Salary Tax Guide: Allowances, HRA Exemption, Form 16 & Net Pay

वेतन कर संपूर्ण मार्गदर्शक

Comprehensive guide to understanding how salary is taxed in India under Section 17: salary slip breakdown, HRA exemption computation, standard deduction (₹75k New / ₹50k Old), Form 16 reconciliation, and maximizing take-home pay.

Written by: Author Profile

Direct Tax & CA Review Panel

Chartered Accountancy Review Panel • Senior Direct Tax Review Desk

Reviewed & Fact-Checked by: Technical Review Panel

Tax Law & Dispute Review Desk

Tax Litigation & Legal Review Panel • Tax Appeal & Procedure Review Desk

Published: 1st April 2026•Last Updated: 15th August 2026•Last Reviewed: 15th August 2026

Key Statutory Highlights (FY 2026-27 (AY 2027-28))

Salary income is taxed on accrual or receipt basis, whichever is earlier, under Section 15 of the Income Tax Act.

Section 16(ia) standard deduction is ₹75,000 in the New Regime and ₹50,000 in the Old Regime.

HRA exemption under Section 10(13A) is calculated based on rent paid, basic salary, and metro/non-metro location.

Employers deduct monthly TDS under Section 192 based on the employee's regime declaration.

Who is Eligible & When Does it Apply?

Applicability #1

All salaried individuals employed in private corporate, public sector, state/central government, or statutory bodies.

Step-by-Step Procedure & Compliance Roadmap

Calculate Gross Salary

Sum Basic, HRA, Dearness Allowance (DA), Special Allowance, Performance Bonus, and Perquisites u/s 17(2).

Subtract Allowable Exemptions

Under Old Regime: Deduct HRA u/s 10(13A), LTA u/s 10(5), and children education allowance. Under New Regime: These exemptions are not available.

Claim Standard Deduction & Professional Tax

Subtract ₹75,000 (New) / ₹50,000 (Old) standard deduction plus actual professional tax paid (up to ₹2,500/year).

Verify Form 16 Against Form 26AS & AIS

Ensure total TDS deducted by the employer matches deposits reflected on the official TRACES/Income Tax portal.

Mandatory Documents Checklist

Form 16 Part A and Part B from Employer

Monthly Salary Slips for the entire FY

Rent Agreement & Rent Receipts (for HRA claim in Old Regime)

Form 26AS / AIS statement

Common Mistakes & Compliance Risks to Avoid

•Forgetting to submit rent receipts to the employer in January/February, leading to high TDS deduction in March salary.

•Not disclosing previous employer salary when switching jobs mid-year, leading to tax mismatch.

Frequently Asked Questions

Can I claim HRA if I live with my parents?

Yes, you can claim HRA by paying rent to your parents via bank transfer and keeping rent receipts, provided your parents own the property and declare the rental income in their respective ITRs.

Interactive Tax Calculators

Salary Take-Home Calculator Income Tax Calculator (Old vs New)

Related Tax Knowledge

Form 16 Checklist & Verification TDS on Salary Section 192

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🛡️ Educational Disclaimer: FinSetu India is an independent educational guidance and calculation platform. Content is published for general citizen awareness based on applicable laws as of FY 2026-27 (AY 2027-28). We do not provide personalized legal/tax advice or file returns directly. Verify current applicable rules on official portals or consult a qualified Chartered Accountant / Tax Lawyer.