What you'll learn
Quick Answer
Under the new tax regime (the default since FY 2023-24), salaried employees pay zero tax up to about ₹12.75 lakh of gross salary, thanks to a ₹75,000 standard deduction plus a full rebate on tax up to ₹12 lakh of taxable income. Above that, tax is calculated slab by slab and deducted monthly as TDS — which is why your first payslip's in-hand amount is lower than CTC divided by 12.
CTC, gross, in-hand and taxable income are four different numbers
An offer letter usually leads with one number — the CTC, or cost to company — and that number is the least useful one for figuring out what actually lands in your bank account. CTC includes things you never see directly: the employer's contribution to your provident fund, a gratuity provision, group insurance premiums, sometimes a performance bonus component that isn't guaranteed. None of that reaches your account monthly.
What you're actually paid before deductions is your gross salary — basic, HRA, and other allowances, shown on your payslip. From gross, your own contributions come out: typically 12% of your basic salary to the employee side of your provident fund, professional tax if your state charges one (it varies by state, and some don't charge it at all), and any voluntary deductions. What's left after that is your in-hand or net pay — the number that actually shows up in your account.
A fifth number matters for tax specifically: taxable income, which is your gross salary minus the standard deduction and any other deductions you're eligible for. This is the figure tax slabs actually apply to — not CTC, not gross, and not in-hand. Confusing these numbers is the single biggest reason a first payslip looks wrong when it isn't.
The new tax regime slabs (the default one)
Since FY 2023-24, the new tax regime is the default — your employer applies it automatically unless you explicitly choose the old regime during your investment declaration. The slabs, introduced in Budget 2025 and left unchanged in Budget 2026, apply to your taxable income (gross salary minus the standard deduction):
- Up to ₹4,00,000 — nil
- ₹4,00,001 to ₹8,00,000 — 5%
- ₹8,00,001 to ₹12,00,000 — 10%
- ₹12,00,001 to ₹16,00,000 — 15%
- ₹16,00,001 to ₹20,00,000 — 20%
- ₹20,00,001 to ₹24,00,000 — 25%
- Above ₹24,00,000 — 30%
Salaried employees also get a flat standard deduction of ₹75,000 under the new regime, subtracted from gross salary before any of the above slabs apply. On top of the slab tax, a 4% health and education cess is added.
The old regime still exists as an opt-in choice, with lower thresholds but access to deductions the new regime doesn't allow — HRA exemption, Section 80C investments up to ₹1,50,000, home loan interest, and more. Whether it's actually better for you depends entirely on how much you can genuinely claim under those heads; it's rarely obvious without running both numbers, and most tax-department and bank calculators will do that comparison for free. One more thing worth knowing: with the new Income-tax Act, 2025 taking effect from April 2026, some section numbers you'll see referenced (like the familiar “80C” or “87A”) have technically been renumbered — the concepts and limits carry over, so don't be thrown if a form or article cites a different section number for the same rule.
How TDS actually works on your salary
Your employer doesn't wait until March to figure out your tax. At the start of the year (or when you join), they estimate your annual taxable income based on your salary structure and any investment declaration you've submitted, calculate the expected annual tax, and divide it across the remaining months as TDS — tax deducted at source. That's the deduction you see on your payslip labeled income tax or TDS.
This is also why your very first payslip can look different from what you expected. If you join partway through the financial year, or before you've submitted your investment declaration, your employer may apply a default calculation that doesn't yet reflect deductions you're entitled to — it usually corrects itself once you submit the declaration and proof, sometimes with a larger deduction later in the year to catch up, or a smaller one if you were over-deducted earlier.
At year-end, your employer issues Form 16, a summary of your salary and the tax deducted through the year. Cross-check it against Form 26AS or the Annual Information Statement (AIS) on the income tax portal before filing — these show what was actually deposited against your PAN, and mismatches (a common one: a previous employer's TDS not yet reflecting) are far easier to fix before filing than after.
The rebate cliff nobody warns you about
Here's the detail that catches almost every first-time filer off guard. Because of a rebate under Section 87A, your tax liability drops to exactly zero if your taxable income is ₹12,00,000 or less — which, after the ₹75,000 standard deduction, means a gross salary up to ₹12,75,000 results in no income tax at all under the new regime. At a taxable income of exactly ₹12,00,000, slab-by-slab tax works out to ₹60,000 before the rebate wipes it out completely.
Cross that line and the picture changes — but not as badly as naive slab math would suggest. At a taxable income of ₹12,05,000 (a gross salary of around ₹12,80,000), running the slabs directly with no rebate would give ₹63,180 including cess. What you actually pay is ₹5,200, because a marginal relief provision caps your tax at the amount by which you've crossed the ₹12 lakh line, not the raw slab total. Push further to ₹12,10,000 taxable and the capped tax is ₹10,400; at ₹12,25,000, it's ₹26,000.
The practical lesson: a raise that nudges your gross salary just over ₹12,75,000 will visibly reduce your take-home relative to staying just under it, because you go from zero tax to a real, if capped, tax bill almost immediately. It's not a reason to turn down a raise — the relief provision specifically prevents you from ever losing more than you gained — but it explains a jump in deductions that otherwise looks like a payroll mistake.
What to actually do in your first year
Submit your investment declaration on time even if you have nothing to declare — the deadline is usually set by your employer sometime around January, and missing it means your remaining months get taxed on default assumptions that may not suit you. If you'd genuinely benefit from the old regime because of HRA, a home loan, or 80C investments, you generally need to opt in explicitly; staying silent keeps you on the new regime by default.
Keep your PAN linked to Aadhaar. An inoperative PAN triggers TDS at a higher rate regardless of your actual tax slab, which is an easy, entirely avoidable way to lose money in your first year.
Save your Form 16 the moment you get it, and check it against Form 26AS or the AIS before you file — don't assume they'll automatically match, especially if you switched jobs mid-year, since two employers can each apply the standard deduction independently and under-withhold as a result.
File your ITR even when your tax works out to zero. It's not optional just because TDS was already deducted correctly, and having a filing history matters later — for loan applications, visa applications, and sometimes credit cards, where income tax returns are the standard proof of income lenders ask for.