With Income Slabs in Sheets?
Now, we will share an example of how to calculate income tax with different income taxes and perform income tax return filings.
Step 1: We have a dataset of a person’s income and income slabs provided by the government.
Step 2: As you want to calculate the tax and taxable income, so you have to make two rows. One for the taxable income and the other for the tax.
Step 3: Select the cell where you want your calculated result to be shown and subtract the exemptions and deductions from the gross income. Write the formula =B2-B3-B4 inside the formula bar, and then press the enter key.
Step 4: Tax income is now finally derived, and it is ₹38,05,000.
This time different tax slabs will be used for calculating the tax. Since the taxable value is between 35 lakh to 50 lakh, we will calculate tax until the 5th slab.
Step 5: Now find out the total tax to be calculated till the fifth slab.
Step 6: We will now calculate tax for each slab using the formula =taxable income*tax_rate/100.
Step 7: See the calculation for the first slab. The rest of the three will be calculated in the same way.
Step 8: Now press the enter key and get the result for 10% tax over 2.5 lakhs.
Step 9: Now follow the same pattern and calculate tax for all other rows by changing the tax rate and tax for pensioners income in the formula.
Step 10: The final step is to add the tax that you derived for different tax slabs and get the absolute tax value that the taxpayer needs to pay. Use this: =B9+B10+B11+B12
Step 11: Now press the Enter key again and get the final tax value. The final tax that needs to be paid is ₹6,26,250.
So, ₹6,26,250 is the final tax amount to be paid by the taxpayer. So, by following the same way, you can find the income tax value for any person’s income.
Deductions Under Section 80
The Income Tax Act, Section 80, provides several deductions for taxpayers to reduce their taxable income through certain investments and expenditures. Below is a summary of key deductions available under different subsections:
| Section | Deduction Type | Details | Deduction Limit |
| Section 80C | Investments & Expenditures | Covers EPF, PPF, NSC, Tax-saving FDs, ELSS, Life Insurance Premiums, Tuition Fees, Home Loan Principal Repayment, and Stamp Duty & Registration Charges. | Up to ₹1.5 lakh per financial year |
| Section 80CCC | Pension Funds | Contributions to specified pension funds. | Included in ₹1.5 lakh limit under 80C |
| Section 80CCD(1) | National Pension System (NPS) – Employee Contribution | Contribution up to 10% of salary for salaried individuals or 20% of gross income for self-employed. | Included in ₹1.5 lakh limit under 80C |
| Section 80CCD(1B) | National Pension System (NPS) – Additional Self Contribution | Additional self-contribution to NPS. | Additional ₹50,000 |
| Section 80CCD(2) | National Pension System (NPS) – Employer Contribution | Employer’s contribution up to 10% of salary. | Outside the ₹1.5 lakh limit |
| Section 80D | Medical Insurance Premiums | Premiums paid for self, spouse, dependent children, and parents. |
₹25,000 for self & family, ₹25,000 for parents (<60 years), ₹50,000 for parents (≥60 years) + ₹5,000 for preventive health check-up |
| Section 80E | Interest on Education Loans | Interest paid on loans for higher education. | No limit (available for 8 years or until full repayment) |
| Section 80G | Donations to Charitable Institutions | Donations to specified charities and funds. | 50%-100% deduction within specified limits |
| Section 80GG | House Rent Paid | Applicable for individuals not receiving HRA. | ₹5,000/month or 25% of total income, whichever is less |
| Section 80TTA | Interest on Savings Account | Interest earned on savings accounts in banks/post offices | Up to ₹10,000 |
| Section 80TTB | Interest on Deposits for Senior Citizens | Interest earned by senior citizens on bank/post office deposits. | Up to ₹50,000 (for individuals aged 60 and above) |
| Section 80U | Physical Disability | Deduction for individuals with disabilities. | ₹75,000 (for disabled), ₹1,25,000 (for severe disability) |
It creates opportunities for them in reducing their taxable income by means of eligible investments and expenditure incurred.
Conclusion
As of now, we have shared all the essential details about the process of calculating income tax. We will be back soon with more such updates. Till then, stay tuned to Vakilsearch.
