IT Act 1961 → 2025 / Salaried employees / Salary computation
Salary computation sections 15–19
Gross salary, the deductions in the section 19 table, and the retirement receipts that are partly or fully exempt.
Tax year 2026-27 · Income-tax Act, 2025 as amended by Finance Act 2026 · reviewed 5 November 2026
What is salary
Section 15 charges salary; section 16 defines it (basic, DA, allowances, pension, gratuity, commission, leave encashment); section 17 covers perquisites and section 18 profits in lieu of salary. Salary is taxed on due or receipt basis, whichever is earlier.
Deductions in the section 19 table
| Item | Old regime | New regime | New section | Old section |
|---|---|---|---|---|
| Standard deduction | ₹50,000 | ₹75,000 | 19(1) Sl. No. 2 | 16(ia) |
| Professional tax (tax on employment) | Actual | Not allowed | 19(1) Sl. No. 1 | 16(iii) |
| Entertainment allowance (Government employees) | Not carried into the new Act | Not carried into the new Act | No counterpart | 16(ii) |
Retirement receipts (both regimes)
| Receipt | Exempt amount | New section | Old section |
|---|---|---|---|
| Gratuity — Government employees | Entire amount | 19(1) Sl. No. 3 (also Sl. 4 for defence) | 10(10)(i) |
| Gratuity — covered by Payment of Gratuity Act | 15 days' salary × completed years (salary ÷ 26), maximum ₹20,00,000 | 19(1) Sl. No. 5 | 10(10)(ii) |
| Gratuity — others | Least of: actual; ₹20,00,000; half month's average salary × completed years | 19(1) Sl. No. 6 | 10(10)(iii) |
| Leave encashment on retirement — Government | Entire amount | 19(1) Sl. No. 13 | 10(10AA)(i) |
| Leave encashment — others | Least of: actual; 10 months' average salary; cash value of leave (max 30 days per year); ₹25,00,000 | 19(1) Sl. No. 14 | 10(10AA)(ii) |
| VRS compensation | Up to ₹5,00,000 | 19(1) Sl. No. 12 | 10(10C) |
| Commuted pension — Government and specified bodies | Entire amount | 19(1) Sl. Nos. 7–9 | 10(10A) |
| Commuted pension — other employers | One-third of commuted value if gratuity received, else one-half | 19(1) Sl. No. 8 | 10(10A)(ii) |
| Retrenchment compensation | Least of: actual; Industrial Disputes Act formula (15 days' average pay per year); ₹5,00,000 | 19(1) Sl. Nos. 10–11 | 10(10B) |
The ₹20 lakh (gratuity, Notification 16/2019, S.O. 1213(E) of 8 March 2019), ₹25 lakh (leave encashment, Notification 31/2023 of 24 May 2023) and ₹5 lakh (retrenchment, Notification 10969 of 25 June 1999) limits were notified under the 1961 Act. Section 536(2)(j) of the 2025 Act keeps such notifications in force under the corresponding new provision until replaced. The ₹20 lakh and ₹25 lakh limits are lifetime limits across employers.
Section 202 and these items
Section 202(2)(a)(iv) denies only section 19 Table Sl. No. 1 (professional tax) under the new regime. Gratuity, leave encashment, VRS and commuted pension exemptions apply under both regimes.
Frequently asked
What is the standard deduction for 2026-27?
₹75,000 under the new regime and ₹50,000 under the old regime, under section 19(1) Table Sl. No. 2.
Is gratuity exempt under the new tax regime?
Yes. Gratuity, leave encashment, VRS and commuted pension exemptions in the section 19 table are available in both regimes.