How income tax works in India
India taxes resident individuals on worldwide income. Whether you are resident, not-ordinarily-resident or non-resident is tested each financial year, mostly on days spent in India.
The new regime is the default. Slabs run 0% to 30%, almost no deductions are allowed, and a rebate wipes out tax up to INR 12 lakh of ordinary income. Salaried taxpayers add a INR 75,000 standard deduction, so they pay zero up to about INR 12.75 lakh.
Above the rebate, surcharge of 10% to 25% applies at high incomes under the new regime, and 4% health and education cess sits on tax plus surcharge. The old regime with deductions survives as an annual opt-in for people whose claims beat the lower new-regime slabs.
Income tax brackets in India
| Bracket | Rate | Notes |
|---|---|---|
| Up to INR 400,000 | 0% | Nil slab, new regime |
| INR 400,001 to INR 800,000 | 5% | Excludes rebate, surcharge and cess |
| INR 800,001 to INR 1,200,000 | 10% | Rebate wipes out tax to INR 12 lakh |
| INR 1,200,001 to INR 1,600,000 | 15% | Plus surcharge and 4% cess at high incomes |
| INR 1,600,001 to INR 2,000,000 | 20% | Plus surcharge and 4% cess at high incomes |
| INR 2,000,001 to INR 2,400,000 | 25% | Plus surcharge and 4% cess at high incomes |
| INR 2,400,001 and above | 30% | Top slab before surcharge and cess |
Tax rates at a glance
- Entry slab
- 0% to INR 4 lakhNew regime
- Top slab
- 30%
- Rebate limit
- INR 12 lakh
- Salaried standard deduction
- INR 75,000
- Surcharge new regime
- 10% - 25%
- Health and education cess
- 4%
Who benefits most
These profiles tend to benefit most when the rules match their real residence, payroll and business setup.
EmployeesExpatsContractorsHigh earnersCross-border workers
Watch out for
- The rebate does not cover capital gains taxed at special rates. Salary and business income get the zero-tax benefit, but special-rate gains are taxed regardless.
- Marginal relief softens the cliff just above INR 12 lakh, but it phases out. Slightly higher income can still mean a much higher bill until the relief runs out.
- Old regime versus new regime must be compared with your real deductions. Big HRA, 80C and home-loan interest claims can still make the old regime cheaper.
- Tax is withheld through TDS on salary and much other income, but withholding is not the final answer. High earners usually owe advance tax in quarterly instalments.
Frequently asked questions
Do expats pay income tax in India?
Yes, if they are resident in India for the year or earn Indian-source income. Full residents pay on worldwide income, while non-residents pay only on income earned in India.
What is the zero-tax limit in India?
Under the new regime, residents pay zero tax up to INR 12 lakh of ordinary income through the rebate, or about INR 12.75 lakh gross for salaried people after the standard deduction.
What is the highest income tax rate in India?
The top slab is 30%, but surcharge plus 4% cess lifts the effective top rate to 39% under the new regime and about 42.7% under the old regime.
Is the new regime or old regime better?
It depends on deductions. People with few claims usually pay less under the new regime, while people with large HRA, 80C and loan-interest claims should run both calculations each year.