Imagine this: You’ve
just received a salary hike, and your annual package has crossed ₹13 lakh. You
feel proud and excited. But the joy fades when you see how much tax is being
deducted. It’s natural to feel frustrated — after all, you work hard for that money.
For FY 2025–26
(Assessment Year 2026–27), the Government’s Budget 2025 did not change
the old regime, but revised the new regime to offer lower
rates on more income. In fact, under the new regime the first ₹4 lakh of income
is tax-free, and incomes up to ₹12.75 lakh (after the standard deduction) pay
no tax at all.pib.gov.in. By contrast, the old regime’s basic
exemption limit remains at ₹2.5 lakh and its rates are unchanged. Below are
the latest tax slabs:
- Old (existing) Regime (up to age 60):
– 0 – ₹2.50 lakh: 0% tax.
– ₹2.50 – 5.00 lakh: 5%.
– ₹5.00 – 10.00 lakh: 20%.
– Above ₹10 lakh: 30% (plus surcharge beyond ₹50 lakh).
(Rates and surcharge are unchanged for FY25-26 kpmg.com.) - New Regime (FY 2025–26):
– 0 – ₹4.00 lakh: 0% pib.gov.in.
– ₹4.00 – 8.00 lakh: 5%.
– ₹8.00 – 12.00 lakh: 10%.
– ₹12.00 – 16.00 lakh: 15%.
– ₹16.00 – 20.00 lakh: 20%.
– ₹20.00 – 24.00 lakh: 25%.
– Above ₹24.00 lakh: 30%.
You’re not alone. With
rising salaries, many Indians are looking for smart and legal ways to save tax.
Thankfully, the Income Tax Act offers multiple provisions to help you reduce
your taxable income significantly — even to almost zero — if planned properly.
Understanding the Basics: Why You Might Be Overpaying
A. Common Misconceptions
Many people think, “If I
earn more, I must pay a lot of tax.” But that’s not entirely true. Your final
tax depends not just on how much you earn, but how wisely you plan.
B. Lack of Awareness
Most salaried people don’t
fully understand the tax-saving options available to them. Many miss out on
deductions just because they don’t plan in time or aren’t aware of the
benefits.
C. Importance of Proactive Planning
Tax-saving is not a
one-day job. It needs planning from the beginning of the financial year
(April–March). Starting early helps you invest smartly and avoid last-minute
panic.
Automatic Tax Savings
A. Standard Deduction – ₹75,000 Automatically Applied
Every salaried person
gets a standard deduction of ₹75,000. This is given without needing
to do anything.
Example:
If your salary is ₹13,00,000
After standard deduction: ₹13,00,000 – ₹75,000 = ₹12,25,000 (Taxable
income reduced already) PIB
Leveraging Employer Benefits for Tax Efficiency
A. NPS Employer Contribution – Section 80CCD(2)
If your employer
contributes to the National Pension System (NPS) on your
behalf, that amount is completely tax-free up to 10% of your
basic salary. IncomeTax
Example:
Basic Salary: ₹7,00,000
Employer Contribution: 10% = ₹70,000
This ₹70,000 is deducted from your taxable income.
Tip: Ask your HR if your company offers NPS
under CTC. If not, request to start it.
B. House Rent Allowance (HRA) – Section 10(13A)
If you live in a rented
house, you can claim exemption on HRA. The amount depends on your salary, rent
paid, and city.
Example:
- Basic Salary: ₹7,00,000
- Rent Paid: ₹25,000/month = ₹3,00,000/year
- HRA received: ₹3,60,000
- City: Mumbai (metro)
Let’s say you're
eligible to claim ₹1,80,000 as HRA exemption.
Tip: If paying rent to parents, ensure rent is
transferred to their account and collect receipts.
C. Salary Restructuring: Use Tax-Free Perks
You can restructure your
salary to include tax-free components. These include:
- Meal Coupons (up
to ₹2,200/month = ₹26,400/year)
- Mobile and Internet Bill Reimbursement
- Children’s Education Allowance (₹100/month per child)
- Uniform/Books Reimbursement (if applicable)
Tip: Talk to your HR to include such perks in
your salary structure.
D. Leave Travel Allowance (LTA)
LTA allows you to claim
tax-free travel costs twice in 4 years, only for domestic travel
(economy class rail/airfare).
Example: You travel to Kerala for ₹20,000 — this
can be tax-free if claimed under LTA.
Tip: Keep tickets, boarding passes, and plan
during your leave period.
Strategic Investments for Tax Reduction
A. Section 80C – Deduction Up to ₹1.5 Lakh
This is the most used
section for tax saving.
Popular 80C Options:
- ELSS Mutual Funds –
Lock-in: 3 years, high return potential Incometax
- PPF –
Lock-in: 15 years, safe, tax-free interest
- EPF –
Automatically deducted, employer also contributes
- 5-Year Bank FD –
Safe, taxable interest
- Life Insurance Premiums
- Home Loan Principal Repayment
Example: Invest ₹1.5 lakh in PPF or ELSS → Save
around ₹46,800 in tax (if in 30% slab)
B. NPS Employee Contribution – Section 80CCD(1B)
Apart from 80C, you can
get an extra ₹50,000 deduction under Section 80CCD(1B) by
investing in NPS.
Example:
Invest ₹50,000 in NPS
Total deduction = ₹1,50,000 (80C) + ₹50,000 (CCD1B) = ₹2,00,000
C. Health Insurance – Section 80D
Deduction allowed for premiums paid:
| Insured Members | Deduction Limit |
|---|---|
| Self + Family | ₹25,000 |
| Senior Citizen Parents | ₹50,000 |
Example:
- Family Insurance = ₹20,000
- Parents’ Insurance = ₹45,000
- Total Deduction = ₹65,000
Tip: Parents don’t need to live with you.
Online premium receipts are enough.
D. Home Loan Interest – Section 24b
You can claim up
to ₹2 lakh deduction on home loan interest paid.
Additional benefit: For first-time buyers, another ₹50,000 is
available under Section 80EE (if conditions met).
Smart Trick: If both spouses have income and take a
joint loan, each can claim ₹2 lakh.
E. Donations – Section 80G
Donate to registered charities and claim deductions:
| Donation Type | Deduction Allowed |
|---|---|
| PM CARES Fund | 100% |
| Local NGOs (approved) | 50% |
Tip: Donate via bank (not cash). Always collect
receipts.
Old Tax Regime vs. New Tax Regime
A. Comparison Table
| Feature | Old Regime | New Regime (2025–26) |
|---|---|---|
| Tax Rates | Higher | Lower |
| Deductions Allowed | Yes (80C, 80D, etc.) | No |
| Best For | People with high deductions | People with low/no deductions |
B. Rule of Thumb
- If total deductions > ₹3 lakh →
Choose Old Regime
- If very few deductions → Consider New Regime
Example:
If your salary is ₹13 lakh, and you claim:
- ₹1.5 lakh (80C)
- ₹50,000 (NPS)
- ₹65,000 (Health)
- ₹2 lakh (Home Loan)
Total = ₹4.65 lakh
→ Old Regime is clearly better.
Smart Investment Options for Growth + Tax Saving
A. Low-Risk Options (Safe and Steady)
- PPF: 7.1%
interest, tax-free, excellent for long-term saving.
- EPF: 8.15%
interest, deducted from salary automatically.
- Tax-Saving FD:
5-7% interest, taxable.
Example: ₹1.5 lakh in PPF → ₹4 lakh in 15 years
B. Moderate Risk (Balanced)
- NPS:
Long-term retirement fund with equity + debt mix.
- Sukanya Samriddhi Yojana (for daughter): 8.2% interest, tax-free.
Example: ₹1.5 lakh/year in NPS for 25 years =
Retirement corpus of ₹1 crore+
C. High-Risk, High-Return
- ELSS Mutual Funds:
Only 3-year lock-in, equity exposure.
- ULIPs:
Combined insurance + investment, but check charges.
Tip: ELSS is ideal for young earners looking
for tax saving + high returns.
Common Mistakes to Avoid
1.
Last-Minute
Planning: Leads to poor
decisions or missed deductions.
2.
Choosing
Wrong Tax Regime: Compare before you
decide.
3.
Ignoring
Health or NPS Deductions:
These offer big benefits.
4.
Skipping
Work-Related Benefits: Claim LTA, meal
coupons, reimbursements.
5.
Poor
Documentation: Save all proofs – rent
receipts, insurance bills, donation slips.
Taking Control of Your Taxes
You now know the secrets
to legally reduce your tax — even if your salary is ₹13 lakh or more.
Recap of Key Strategies:
- Use Standard Deduction, NPS, HRA
- Max out Section 80C, add 80CCD(1B) and 80D
- Leverage employer perks and salary
structure
- Pick the right tax regime
- Invest smartly for returns + tax saving
With this knowledge and
planning, you can potentially reduce your tax to almost zero — and grow your
wealth for the future.
Disclaimer
This article is for
educational purposes only. Tax rules change from time to time. Please consult a
qualified tax advisor or financial planner for advice based on your specific
situation.
Use
this Free Tax Calculator: Calculator
Author: niftyfifty.in
Details: This article was developed through
rigorous research and analysis of publicly available information on Indian tax
laws. While our team strives for accuracy and clarity, the information provided
is for educational purposes only and should not substitute professional
financial or tax advice. We leverage advanced tools and technologies to assist
in our research and content creation process, ensuring comprehensive coverage.
For personalized guidance, consulting a qualified expert is always recommended.
Sources
New Rax regime- Economic times
Tax - PIB