TaxSaral

Section 202 · was Section 115BAC in the 1961 Act

Default Tax Regime — Slabs

The default tax regime applies automatically. Slabs: Nil up to ₹4L; 5% (₹4L–8L); 10% (₹8L–12L); 15% (₹12L–16L); 20% (₹16L–20L); 25% (₹20L–24L); 30% above ₹24L. Standard deduction ₹75,000. Zero tax if income ≤ ₹12L.

Who it applies to: All individuals — it is the default unless you actively opt for the optional (old) regime.

Key points

  • Default regime: no major deductions (no 80C, 80D, HRA) but lower slab rates and higher standard deduction (₹75,000).
  • Tax is computed on the remaining income after the standard deduction and any allowed deductions.
  • 4% Health & Education Cess is added on the final tax amount.
  • Surcharge applies if total income exceeds ₹50L — additional 10%, 15%, 25%, or 37% depending on income level.

Worked examples

1. Salaried employee earning ₹18 lakh

Rahul earns ₹18,00,000 gross salary under the default regime. He has no other income.

Gross salary:            ₹18,00,000
Standard deduction:     – ₹75,000
Total income:            ₹17,25,000

Slab-wise tax:
  ₹0–4L      → Nil
  ₹4L–8L     → 5% × ₹4,00,000 = ₹20,000
  ₹8L–12L    → 10% × ₹4,00,000 = ₹40,000
  ₹12L–16L   → 15% × ₹4,00,000 = ₹60,000
  ₹16L–17.25L → 20% × ₹1,25,000 = ₹25,000
Total tax:               ₹1,45,000
Add 4% cess:             ₹5,800
Final tax:               ₹1,50,800

Result: Rahul pays ₹1,50,800 in tax — an effective rate of ~8.4% on gross salary. If he had opted for the optional regime (with 80C investments etc.), his deductions could lower this further.

2. Income just at the ₹12L rebate cliff

Compare a person earning ₹12L vs ₹12,00,001 (just ₹1 above ₹12L) under the default regime.

At ₹12,00,000 (after standard deduction from salary of ₹12.75L):
  Tax on ₹12L = 0 + 20K + 40K + 0 = ₹60,000
  Rebate under Section 156: – ₹60,000
  Net tax: ₹0

At ₹12,00,001 (just ₹1 above ₹12L):
  Tax: ₹60,000 + negligible
  No rebate (income > ₹12L)
  Add 4% cess: ₹60,000 × 1.04 = ₹62,400
  Net tax: ₹62,400

Result: Earning ₹1 more than ₹12L costs you ₹62,400 in tax — the famous 'cliff effect'. This is why structuring income to stay at or below ₹12L is crucial for salaried employees near this range.

Related sections

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Section references are based on the Income Tax Act 2025 (Tax Year 2026-27). Examples are illustrative; verify with a Chartered Accountant before filing.