Methodology

Financial year and tax engine

Income tax slabs, standard deductions, and simplified Section 87A rebates follow the configured financial year (FY 2024-25 (AY 2025-26) tax slabs in engine). Values are defined in code and should be reviewed after each Union Budget. Surcharge and marginal relief are not modeled.

What is “exact” in math terms

Given the same inputs and assumptions, the engine applies the same formulas every time: slab tax, cess on tax after rebate, PF on wage (with optional ceiling), and simple aggregations (e.g. final settlement sums).

What is estimated or simplified

• TDS smoothing — annual tax is often spread ÷ 12 for monthly in-hand; real payslips vary by month.
• Section 87A — implemented as a simplified model; verify against the Finance Act for your AY.
• Bonus, arrears, perquisites, stock — not modeled unless you fold them into gross consistently.
• PF — employee contribution is rate × PF wage (with optional ceiling); employer EPS/EDLI splits are not shown.
• Professional tax — you supply a placeholder or realistic annual amount; we do not ship state-wise tables.
• Gratuity / leave tax — statutory formulas and rough exempt bands; final tax treatment is fact-specific.

CTC → in-hand flow (summary)

1. Derive employee PF annual from explicit PF or from Basic+DA via configured PF rules.
2. Compute income tax + cess for the chosen regime on gross (with standard deduction and limited deductions per tool).
3. Subtract PF, professional tax, and monthly TDS spread from monthly gross to get in-hand.

Where to read formula details

In the project repository, see lib/calculators/FORMULAS.md and docs/FORMULA_AUDIT.md for a calculator-by-calculator audit (exact vs estimated).

Updates

Content and methodology copy last reviewed: March 2026. Engine FY label: FY 2024-25 (AY 2025-26) tax slabs in engine.

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