How to Save Tax for a Salary of 13 Lakhs?
For a salary level of Rs 13 lakh, it is very much possible to bring down the taxes to zero under the new regime using deduction under section 80CCD(2) - Employer contribution to NPS.
The new regime provides limited deductions with relaxed slab rates, whereas the old regime offers a variety of tax deductions with less beneficial slab rates.
Tax Deductions under the New Tax Regime
- Standard Deduction: Flat 75% deduction is available against salary income under the new regime.
- Employer's Contribution to NPS: Under section 80CCD(2), the employer can claim up to 14% of their basic pay as deduction, when their employers make contribution to NPS.
- Home Loan Interest on Let Out Property: Under section 24 of the Income Tax Act 1961, entire interest due during the financial year for home loan can be claimed as a deduction, without any threshold limit.
- Employer Contribution to PF: Employer's contribution to PF can be exempt even under the new regime. Collectively, employer's contribution made to PF, NPS, and superannuation can be excluded from taxes up to Rs. 7.5 lakhs.
- Superannuation funds: On retirement settlements like gratuity and leave encashment deductions can be claimed under both old and new regime, subject to threshold limits.
Tax Deductions under the Old Regime
The tax savings under the old regime can be classified into two broad categories, tax exemptions and tax deductions. While tax exemptions are not included in the net salary calculation, the tax deductions are reduced from the net salary, thereby arriving at the taxable salary. The following tables represent the important exemptions and deductions against salary, available under the old regime.
Tax 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 (50*2*22 days*12 months) |
Tax Deductions
| Particulars | Limit |
| Standard Deduction | Rs 50,000 (Will be given to all without any restrictions) |
| Professional Tax | Generally Rs 2,400 (Varies from state to state) |
| 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 |
| 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. |
It is to be noted that the most deductions available under the old regime is not available under the new regime.
Tax Calculation Under New and Old Regime
Let us understand the tax calculations on the salary of Rs.13 lakh based on the example given below.
Example: Mr. A (works in a private company) has a salary income of Rs 13 lakhs claiming deductions like HRA of Rs. 1,00,000, LTA of Rs. 20,000, Children's education allowance for two children of Rs. 9,600, Professional tax of Rs 2,400. He has also claimed deductions like 80C of Rs. 150,000, 80D - Medical insurance premium of Rs. 25,000, and NPS contribution of Rs 50,000. The employer has contributed to NPS of Rs.1,00,000 which is included in salary.
Assuming in the current illustration that his basic pay for the year is Rs.6,80,000. After calculations, the deduction u/s 80CCD(2) comes to Rs.95,200 (14% of Rs.6,80,000) for the new regime and Rs.68,000 (10% of Rs.6,80,000) for the old regime respectively. Which is the best tax regime to opt for in this case?
| Particulars | Old tax regime | New tax regime |
| Gross Salary u/s 17(1) | 13,70,000 | 13,70,000 |
| Less: Exemption u/s 10 | ||
| HRA Exemption | 1,00,000 | Nil |
| LTA Exemption | 20,000 | Nil |
| Children's education and hostel allowance (for two children) | 9,600 | Nil |
| Less: Deduction u/s 16 | ||
| Standard deduction | 50,000 | 75,000 |
| Professional Tax | 2,400 | Nil |
| Income under the Head Salary | 11,18,000 | 12,95,000 |
| Less : Deduction under Chapter VI-A | ||
| Section 80C | 1,50,000 | Nil |
| Section 80CCD(1B) | 50,000 | Nil |
| Section 80D | 25,000 | Nil |
| Section 80 CCD(2) | 68,000 | 95,200 |
| Net Total Income | 8,25,000 | 11,99,800 |
| Tax Liability (Excluding 4% Cess) | 77,500 | 59,980 |
| Rebate u/s 87A (Including marginal relief applicable to rebate) | Not Applicable | 59,980 |
| Tax Liability (Including 4% Cess) | 80,600 | NIL |
It can be inferred that in the above case, the new tax regime is more beneficial because of significant relaxation made in slab rates in Budget 2025. This benefit has arisen despite deductions available under the old regime.
Final Word
The tax rates as proposed in the Budget 2025 has significantly reduced the tax burden of salaried employees who earn income around Rs.12 to 13 lakhs. It has reduced the compliance burden and the tax burden for tax payers significantly. This is expected to increase savings, consumption and investments in the economy. Which is a win-win situation for both the tax payers and the government.
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About the Author
Chandni Anandan
I’m a Chartered Accountant with a deep interest in Direct Tax Laws, drawn to the fascinating blend of numbers and legal provisions. Right from my preparation days, I had specific attraction on areas where tax provisions are often difficult to interpret, aiming to simplify and make them easily understandable.I stay updated by connecting with other professionals and closely following industry news and media.My approach to writing is straightforward and comprehensive, ensuring that even complex topics are accessible to a wide audience.. Read more
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