₹30 lakh salary doesn't mean a 30% tax rate: Here's why effective tax rate is just 15.86% under new tax regime
A ₹30 lakh annual salary doesn't mean your entire income is taxed at 30%. After the ₹75,000 standard deduction under the new regime, slab-wise taxation, and a 4% health and education cess, the total tax liability comes to ₹475,800, resulting in an effective tax rate of just 15.86%.
A ₹30 lakh annual salary does not mean your entire income is taxed at 30% in the new tax regime. The income tax follows a progressive slab structure, where only the income falling within each slab is taxed at the applicable rate.
Moreover, salaried individuals under the new tax regime also get a standard deduction of ₹75,000, which reduces their taxable income before tax is calculated.
As a result, someone earning a gross salary of ₹30 lakh pays an effective tax rate of around 15.86% and not 30%. Let's find out why.
How is tax calculated on a ₹30 lakh salary in the new tax regime?
Step 1: Consider the standard deduction
| Particulars | Amount |
| Gross annual salary | ₹30,00,000 |
| Less: Standard deduction | ₹75,000 |
| Taxable income | ₹29,25,000 |
Before calculating tax, salaried individuals under the new tax regime can claim a standard deduction of ₹75,000. As a result, although the employee earns ₹30 lakh, tax is calculated only on ₹29.25 lakh.
Step 2: Calculate slab-wise tax liability
| Tax Slab | Rate | Tax |
| Up to ₹4 lakh | Nil | ₹0 |
| ₹4 lakh – ₹8 lakh | 5% | ₹20,000 |
| ₹8 lakh – ₹12 lakh | 10% | ₹40,000 |
| ₹12 lakh – ₹16 lakh | 15% | ₹60,000 |
| ₹16 lakh – ₹20 lakh | 20% | ₹80,000 |
| ₹20 lakh – ₹24 lakh | 25% | ₹1,00,000 |
| ₹24 lakh – ₹29.25 lakh ( ₹5.25 lakh) | 30% | ₹1,57,500 |
| Total Income Tax | ₹4,57,500 | |
| Health & Education Cess @4% | ₹18,300 | |
| Total Tax Liability | ₹4,75,800 |
Note: This calculation assumes an annual salary of ₹30 lakh under the new tax regime for AY 2026–27 (FY 2025–26). Actual tax liability may vary depending on the exemptions and deductions claimed.
The tax rates above are marginal, not flat. This means your entire income is not taxed at 30% just because it crosses ₹24 lakh. Instead, each slab of income is taxed separately at the applicable rate. This significantly reduces the overall tax burden.
For example, if taxable income is ₹29.25 lakh, only the portion above ₹24 lakh falls into the 30% slab. The rest is taxed at lower rates. The remaining income is taxed at lower slab rates ranging from 5% to 25%.
After arriving at the total income tax of ₹457,500 lakh, a health and education cess of 4% is added, taking the total tax liability to ₹475,800 lakh.
Step 3: Calculate effective tax rate
Effective tax rate = Total tax liability/ Gross salary × 100
= ₹4,75,800/ ₹30,00,000 × 100
= 15.86%
The effective tax rate is 15.86%, which is the total tax liability as a percentage of the gross annual salary.
Why is your tax rate much lower than 30%?
The highest tax slab does not apply to your entire income. Instead, every portion of your income is taxed according to the slab it falls into. Only the taxable income above ₹24 lakh is taxed at 30%.
In addition, the standard deduction of ₹75,000 under the new regime reduces the taxable income of salaried individuals before tax is calculated, thereby further reducing the final tax liability.
This is why a person earning ₹30 lakh annually ends up paying ₹475,800 lakh in total tax (including health and education cess), translating into an effective tax rate of 15.86%, nearly half of the headline 30% tax slab.
Disclaimer: This is only for informational and educational purposes. Please consult a qualified tax expert for the latest tax laws and regulations.
About the Author
Sheetal Goel is a Content Producer at Livemint, where she covers corporate developments, personal finance, business trends, markets, and SEBI-related updates. She focuses on simplifying complex financial concepts and presenting them in a clear, reader-friendly manner, thereby helping audiences better understand investment trends, personal finance, and market developments. Her writing focuses on making finance more accessible to everyday readers while maintaining clarity, accuracy, and relevance. <br><br> She holds a degree in Economics (Hons.) along with an MBA in Finance, which has helped her develop a strong foundation in financial analysis, market understanding, and business reporting. Before joining journalism, she worked with finance and broking firms, where she closely followed market developments, investment strategies, and evolving industry trends. This practical exposure strengthened her understanding of financial markets. She has also written content across multiple formats and platforms, including YouTube, LinkedIn, and Instagram. <br><br> Over time, she has developed expertise in covering market-linked stories, investor-focused topics, and regulatory updates in a simplified yet informative style. She also enjoys reading and listening to Hindi poetry, reflecting her appreciation for literature and creative expression beyond the world of markets and numbers.
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