Salary & Income Tax FAQ Guide
Complete, verified answers to common questions about Indian payroll formulas, tax slabs, HRA exemptions, EPF deductions, gratuity, and take-home calculations.
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Income Tax Slabs (FY 2026-27)
What are the New Tax Regime income tax slabs for FY 2026-27 (AY 2027-28)?
Under the New Tax Regime (default option), the revised income tax slabs are: Up to ₹4,00,000: Nil (0%); ₹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%; and Above ₹24,00,000: 30%. In addition, salaried employees receive a flat Standard Deduction of ₹75,000 and Section 87A rebate makes net taxable income up to ₹12 Lakh zero tax.
What is the standard deduction for salaried individuals in FY 2026-27?
For salaried employees and pensioners, the Standard Deduction is ₹75,000 under the New Tax Regime and ₹50,000 under the Old Tax Regime. This deduction is applied automatically against gross taxable salary without requiring any investment receipts.
How does the Section 87A tax rebate work in FY 2026-27?
Under the New Tax Regime, Section 87A provides a full rebate of up to ₹60,000 for resident individuals whose taxable income does not exceed ₹12,00,000 (after subtracting the ₹75,000 standard deduction). Therefore, anyone earning up to ₹12.75 LPA CTC pays ₹0 income tax under the New Regime.
HRA Exemption & Rules
How is House Rent Allowance (HRA) tax exemption calculated?
Under Section 10(13A) of the Income Tax Act (available in the Old Regime), HRA exemption is the lowest of three figures: (1) Actual HRA received from your employer, (2) 50% of Basic Salary for metro cities (Delhi, Mumbai, Chennai, Kolkata) or 40% of Basic Salary for non-metro cities, or (3) Total rent paid minus 10% of Basic Salary.
Which cities qualify for the 50% metro HRA exemption?
Only four cities legally qualify for the 50% metro HRA rate: New Delhi, Mumbai, Chennai, and Kolkata. All other major IT and industrial hubs—including Bangalore, Hyderabad, Pune, Gurgaon, and Noida—are legally classified as non-metro and capped at 40% of Basic salary for HRA tax exemption.
Can I claim HRA exemption under the New Tax Regime?
No. The New Tax Regime does not allow any HRA tax exemptions under Section 10(13A). If you pay substantial rent and wish to claim HRA exemptions, you must calculate whether opting for the Old Tax Regime yields lower total income tax.
Employee Provident Fund (EPF)
How is Employee Provident Fund (EPF) calculated on my payslip?
EPF contribution is mandatory at 12% of your Basic Salary (plus Dearness Allowance if applicable). Both employee and employer contribute 12% each month. The employee 12% is deducted from your gross pay, while the employer 12% (split into 3.67% EPF and 8.33% EPS) is included inside your overall CTC.
What is the statutory EPF wage ceiling of ₹1,800 per month?
Under EPFO rules, the statutory wage ceiling for mandatory EPF is ₹15,000 Basic per month. At 12%, this equals ₹1,800/month. While many private employers deduct 12% on the full actual basic, employers have the legal option to cap both employee and employer PF contributions at ₹1,800/month, which increases monthly take-home pay.
Tax Deductions (80C, 80D, NPS)
What tax deductions are allowed under Section 80C?
Section 80C allows a maximum deduction of ₹1,50,000 per financial year under the Old Tax Regime. Eligible instruments include Employee PF contribution, PPF, ELSS mutual funds, NSC, tax-saving 5-year fixed deposits, life insurance premiums (LIC), Sukanya Samriddhi Yojana, and principal repayment on home loans.
How much tax deduction can I claim for Health Insurance under Section 80D?
Under Section 80D (Old Regime), you can claim up to ₹25,000 for health insurance premiums for yourself, spouse, and dependent children (₹50,000 if senior citizen). An additional deduction of up to ₹25,000 (or ₹50,000 if parents are senior citizens) can be claimed for parents, allowing a total maximum deduction of up to ₹1,00,000.
Can I claim extra tax deduction for National Pension System (NPS)?
Yes. Under Section 80CCD(1B), individuals can invest up to ₹50,000 in Tier-1 NPS for an exclusive tax deduction over and above the ₹1.5 Lakh 80C limit (in the Old Regime). Furthermore, employer NPS contributions up to 10% of basic (or 14% for central government) are tax-deductible under Section 80CCD(2) under BOTH Old and New Tax Regimes.
CTC vs Gross vs In-Hand Salary
What is the difference between CTC, Gross Salary, and In-Hand Salary?
CTC (Cost to Company) is the total annual expense an employer incurs for you, including employer PF, gratuity, insurance, and bonuses. Gross Salary is CTC minus employer contributions and gratuity. In-Hand Salary (take-home) is Gross Salary minus employee deductions (Employee PF, Professional Tax, Employee ESI, and monthly TDS income tax).
Why does Special Allowance exist in my salary structure?
Special Allowance is a balancing component used by HR and payroll systems to adjust the remaining amount of your fixed CTC after accounting for Basic Salary, HRA, employer PF, and gratuity. It is fully taxable without any statutory exemptions.
Professional Tax (PT)
What is Professional Tax and which states levy it?
Professional Tax is a state-level direct tax levied on salaried employees and professionals under Article 276(2) of the Indian Constitution, capped at ₹2,500 per year. Maharashtra and Karnataka levy ₹200/month (with ₹300 in February in Maharashtra). Tamil Nadu, West Bengal, and Telangana also levy PT. New Delhi, Haryana, and Rajasthan do NOT levy professional tax.
Is Professional Tax deductible from income tax?
Under the Old Tax Regime, Professional Tax paid during the financial year is fully deductible under Section 16(iii) from your gross salary. Under the New Tax Regime, professional tax is not separately deductible, as the flat standard deduction covers all employment-related allowances.
Gratuity Rules & Calculations
How is gratuity calculated in India?
Under the Payment of Gratuity Act 1972, gratuity for employees covered under the Act is calculated using the formula: Gratuity = (15 × Last Drawn Basic Salary × Number of Completed Years of Service) ÷ 26 (where 26 is the statutory working days per month). On monthly CTC breakdowns, employers typically reserve ~4.81% of basic salary annually towards gratuity liability.
When does an employee become eligible for gratuity?
An employee is eligible to receive gratuity upon resignation, retirement, or termination after completing at least 5 years of continuous service with the same organization. In case of death or permanent disability, the 5-year continuous service rule is waived.
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