Income Tax Calculation Explained: Slabs, 87A Rebate, Surcharge & Cess
Learn how the Indian income tax engine works step-by-step from Gross Salary to Final Tax Payable under AY 2026-27 rules.
Key Financial Takeaways
- Tax is computed progressively across slabs, not applied uniformly to your entire income.
- Section 87A rebate provides 100% tax relief for taxable income up to ₹12,00,000 under the New Regime.
- A 4% Health and Education Cess is added on top of your final tax liability plus surcharge.
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Step-by-Step Calculation Formula
Step 1: Gross Total Income - Exemptions (e.g. HRA, LTA).
Step 2: Less Standard Deduction (₹75,000 in New Regime, ₹50,000 in Old Regime for salaried).
Step 3: Less Chapter VI-A Deductions (80C, 80D, 80CCD) in Old Regime.
Step 4: Apply progressive slab rates to Net Taxable Income.
Step 5: Deduct Section 87A rebate (up to ₹60,000 in New Regime) or apply Section 87A marginal relief.
Step 6: Add applicable Surcharge for incomes > ₹50 Lakh.
Step 7: Add 4% Health & Education Cess on (Tax + Surcharge).
Frequently Asked Questions
What is Section 87A Rebate in AY 2026-27?
Under the AY 2026-27 New Regime, Section 87A provides a tax rebate of up to ₹60,000 for taxable income up to ₹12,00,000, making tax payable exactly ₹0.
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