How To Save Tax For a Salary of 13 Lakhs?
The changes made in Budget 2025 by the government have been specifically beneficial for middle income earners who earn salary income. In recent times, there has been relaxation of slab rates, extension of deductions available to salary income, and other deductions made available to assessees which would help to save taxes.
Check out the below article to know all the tax saving options available for the income range of Rs.13,00,000. Please note that this article applies only to tax implications pertaining to the financial year 2025-26 only.
New Tax Regime Slab Rates
The salary income earned up to Rs.12.75 Lakhs will ultimately have Nil tax liability. Here's how!
- The revised slab rates for new tax regime applicable for FY 2025-2026 is as follows:
As per the latest Finance Act 2025, changes have been made in the slab rate for the new tax regime applicable for FY 25-26 as follows -
Income Tax Slabs | Tax Rate |
Up to Rs. 4,00,000 | NIL |
Rs. 4,00,001 - Rs. 8,00,000 | 5% |
Rs. 8,00,001 - Rs. 12,00,000 | 10% |
Rs. 12,00,001 - Rs. 16,00,000 | 15% |
Rs. 16,00,001 - Rs. 20,00,000 | 20% |
Rs. 20,00,001 - Rs. 24,00,000 | 25% |
Above Rs. 24,00,000 | 30% |
- The rebate allowed under section 87A has now been increased to Rs.60,000 for the new regime from Rs.25,000 . Since the rebate allowed has been increased and the slab rates are relaxed, tax incidence for income up to Rs.12,00,000 will be zero.
- The standard deduction of Rs.75,000 is still applicable for the new tax regime.
- Marginal relief on rebate is still applicable.
- Rebate is not allowed for income taxed at special rates.
Old tax Regime Slab Rates
There have been no changes made in Budget 2025 in the old tax regime slab rates. The tax rates for the old tax regime for FY 2025-2026 are as follows:
Income Slabs | Age < 60 years & NRIs | Age of 60 Years to 80 years (Residents) | Age above 80 Years (Residents) |
Up to ₹2,50,000 | NIL | NIL | NIL |
₹2,50,001 - ₹3,00,000 | 5% | NIL | NIL |
₹3,00,001 - ₹5,00,000 | 5% | 5% | NIL |
₹5,00,001 - ₹10,00,000 | 20% | 20% | 20% |
Greater than ₹10,00,000 | 30% | 30% | 30% |
Comparison of New and Old Tax Regimes
In the new tax regime, there has been a significant relaxation of the income limits and the corresponding tax rates. Check out the table below to get a better perspective of the difference between old and new tax regimes.
| Old Tax Regime (FY 2025-26) | New Tax Regime | ||
Income Slabs | Age < 60 years & NRIs | Age of 60 Years to 80 years (Residents) | Age above 80 Years (Residents) | For all assessees |
Up to ₹2,50,000 | NIL | NIL | NIL | NIL |
₹2,50,001 - ₹3,00,000 | 5% | NIL | NIL | NIL |
₹.3,00,000 - ₹4,00,000 | 5% | 5% | NIL | NIL |
₹4,00,001 - ₹5,00,000 | 5% | 5% | NIL | 5% |
₹5,00,001 - ₹8,00,000 | 20% | 20% | 20% | 5% |
₹8,00,001 - ₹10,00,000 | 20% | 20% | 20% | 10% |
₹10,00,001 -₹12,00,000 | 30% | 30% | 30% | 10% |
Rs. 12,00,001 - Rs.16,00,000 | 30% | 30% | 30% | 15% |
Rs. 16,00,001 - Rs. 20,00,000 | 30% | 30% | 30% | 20% |
Rs. 20,00,001 - Rs. 24,00,000 | 30% | 30% | 30% | 25% |
Above Rs.24,00,000 | 30% | 30% | 30% | 30% |
Comparison of Deductions Available Under New and Old Regime
The following table compares the availability of various deduction in old and new
| DEDUCTION | OLD REGIME | NEW REGIME |
| House Rent Allowance | Exemption up to a certain limit. Calculate now | NOT AVAILABLE |
| Relocation Allowance | AVAILABLE | NOT AVAILABLE |
| Leave Travel Allowance | Actual travel ticket expenses exempt for two trips in 4 years under 10(5). Read more | NOT AVAILABLE |
| Transport allowances in case of a specially-abled person. | AVAILABLE | AVAILABLE |
| Conveyance allowance received to meet the conveyance expenditure incurred as part of the employment. | AVAILABLE | AVAILABLE |
| Any compensation received to meet the cost of travel on tour or transfer. | AVAILABLE | AVAILABLE |
| Daily allowance received to meet the ordinary regular charges or expenditure you incur on account of absence from his regular place of duty. | AVAILABLE | AVAILABLE |
| Perquisites for official purposes | AVAILABLE | AVAILABLE |
| Mobile Reimbursement | Exempt if: – used predominantly for office purposes – proofs/bills submitted | NOT AVAILABLE |
| Food Expenses | Rs 50 per meal (max 2 meals a day) Annual= Rs 26,400 (50*2*22 days*12 months) | NOT AVAILABLE |
| Children’s Education and Hostel allowance | Rs 4800 per child (max 2 children) | NOT AVAILABLE |
| Exemption on voluntary retirement 10(10C), gratuity u/s 10(10) and Leave encashment u/s 10(10AA) | AVAILABLE | AVAILABLE |
| Professional Tax Deduction under section 16 | AVAILABLE | NOT AVAILABLE |
| Standard deduction | Rs.50,000 | Rs.75,000 |
| Interest on Home Loan on let-out property (Section 24) | AVAILABLE | AVAILABLE |
| Interest on Home Loan on Self-occupied property (Section 24) | Allowed to the extent of Rs.2,00,000 | NOT AVAILABLE |
| Gifts up to Rs 50,000 | AVAILABLE | AVAILABLE |
| Family Pension u/s 57(iia) : | One third of pension amount subject to a maximum limit of Rs. 15,000 for Fy 2025-2026. | One third of pension amount subject to a maximum limit of Rs. 25,000 for Fy 2025-2026. |
| Deduction for additional employee cost (Section 80JJA) | AVAILABLE | AVAILABLE |
| Section 80CCH(2) deduction of amount paid or deposited in the Agniveer Corpus Fund | Available for the entire contribution made by applicants and the Central Government | Available for the entire contribution made by applicants and the Central Government |
| Deduction for employer’s contribution to NPS account [Section 80CCD(2)] | Actual contribution subject to a maximum limit of 10% of the salary | Actual contribution subject to a maximum limit of 14% of the salary |
| Section 80C:Investments made in pension funds, mutual funds, ULIPs, government savings schemes, life insurance premiums, home loan principal amount, education fees, etc. | Rs.1,50,000 | NOT AVAILABLE |
| Section 80CCD: Additional exemption for investment in the National Pension Scheme. | Rs. 50,000 | NOT AVAILABLE |
| Section 80D: Tax deduction on health insurance premium payments made towards self or parents. | Self, your spouse, and your dependent children: Rs 25,000 (Rs 50,000 if aged 60 and above) | NOT AVAILABLE |
| 80TTA: Deduction on Savings account interest. | Rs.10,000 | NOT AVAILABLE |
| 80TTB: Deduction on interest on Deposits. | Rs.50,000 (Only for Senior Citizens) | NOT AVAILABLE |
| 80G: Donations to charitable organisations | AVAILABLE | NOT AVAILABLE |
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. | 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 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?
| Particular | 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 | ❌ |
| LTA Exemption | 20,000 | ❌ |
| Children's education and hostel allowance (for two children) | 9,600 | ❌ |
| Less: Deduction u/s 16 | ||
| Standard deduction | 50,000 | 75,000 |
| Professional Tax | 2,400 | ❌ |
| Income under the Head Salary | 11,18,000 | 12,95,000 |
| Less : Deduction under Chapter VI-A | ||
| Section 80C | 1,50,000 | ❌ |
| Section 80CCD(1B) | 50,000 | ❌ |
| Section 80D | 25,000 | ❌ |
| 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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