Income Tax Basics in India — Simple Guide for Individuals (2025)

Updated: 2025. This page explains income tax slabs, how taxable income is computed, common deductions you can claim, when and how to file returns, and practical tips to reduce tax legally.

Understanding income tax is essential whether you are a salaried employee, a freelancer, a professional, or a small business owner. Taxes might look complex at first, but once you know the key pieces — how income is computed, which deductions apply, and the filing process — you can confidently manage and optimize your tax position.

1. How income tax is calculated: the simple flow

At a high level, income tax computation follows these steps:

• Step 1: Sum up all sources of income — salary, business/professional income, interest, capital gains, rental income, and other income.
• Step 2: Subtract exempt incomes (if any) and apply exemptions like House Rent Allowance (HRA) where applicable.
• Step 3: Claim allowable deductions under sections like 80C, 80D, etc. These reduce your taxable income.
• Step 4: Apply the applicable tax slab rates to determine tax payable.
• Step 5: Add cess & surcharge (if applicable), subtract tax already paid (TDS, self-assessment tax) — the balance is payable or refundable.

2. Income tax slabs (for individuals) — choose old vs new regime carefully

The Indian tax system offers two regimes: the Old Regime (with exemptions & deductions such as 80C) and the New Regime (with lower slab rates but fewer deductions). Your best choice depends on your deductions & expenses. Below is a simplified example of the new regime slab (typical for recent years) — always confirm with the latest government notification for the year you file.

Note: In addition to basic slab rates, there is typically an education cess (4% on tax). Surcharge may apply above certain income thresholds. Always use the current financial year rates when calculating taxes.

3. Taxable income: included & excluded items

Included: salary, allowances (taxable), bonuses, business income, interest on fixed deposits, rental income, capital gains, and other income.

Excluded/partially exempt: certain allowances like house rent allowance (HRA) (subject to calculation rules), agricultural income (in many cases), and specified tax-free allowances.

4. Most useful deductions to reduce taxable income

Common deductions (examples):

• Section 80C — up to ₹1,50,000 for PPF, EPF, ELSS, life insurance, principal repayment of home loan, NSC, etc.
• Section 80D — premium paid for health insurance (self, family, parents).
• Section 24(b) — home loan interest deduction for self-occupied or let-out property (limits apply).
• Standard Deduction — available for salaried employees (check current fixed amount per year).

5. Choosing old vs new tax regime — quick checklist

If you are deciding between the two regimes, check:

• Do your deductions (80C + 80D + home loan interest + HRA) exceed the benefit from new-regime lower slabs? If yes → Old regime may be better.
• If you have little or no deductions and prefer simpler calculation → New regime may be simpler and cheaper.

6. Filing income tax return (ITR): when & how

Key points:

• Deadlines: Individuals (non-audit) usually file by July 31 following the financial year (subject to extensions).
• Documents needed: Form 16 (if salaried), bank TDS certificates, investment proofs for deductions, interest certificates, and capital gains statements.
• Filing methods: e-file via the income tax e-filing portal, or use your CA / tax partner. For simple salaried taxpayers, filing is straightforward using ITR-1 / ITR-2 forms as applicable.

7. Common mistakes to avoid

• Missing investment proofs for deductions claimed — keep them organized and scanned.
• Not reconciling Form 26AS — verify TDS credited against your PAN before filing.
• Using the wrong ITR form — choose the correct form for salary, business or capital gains.
• Delaying filing — late filing invites penalties and interest for any unpaid tax.

8. Practical tips to reduce tax (legally)

Some everyday strategies:

• Use Section 80C fully each year (up to ₹1,50,000) using PPF, ELSS, EPF, or NSC.
• Buy a health policy and claim 80D deductions for self and parents.
• Plan capital gains: long-term vs short-term holding periods change tax rates.
• For salaried people, optimize HRA and reimbursements correctly with employer.
• Consider tax-saving ELSS for both tax benefit and equity exposure (risk dependent).

9. When to consult a tax professional

If you have rental properties, business income, foreign income, significant capital gains, or uncertain cases (e.g., disputed TDS), a chartered accountant or a qualified tax consultant can save time and often money. They help with tax planning, compliance, and representation if any notice arrives from the tax department.

10. Helpful resources & tools

To make tax management easier:

• Keep a digital folder of proofs (scans of investment receipts, insurance, rent receipts).
• Use Form 26AS and the TRACES website to confirm TDS credits.
• Use calculators (tax calculator, HRA calculator) — we provide a set of tools on T24K for Section 80C & calculators linked in related pages.

If you want, I can prepare an interactive calculator page (Section 80C, tax slab comparison, or a personalized tax planner) and we’ll add a link from this page. That helps keep visitors engaged and increases dwell time — good for SEO.

Summary — quick checklist before filing

• Gather Form 16 / salary slips and Form 26AS.
• Confirm eligible deductions (80C, 80D, HRA calculations).
• Decide old vs new tax regime based on estimated tax.
• File online before the due date; pay any self-assessment tax early.

Disclaimer: This page is for general informational purposes only and not legal / tax advice. Tax laws change — verify applicable rates & rules for the financial year you are filing.