How to Save Tax for Salary Above 12 Lakhs?

Updated on: Feb 20th, 2026

6 min read

For FY 2025-26, taxpayers earning income up to Rs. 12 lakh can enjoy benefit of zero tax liability under the new tax regime. This is due to relaxed tax slabs and tax rebate of up to Rs. 60,000 under Section 87A. However, taxpayers earning slightly above Rs. 12 lakh can also pay zero tax by claiming few exemptions & deductions.

Key Deductions under the New Regime

Standard deduction: Rs. 75,000 flat standard deduction is available against salary income under the new tax regime.
Section 24: Entire interest paid on home loan for a let out property can be claimed as a deduction, without any threshold limits.
Section 80CCD(2) : Employer's contribution to NPS can be claimed as a deduction, up to 14% of the basic pay.
Retirement Benefits: Gratuity, leave encashment, and other settlements are also eligible for exemptions under the new regime, subject to threshold limits.

Key Deductions under the Old Regime

There are various exemptions and deductions available against salary income under the old regime. The following tables explains the various deductions and exemptions against salary.

1. Exemptions

Salary Components	Taxability
Basic Pay	Fully-taxable
Dearness Allowance (DA)	Fully-taxable
House Rent Allowance (HRA)	Exemption up to a certain limit.
Leave Travel Allowance (LTA)	Actual travel ticket expenses exempt for two trips in 4 years under 10(5).
Mobile/ Internet reimbursement	Exempt if:
	– used predominantly for office purposes
	– proofs/bills submitted
Children’s Education and Hostel allowance	Rs 4800 per child (max 2 children)
Food Expenses	Rs 50 per meal (max 2 meals a day)Annual= Rs 26,400 (50222 days*12 months)
Professional Tax	Generally Rs 2,400 (Varies from state to state)

2. Deductions

Particulars	Limit
Standard Deduction	Rs 50,000 (Will be given to all without any restrictions)
Paying health insurance policy premium (Section 80D)	Self, your spouse, and your dependent children:
	Rs 25,000 (Rs 50,000 if aged 60 and above)
	Parents: Rs 25,000 (Rs 50,000 if aged 60 and above)
Opting for an education loan (Section 80E)	Interest deduction for 8 years from the year of repayment of loan taken for the higher education of yourself, your spouse, dependent children, or a student of whom you are the legal guardian.
Donating to charity (Section 80G)	50% or 100% of the eligible amount.
Investing in tax saving instruments (Section 80C)	Tax benefit of Rs.1,50,000 per year. You can invest in the
	following options:
	– Employees’ Provident Fund (EPF)
	– Public Provident Fund (PPF)
	– Equity Linked Saving Scheme funds (ELSS)
	– Home loan repayment and Stamp duty
	– Sukanya Smriddhi Yojana (SSY)
	– National Savings Certificate (NSC)
	– Fixed Deposit for 5 years, and more
Costs to treat disabled dependents (Section 80DD)	If you have disabled dependents for whom you bear
	medical expenses, you are eligible for the tax relief:
	– 40% disability: Rs.75,000
	– Severe or 80% disability: Rs.1,25,000
Deductions on home loan payments	Principal amount: Upto Rs 1.5 lakhs u/s 80C
Deductions on home loan payments	Interest amount: Upto Rs 2 lakhs paid u/s 24b
The maturity amount of a Life Insurance Policy	Maturity proceeds are tax-exempt if the sum assured is ≤:
	– 20%: policies issued before 1 April 2012
	– 10%: policies issued after 1 April 2012
	– 15%: policies issued after 1 April 2013 for a person with disability or disease.

Tax Calculation for 12 Lakh Income in Old & New Tax Regime

Mr. A has a Gross Salary income of Rs. 12 lakhs. He is also eligible to claim following deductions:

HRA - Rs. 60,000
LTA - Rs. 20,000
Professional Tax - Rs 2,400.
Section 80C - Rs. 1.5 lakhs
Section 80D - Rs. 50,000
Section 80E - Rs. 25,000.

Tax Computation For FY 2025-26 Under The Old & New Tax Regime

Particular	Old Tax Regime (For FY 2025-26)	New Tax Regime (For FY 2025-26)
Gross Salary u/s 17(1)	12,00,000	12,00,000
Less: Exemption u/s 10
HRA Exemption	60,000	NA
LTA Exemption	20,000	NA
Less: Deduction u/s 16
Standard deduction	50,000	75,000
Deduction of Professional Tax Paid	2,400	NA
Income under the Head Salary	10,67,600	11,25,000
Less: Deduction under Chapter VI-A
Section 80C	1,50,000	NA
Section 80D	50,000	NA
Section 80E	25,000	NA
Net Total Income	8,42,600	11,25,000
Income Tax (Including Surcharge and Cess)	84,261	52,500
Less: Rebate u/s 87A	0	52,500
Tax Liability (Including Cess)	84,261	0

For a taxpayer having a total income of Rs. 12 lakhs in FY 2025-26, opting for the new tax regime will be more beneficial as the tax liability will be Zero. Thus, resulting in tax savings of Rs. 84,261.

How to Save Taxes for 12 Lakh Salary?

If your total income is above Rs. 12 lakh then you can consider the following options to save tax under the new tax regime:

Claim standard deduction - Rs 75,000 under the new regime and Rs 50,000 under the old regime.
Choose the most beneficial regime. The old regime has more deductions and lower slab rates, the new regime has fewer deductions but relaxed slab rates.
Section 80CCD(2) allows deduction for contribution made by employer in National Pension Scheme (NPS), under both old (usually 10% of basic pay) and new regime (14% of basic pay).
If the assessee has rented out his property (residential or commercial building), entire interest due can be claimed as a deduction under section 24.
Exemption is available for the amount received as gratuity and leave encashment at the end of the employment tenure. The employee may either retire or terminate the employment before retirement.

Final Word

If you learn the intricacies of the taxation system, you can judiciously use the old and new tax regimes to save taxes. If you want to opt for the old tax regime, invest in schemes like the National Pension Scheme (NPS), Equity Linked Savings Scheme (ELSS) Investment, Sukanya Samridhhi Yojana (SSY), and many more. If you wish to opt for the new tax regime, you can still plan your investments and save yourself from paying hefty taxes by claiming a deduction under Standard deduction, Employer contribution to NPS etc.

Frequently Asked Questions

How to claim a tax rebate under section 87A?

While filing your income tax return, if your taxable income is up to Rs.12 lakhs (Rs 5 lakhs under the old regime) after incorporating all the applicable deductions and exemptions, you can receive a tax rebate of up to Rs.60,000 (Rs. 12,500 under the old regime).

What tax deductions do Agniveers get under section 80CCH?

Agniveers who work in the Indian Armed Forces can claim a deduction equal to the amount they deposit in the Agniveer Corpus Fund once they get enrolled in the Agnipath Scheme.

What is the limit for tax deduction under section 80D?

Section 80D offers tax deductions on insurance premiums for medical policies. If you are paying insurance premiums for yourself, the deduction permitted is Rs.25,000. If you pay the premium for both yourself and your parents below 60, the deduction permitted is Rs.50,000. If your parents are above 60, the tax benefit shoots up to Rs. 75,000.

Which tax regime is better for 12 lakhs income for FY 2025-26?

The new regime is beneficial as there is zero tax liability for income upto Rs.12 lakhs for FY 2025-26.

Can you pay zero tax on Rs 12 lakhs salary ?

Yes , You can pay Zero tax on Rs 12 lakhs salary by claiming deduction and exemption like HRA exemption , 80C deduction , Standard deduction , Housing loan interest etc. Provision to pay zero tax on Rs 12 salary exists in the new tax regime by leveraging all the existing deduction and exemption.

About the Author

CA Mohammed S Chokhawala

Content Writer

I'm a chartered accountant, well-versed in the ins and outs of income tax, GST, and keeping the books balanced. Numbers are my thing, I can sift through financial statements and tax codes with the best of them. But there's another side to me – a side that thrives on words, not figures. Read more

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