Methodology Tax Year 2026–27

Last reviewed 18 August 2026 for Tax Year 2026–27

1. What the calculator does

It takes an annual CTC and a salary structure and estimates the monthly amount that would reach your bank account, after employer-side components, provident fund, Professional Tax and income tax. It shows the working at every step and lets you change any assumption.

2. What it does not do

It models ordinary salary income. It assumes a resident individual unless you tell it otherwise, and it does not handle:

• capital gains, or any income taxed at special rates;
• business or professional income;
• foreign income, or non-resident status;
• RSUs, ESOPs and other equity compensation;
• perquisite valuation for company accommodation, cars or interest-free loans;
• arrears, relief under section 89, or mid-year job changes;
• the higher basic exemption available to senior and super-senior citizens under the old regime.

The rebate does not apply to special-rate income, and rather than build a half-correct return engine we have kept the scope to salary. If your situation involves any of the above, this tool will understate your complexity.

Two scope switches are exposed rather than buried. Residency, because the rebate that removes tax on lower incomes is for a resident individual, and setting it to non-resident removes the rebate rather than quietly applying it anyway. And age, because the old regime raises the basic exemption to ₹3,00,000 at 60 and ₹5,00,000 at 80 for a resident individual. Both default to the ordinary case: resident, under 60.

3. How CTC becomes estimated take-home

In order: CTC minus employer-side components gives gross salary. Gross minus employee PF, VPF and Professional Tax, minus income tax, gives annual take-home.

4. Employer-side components

Subtracted from CTC before anything else, because they are costs your employer bears rather than salary they pay you:

• Employer PF. 12% of the PF wage, if you have indicated it sits inside your CTC.
• Gratuity provision. 4.81% of Basic + DA by default. A market convention, not a legal rate, and switchable off.
• Employer NPS. If entered, added back to salary income and then deducted under section 80CCD(2), so it is tax neutral within the cap.
• Other employer costs. Insurance, benefits, anything else you enter.

5. Employee provident fund

12% of the PF wage. The PF wage is either Basic + DA capped at the ₹15,000 statutory monthly ceiling, or the whole of Basic + DA, depending on which rule you select. Employers genuinely differ, so neither is treated as the default truth, the capped rule is preselected because it is the more common private-sector practice.

The employer's contribution is split only where you are a member of the pension scheme. The pension share is 8.33% of a wage capped at ₹15,000 a month, so it stops at ₹1,250, rounded to the rupee as EPFO does. Whatever is left of the employer's contribution goes to your EPF balance, which means on a higher Basic the often-quoted "8.33% and 3.67%" stops describing the split.

EPS membership is an input, not something inferred from whether the employer contributes. Someone who first joined EPF on or after 1 September 2014 on wages above the ceiling can be an EPF member without being an EPS member, and for them nothing at all is diverted to the pension scheme. Assuming otherwise misstates where their money goes.

6. Professional Tax

Applied from a per-state rules table using your monthly gross salary. Band boundaries are inclusive at the lower end, because that is how the schedules read: Karnataka's band is "₹25,000 and above", so a salary of exactly ₹25,000 is taxable rather than exempt.

Where a state's schedule could not be verified against an issuing authority, no amount is deducted and the result says which state and why. Where a state runs more than one schedule, as Maharashtra does, the calculator asks which applies instead of defaulting to the higher one, because defaulting would overstate the deduction for anyone entitled to the other.

Odisha repealed its levy with effect from 1 April 2026, so nothing is deducted there. Several other states and union territories are widely reported not to levy it and we deduct nothing for them either, but we have not confirmed each of those absences against state material, and the sources page lists them as unverified rather than as a positive finding.

Under the old regime, Professional Tax is deducted from salary income. Under the new regime it is not, because that deduction is unavailable there. It leaves your bank account either way. The provision is the one familiar as section 16(iii); salary deductions sit in Section 19 of the Income-tax Act, 2025.

7. Income tax

Computed from versioned rules for Tax Year 2026–27:

1. Taxable income = gross salary + employer NPS − allowable deductions.
2. Slab tax, applied band by band.
3. The rebate, including the marginal relief taper above ₹12,00,000 under the new regime. Familiar as Section 87A; Section 156 of the Income-tax Act, 2025. It is available to a resident individual.
4. Surcharge where applicable, with marginal relief at each threshold.
5. Health & Education Cess at 4% on tax plus surcharge.

Marginal relief is computed on income tax, and cess is then charged on the relieved figure. That is the literal reading of the provisions, and it produces the well-known effect where the marginal rate in the relief band exceeds 100%.

8. Regime treatment

Under the new regime we allow the ₹75,000 standard deduction and employer NPS up to 14% of Basic + DA. Under the old regime: the ₹50,000 standard deduction, HRA exemption, Professional Tax, employer NPS up to 10%, and the Chapter VI-A deductions you enter, meaning 80C (including your own PF) capped at ₹1,50,000, 80CCD(1B) at ₹50,000, health insurance, and home loan interest at ₹2,00,000.

Health insurance is two independent limits, not one. Premiums for you, your spouse and your children are capped at ₹25,000, and premiums for your parents are capped separately at ₹25,000, each rising to ₹50,000 where the person insured is a senior citizen. A single combined cap would let a young taxpayer with young parents claim far more than the law allows. Preventive health check-up expenditure is not modelled: it carries its own ₹5,000 restriction that interacts with both limits, and modelling it badly is worse than leaving it out.

HRA has its own definition of salary, and it is not Basic + DA. It means basic pay, plus dearness allowance only where that DA forms part of retirement benefits, plus commission calculated as a fixed percentage of turnover. Both refinements are available under Advanced options; with neither entered the base is simply Basic.

Amounts entered that the selected regime does not allow are listed separately with an explanation, rather than silently ignored.

9. Default assumptions

When you have not supplied a salary breakup, the calculator assumes Basic at 50% of CTC, no DA, HRA at 40% of Basic, PF at the statutory ceiling on both sides, employer PF inside CTC, a gratuity provision inside CTC, and no variable pay.

Basic defaults to 50% of CTC because it sits in the middle of the range employers actually use. It is a modelling default and nothing more. No law requires Basic to be any particular share of CTC, and this calculator does not tell anyone whether their structure complies with anything.

What the Code on Wages, 2019 does do, with effect from 21 November 2025, is decide what counts as wages once a package exists. Wages means basic pay, dearness allowance and retaining allowance, and where the components excluded from that definition come to more than half of remuneration, the excess is added back into wages. The calculator applies that add-back and shows the resulting statutory wage, because that figure, rather than the Basic line, is what gratuity and provident fund are measured against. It is shown as information, not as a verdict on your employer.

10. Rounding

Calculations are carried at full precision and rounded only for display, to the nearest rupee. Taxable income is rounded to the nearest rupee before the slab calculation. EPS is rounded to the nearest rupee, matching EPFO's own treatment, which is why 8.33% of ₹15,000 appears as ₹1,250 rather than ₹1,249.50.

11. Monthly figures

Monthly take-home is annual take-home minus variable pay, divided by twelve. Variable pay is carved out because it is not paid monthly; its tax is left in the monthly figure because payroll spreads TDS across twelve payslips. So monthly × 12 + variable pay = annual take-home, exactly.

11a. Gratuity

Two different numbers get called gratuity and the calculator keeps them apart. The CTC line item is an employer's annual provision, commonly 4.81% of Basic + DA, which is a market convention rather than a rate the law sets. The entitlement is what is actually paid on leaving.

The entitlement is calculated on statutory wages rather than Basic + DA, for the reason set out above. A directly employed fixed-term employee qualifies after one year and is paid pro rata, so eighteen months counts as eighteen months; that is a different arrangement from contract labour supplied through a contractor, where the contractor is the employer and the ordinary continuous-service requirement applies. A permanent employee counts completed years, with a part-year beyond six months rounded up.

Two ceilings are kept separate. Gratuity is exempt from income tax up to ₹20 lakh across a working life, which is well supported. The Code separately leaves the maximum payable to be notified by the Central Government, and because we have not obtained a current notification, no payment cap is applied to the entitlement at all. The five-year rule as modelled covers resignation, retirement and superannuation; the requirement is relaxed where employment ends through death or disablement, and that is out of scope.

11b. A note on section numbers

This site uses the section numbers people search for, because those are what appear on payslips, in employer communications and in every conversation about tax. The Income-tax Act, 2025 renumbered them, so where the distinction matters both are given: the rebate is Section 156, health insurance is Section 126, salary deductions including Professional Tax are Section 19, and the default regime is Section 202.

What we do not do is attach an old number to the new Act. There is no Section 87A of the Income-tax Act, 2025.

12. How the salary example pages are generated

Each page under /salary/ is a saved state of this same engine, rendered at build time by the same code the browser runs. They are not written-up examples, the numbers on a ₹15 LPA page and the numbers you get by typing ₹15,00,000 into the calculator come from the same function.

Each page also runs a sensitivity analysis at that CTC, which is where the range and the "biggest lever" figures come from.

13. Why your payslip may differ

Your employer's actual structure differs from the assumed one; TDS is uneven across the year as declarations are processed; you joined or left mid-year; there are arrears, recoveries or reimbursements; or your employer applies a policy we have not modelled. Treat this as a close estimate, and your payslip as the record.

14. How often this is reviewed

Rules are reviewed when a Finance Act, a Budget, an EPFO notification or a state amendment changes something material, and at least once a year before the start of a new tax year. The review date at the top of this page reflects a genuine review rather than a deployment.

All of it is covered by an automated test suite that checks slab boundaries, rebate and surcharge marginal relief, residency and age effects, health insurance limits, provident fund ceilings and pension-scheme membership, gratuity service treatment, state professional tax band boundaries, and arithmetic invariants such as monthly × 12 reconciling to the annual figure. The tests exist to check the legal model, not only the arithmetic: passing sums prove nothing if the rule being summed is the wrong one.

Written and maintained by the author of this site. Published 18 August 2026. Last reviewed 18 August 2026 for Tax Year 2026–27.