How to Calculate Taxes Under the Old Income Tax Regime for FY 2025-26

As the deadline for filing Income Tax Returns (ITR) for Assessment Year 2026-27 approaches, taxpayers face a critical decision: stick with the default new regime or opt for the old regime. While the new regime offers lower rates, the old regime remains a potent tool for those capable of maximizing deductions to lower their taxable income.

The Old Tax Regime: Slabs and Structure

For resident individuals below the age of 60, the old tax regime follows a progressive slab structure. Unlike the new regime, which offers higher basic exemptions, the old regime relies heavily on specific investment-linked deductions to reduce the tax burden.

The applicable tax slabs for the old regime are as follows:

  • ₹0 – ₹2.5 Lakh: Nil
  • ₹2.5 Lakh – ₹5 Lakh: 5%
  • ₹5 Lakh – ₹10 Lakh: 20%
  • Above ₹10 Lakh: 30%

Step-by-Step Tax Calculation Process

To determine your tax liability under the old regime, you cannot simply look at your gross salary. You must follow a systematic process of adding and subtracting various income components and deductions.

  1. Calculate Net Salary: Start with your total salary income and subtract the standard deduction of ₹50,000.
  2. Compute Gross Total Income (GTI): Add income from other sources, such as savings account interest, fixed deposit (FD) interest, dividends, or rental income, to your net salary.
  3. Apply Chapter VI-A Deductions: Subtract eligible deductions to arrive at your Net Taxable Income. Key sections include:
    • Section 80C: Investments like LIC, PPF, or ELSS.
    • Section 80CCD(1B): Additional deduction for NPS.
    • Section 80D: Health insurance premiums.
    • Section 80TTA: Interest on savings accounts.
  4. Apply Slab Rates: Apply the percentage rates to the resulting Net Taxable Income and add a 4% Health & Education Cess to the final amount.

Case Study: Calculating Tax for a ₹20 Lakh Salary

To understand the impact of deductions, consider an individual earning ₹20,00,000 per annum.

  • Gross Total Income: After accounting for salary, ₹15,000 in savings interest, and ₹35,000 in FD interest, the GTI stands at ₹20,00,000.
  • Total Deductions: By claiming ₹1,50,000 under 80C, ₹50,000 under NPS, ₹25,000 under 80D, and ₹10,000 under 80TTA, the total deduction is ₹2,35,000.
  • Net Taxable Income: This leaves a taxable amount of ₹17,65,000.
  • Final Liability: The total tax calculated across the slabs is ₹3,42,000. Adding the 4% cess (₹13,680) results in a total tax liability of ₹3,55,680.

Expert Tips for Accurate Filing

Archit Gupta, Founder and CEO of ClearTax, advises taxpayers not to rely solely on Form 16. To ensure compliance and maximize savings, taxpayers should cross-verify their income using Form 26AS and the Annual Information Statement (AIS), especially for interest income. Furthermore, always maintain adequate supporting documents, such as receipts and bank records, for every deduction claimed to avoid scrutiny from the tax department.

Key Takeaways

  • Default Switch: If you do not manually opt for the old regime by the July 31, 2026, deadline, you will automatically be moved to the new tax regime.
  • Deduction Importance: The old regime's benefit is entirely dependent on your ability to claim high deductions under Sections 80C, 80D, and others.
  • Verification is Vital: Always cross-check Form 16 with AIS and Form 26AS to ensure all interest and dividend incomes are reported accurately.