How Salary Deductions Work in India (2026 Guide) (2026)
India’s salary slip in FY 2025-26 runs on the new tax regime by default — and it comes with the most generous zero-tax threshold the country has ever had. Here’s how income tax, EPF, ESI and professional tax actually combine on an Indian payslip.
The new-regime slabs (FY 2025-26 / AY 2026-27)
| Taxable income | Rate |
|---|---|
| ₹0 – 4,00,000 | Nil |
| ₹4,00,001 – 8,00,000 | 5% |
| ₹8,00,001 – 12,00,000 | 10% |
| ₹12,00,001 – 16,00,000 | 15% |
| ₹16,00,001 – 20,00,000 | 20% |
| ₹20,00,001 – 24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
Start from gross salary, subtract the ₹75,000 standard deduction, and apply the slabs. Then:
87A rebate (₹60,000 max): resident individuals with taxable income ≤ ₹12,00,000 pay zero tax. Marginal relief: just above ₹12 lakh, tax can’t exceed the excess over ₹12 lakh — the breakeven sits near ₹12,70,588. Cess: 4% on (tax + surcharge). Surcharge: nil to ₹50L, 10% (₹50L–1Cr), 15% (₹1–2Cr), 25% (above ₹2Cr, capped in the new regime). Budget 2026 left all of this untouched; the new Income-tax Act 2025 (from 1 April 2026) renames sections but changes no substance.
EPF — the 2026 ceiling jump
Employees pay 12% of Basic+DA. The big 2026 change: the wage ceiling rose from ₹15,000 to ₹25,000/month on 17 September 2026 (S.O. 5109(E)), the first rise since 2014 — maximum employee EPF is now ₹3,000/month (was ₹1,800). The employer puts in 12% too (8.33% to pension, rest to PF) plus 0.5% EDLI and admin charges.
ESI and professional tax
ESI: 0.75% employee / 3.25% employer, only when monthly wages are ₹21,000 or less. Professional tax: levied by states, capped at ₹2,500/year — e.g. Maharashtra ₹2,500/year, Karnataka ₹2,400/year.
What’s inside CTC but not in-hand
Employer EPF (12%), gratuity accrual (~4.81% of Basic+DA per year, payable after 5 years), and employer insurance sit inside CTC but never hit your account. When comparing offers, compare in-hand, not CTC.
Worked examples
Example 1 — ₹18,00,000/year (Maharashtra, resident): taxable ₹17,25,000 → slab tax ₹1,45,000 + 4% cess = ₹1,50,800/year. EPF ₹3,000/month (ceiling), PT ₹2,500/year → in-hand ≈ ₹1,34,225/month.
Example 2 — ₹12,00,000/year (resident): taxable ₹11,25,000 → slab tax ₹52,500, fully wiped by the 87A rebate → zero income tax; only EPF + PT apply.
Common mistakes
1. Old EPF ceiling in offer letters. Some HR sheets still show ₹1,800 EPF — the correct maximum since September 2026 is ₹3,000.
2. Assuming the old regime is better. For most salaried employees without large 80C/HRA claims, the new regime’s ₹12L zero-tax line wins — do the math both ways.
3. Ignoring marginal relief. A small raise past ₹12 lakh doesn’t trigger full slab tax — relief caps it at the excess.
Try it: India salary calculator →
India — frequently asked questions
India salary FAQs
Which regime should I choose?
The new regime is the default and usually better for salaried employees without heavy 80C/HRA deductions — its ₹12 lakh zero-tax line (via 87A) beats the old regime for most.
What is the EPF ceiling now?
₹25,000/month from 17 September 2026 — so the maximum employee contribution is ₹3,000/month, up from ₹1,800.
Who pays ESI?
Employees pay 0.75% (employer 3.25%) only if monthly wages are ₹21,000 or less.
Is professional tax the same everywhere?
No — it’s state-wise, capped at ₹2,500/year. Maharashtra charges ₹2,500/year; Karnataka ₹2,400/year.