How to Save Tax on Salary

1. Understanding Your Salary Structure

Before optimising taxes, understand what makes up your salary:

Basic Salary — The core component. HRA exemption and EPF contributions are calculated on this. Typically 40-50% of CTC.
House Rent Allowance (HRA) — Tax-exempt under Section 10(13A) if you pay rent. Usually 40-50% of Basic.
Special Allowance — Fully taxable. No deductions available.
Employer EPF Contribution — Not part of your taxable income (up to 12% of Basic).
Other Allowances — LTA, food coupons, car lease, internet reimbursement — some are partially exempt.

2. Standard Deduction

Every salaried employee gets a flat ₹75,000 deduction (FY 2025-26, new regime) or ₹50,000 (old regime) from gross salary. No proof or investment required — it's automatic.

            Example: If your gross salary is ₹10,00,000, your taxable salary starts at ₹9,25,000 (new regime) or ₹9,50,000 (old regime) after standard deduction.
        

3. Section 80C — The Big ₹1.5 Lakh Deduction

Section 80C is the most popular tax-saving provision. You can claim up to ₹1,50,000 deduction per year from these investments (old regime only):

Investment	Lock-in	Returns	Risk	Best For
ELSS Mutual Fund	3 years	10-15%	Market-linked	Highest returns + shortest lock-in
PPF	15 years	7.1%	Zero	Risk-free, EEE tax status
EPF (Employee share)	Till retirement	8.25%	Zero	Auto-deducted, guaranteed returns
NSC	5 years	7.7%	Zero	Fixed returns, post office scheme
Tax Saver FD	5 years	6.5-7.5%	Zero	Simple, bank-based
SSY	21 years	8.2%	Zero	Daughter's future, highest safe return
Life Insurance Premium	Policy term	4-6%	Low	Only for pure term plans
Home Loan Principal	Loan tenure	N/A	N/A	Already paying EMI? Claim it
Children Tuition Fee	N/A	N/A	N/A	Up to 2 children, full-time education

            Pro tip: Your EPF contribution (employee share) already counts towards 80C. If your Basic is ₹50,000/month, your EPF contribution is ₹6,000/month = ₹72,000/year. You only need ₹78,000 more to max out 80C.
        

PPF Calculator → EPF Calculator →

4. Section 80D — Health Insurance Premium

Deduction for health insurance premiums paid (old regime only; the new regime does not allow 80D):

₹25,000 — Premium for self, spouse, and children (₹50,000 if you are a senior citizen)
₹25,000 additional — Premium for parents (₹50,000 if parents are senior citizens)
₹5,000 — Preventive health check-up (within above limits)

            Maximum 80D deduction: ₹75,000 if your parents are senior citizens (₹1,00,000 if you are a senior citizen too).
        

5. HRA Exemption

If you live in rented accommodation and receive HRA as part of salary, the least of these three is exempt from tax:

Actual HRA received
50% of Basic (metro cities) or 40% of Basic (non-metro)
Rent paid minus 10% of Basic

Example (metro city)

Basic: ₹6,00,000 | HRA received: ₹3,00,000 | Rent paid: ₹20,000/month (₹2,40,000/year)

Actual HRA = ₹3,00,000
50% of Basic = ₹3,00,000
Rent − 10% Basic = ₹2,40,000 − ₹60,000 = ₹1,80,000

Exempt HRA = ₹1,80,000 (lowest of the three). This directly reduces your taxable income.

            No HRA in salary? Under Section 80GG, you can still claim up to ₹5,000/month if you don't receive HRA but pay rent (old regime only).
        

Calculate Your HRA Exemption →

6. NPS — Extra ₹50,000 Under 80CCD(1B)

The National Pension System offers an additional ₹50,000 deduction under Section 80CCD(1B) — over and above the ₹1.5 lakh 80C limit. This is available only in the old regime; the new regime allows just the employer contribution under 80CCD(2).

Total NPS tax benefit: ₹2,00,000 (₹1.5L under 80C + ₹50K under 80CCD(1B))
Employer NPS contribution: Up to 14% of Basic + DA is deductible under 80CCD(2) in the new regime, for any employer. In the old regime the limit is 14% for government employees and 10% for others.
Expected return: 8-10% (equity-heavy allocation)
Lock-in: Till age 60 (partial withdrawal allowed after 3 years for specific purposes)

            For the 30% tax bracket: ₹50,000 NPS investment saves ₹15,600 in tax (including cess). That's a guaranteed 31.2% return in year one, before any market returns.
        

NPS Calculator →

7. Home Loan Interest — Section 24

If you have a home loan, you get two separate deductions:

Section 24(b): Up to ₹2,00,000 deduction on home loan interest (self-occupied property)
Section 80C: Up to ₹1,50,000 deduction on principal repayment (part of your 80C limit)
Section 80EEA: Additional ₹1,50,000 for first-time buyers (loan sanctioned before March 2022, stamp value under ₹45 lakh) — check if extended

            Rented out property: No limit on interest deduction for let-out properties. The entire interest paid is deductible, though loss from house property is capped at ₹2,00,000 per year for set-off against salary.
        

EMI Calculator → Mortgage Calculator →

8. Old vs New Tax Regime — Which to Choose?

The new regime has been the default since FY 2023-24, so you have to opt out to use the old regime. From Tax Year 2026-27 it sits in section 202 of the Income-tax Act, 2025, with the same slab rates. Here's how they compare:

Feature	Old Regime	New Regime (Default)
Standard Deduction	₹50,000	₹75,000
80C (₹1.5L)	Available	Not available
80D (Health)	Available	Not available
HRA	Available	Not available
80CCD(1B) NPS	Available	Not available (only employer NPS under 80CCD(2))
Section 24 (Home loan)	₹2L deduction	Not available (self-occupied)
Tax slabs	Higher rates	Lower rates, more slabs
Rebate u/s 87A	Income up to ₹5L	Income up to ₹12L (effectively zero tax)

Rule of thumb

Salary up to ₹12.75 lakh: New regime is better (zero tax after the ₹75,000 standard deduction and rebate)
Salary ₹15-20 lakh: Old regime is better only IF you can claim about ₹5.4-7 lakh+ in deductions (80C + HRA + 80D + NPS + home loan)
Salary above ₹20 lakh: Calculate both — old regime wins only with heavy deductions including home loan interest

Compare Old vs New Regime →

9. Tax Saving Action Plan by Salary Range

Salary ₹5-10 Lakh

New regime: zero tax thanks to the Section 87A rebate (taxable income up to ₹12L)
No specific investments needed for tax saving
Focus on building emergency fund and starting SIPs

Salary ₹10-15 Lakh

Compare both regimes using the Tax Calculator
The new regime is tax-free up to ₹12.75 lakh of salary; above that the old regime needs more than about ₹5.2–5.4 lakh of deductions (at ₹14–15 lakh) to win
If old regime: Max out 80C (EPF + ELSS/PPF) + 80D (health insurance) + NPS 80CCD(1B)

Salary ₹15-25 Lakh

Old regime wins only if deductions exceed about ₹5.4 lakh (at ₹15L) to ₹8 lakh (at ₹25L), which usually needs a large HRA exemption or home loan interest on top of the items below
80C: ₹1.5L (EPF + ELSS + PPF)
80D: ₹25K-50K (health insurance for self + parents)
NPS: ₹50K under 80CCD(1B)
HRA: Claim full exemption if paying rent
These deductions cut old-regime tax by roughly ₹1-2 lakh; check that the result is still below your new-regime tax

Salary ₹25 Lakh+

The old regime needs more than about ₹8 lakh of deductions to win: 80C + 80D + NPS + HRA + Section 24
A home loan adds up to ₹2L of Section 24 interest deduction (old regime only)
Employer NPS contribution under 80CCD(2) works in both regimes (up to 14% of basic in the new regime) — ask your employer
Compare both regimes in the Tax Calculator before you commit

10. Common Tax Saving Mistakes

Last-minute investing in March — Plan at the start of the financial year. SIPs spread across 12 months are better than lump sum in March.
Buying insurance for tax saving — Endowment and ULIP plans give poor returns (4-6%). Buy a pure term plan for insurance, invest separately via ELSS/PPF.
Ignoring NPS 80CCD(1B) — This extra ₹50K deduction saves ₹15,600 at the 30% bracket. Many people miss it.
Not claiming HRA — If you pay rent, always claim HRA exemption. Keep rent receipts and landlord PAN (if rent exceeds ₹1 lakh/year).
Choosing wrong regime — Always calculate both regimes before choosing. The optimal choice depends on your specific deductions.
Not submitting proofs on time — Submit investment proofs to your employer before their deadline (usually January-February). Otherwise, higher TDS will be deducted.
Ignoring employer-provided benefits — NPS employer contribution, food coupons (₹2,200/month tax-free), car lease, and internet reimbursement can reduce tax significantly.

Start Saving Tax Today

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