Tax Planning for Salaried Employees in India for 2025

By CA Mohammed S Chokhawala

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Updated on: Jul 14th, 2025

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4 min read

Tax planning for salaried employees is a strategy by which taxpayers minimise their tax liability by maximising the use of exemptions, deductions, allowances, rebates, and other benefits provided under the provisions of the Income Tax Act, 1961. It aims to maximise savings and minimise tax liability through various legitimate tax-saving options for salaried individuals.

How to Plan Taxes for Salaried Employees?

1. Understanding the Tax Slabs

The first step in tax planning is understanding the applicable tax slabs based on income and age. As per the financial year 2025-26, the tax rates are categorised into:

  • New Tax Regime 
  • Old Tax Regime 

New Tax Regime u/s 115BAC

Income Tax SlabsIncome Tax Rates
Up to Rs 4 lakhNIL
Rs 4 lakh - Rs 8 lakh5%
Rs 8 lakh - Rs 12 lakh10%
Rs 12 lakh - Rs 16 lakh15%
Rs 16 lakh - Rs 20 lakh20%
Rs 20 lakh - Rs 24 lakh25%
Above Rs 24 lakh30%

Note: tax rebate up to Rs 60,000 is available for resident individuals if the total income does not exceed Rs 12 lakh (not applicable for NRIs)

Old Tax Regime

Income Tax SlabsIncome Tax Rates
Up to Rs 2.5 lakhNil
Rs 2.5 lakh to Rs 5 lakh5%
Rs 5 lakh to Rs 10 lakh20%
Above Rs 10 lakh30%

Note: Tax rebate up to Rs.60,000 is available for resident individuals if the total income does not exceed Rs 12,00,000 (not applicable for NRIs)

2. Utilise Section 80C Deductions

Section 80C of the Income Tax Act allows deductions up to Rs 1.5 lakh. Common investment options under this section include:

  • Employee Provident Fund (EPF)
  • Public Provident Fund (PPF)
  • National Savings Certificate (NSC)
  • Equity-Linked Savings Schemes (ELSS)
  • Life Insurance Premium for self, spouse, and children
  • Home Loan Principal Repayment

Note: This deduction is only available under the old regime.

3. Take Advantage of Section 80D (Health Insurance)

Health insurance premiums are eligible for deduction under Section 80D:

  • Self, Spouse, and Children: Up to Rs. 25,000 (Rs 50,000 if anyone is a senior citizen)
  • Parents (Below 60 years): Additional Rs. 25,000 (Rs 50,000 if anyone is a senior citizen)
  • If no insurance, medical bills: up to Rs 50,000 (if any person in the above two groups is a senior citizen)

If you pay for preventive health check-ups, you can claim up to Rs. 5,000 within the overall limit.

Note: This deduction is only available under the old regime.

4. Claim House Rent Allowance (HRA)

You can claim HRA exemption under Section 10(13A) if you live in rented accommodation. The exemption amount is the least of the following:

  • Actual HRA received.
  • 50% of salary (40% for non-metros).
  • Rent paid minus(-) 10% of salary.

For employees not receiving HRA, deductions under Section 80GG are available.

Note: This deduction is only available under the old regime.

5. Section 80E (Education Loan Interest)

If you have an education loan, the interest paid is fully deductible under Section 80E. This deduction is available for up to 8 years or until the loan is repaid, whichever is earlier.

Note: This deduction is only available under the old regime.

6. Take Advantage of NPS Contributions (Section 80CCD)

The National Pension System (NPS) is an excellent tool for retirement planning. Contributions by the employee are eligible for:

  • Section 80CCD(1): Deduction up to Rs. 1,50,000 (included in the 80C limit).
  • Section 80CCD(1B): Additional deduction up to Rs. 50,000 (The parent/ guardian contributes to the NPS of the minor child; deduction of Rs 50,000 is included in this limit).

Note: This deduction is only available under the old regime.

  • Section 80CCD(2): Under Section 80CCD(2), salaried individuals can claim an additional deduction for employer contributions to the National Pension Scheme (NPS), which is separate from the deductions under Section 80CCD(1). The employer’s contribution can be equal to or greater than the employee’s. This deduction is not included in the overall limit of Section 80CCD, offering extra tax benefits. Section 80CCD(2) allows a salaried individual to claim the following deduction:
ParticularsCentral / State Government EmployerOther Employer
Old Regime14% of salary (Basic + DA)10% of salary (Basic + DA)
New Regime14% of salary (Basic + DA)14% of salary (Basic + DA)

7. Standard Deduction

Under the old tax regime, the standard deduction available to salaried individuals and pensioners is Rs. 50,000. However, the standard deduction has been increased to Rs. 75,000 under the new tax regime. 

8. Claim LTA (Leave Travel Allowance)

Employees can claim an LTA exemption for travel expenses incurred during a vacation in India. The exemption covers travel by rail, air, or public transport and is available for two trips in a block of four calendar years.

Note: This deduction is only available under the old regime.

9. Reimbursements and Perquisites

Some allowances and perquisites offered by employers are tax-free or partially taxable, such as:

  • Meal coupons or food allowances.
  • Telephone and internet reimbursements.
  • Uniform allowances.

Note: This deduction is only available under the old regime.

10. File Income Tax Returns (ITR) before Due Date

It is important to file the income tax returns before the due date as filing late would attract interest and penalties.

Conclusion

If you are a salaried employee and want to pay less taxes, you must understand the tax slabs, deductions, and exemptions available under both the old and new tax regimes. This will help you decide which regime is beneficial for you. Additionally, filing income tax returns accurately and on time is key to maximising savings and avoiding penalties. 

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Frequently Asked Questions

What is the income threshold below which an individual is not liable to pay any taxes?

Under the old regime, a tax rebate of  Rs. 12,500 is available, which means if your taxable income is up to  Rs 5 lakh, you won't have to pay any taxes. Similarly, under the new regime, a tax rebate of Rs 60,000 applies, so you won’t have to pay taxes if your taxable income is up to Rs 12 lakh.

What are the available income tax deductions for salaried employees under the new tax regime for FY 2025-26?

The standard deduction of Rs 75,000, deduction for NPS employer contribution under section 80CCD(2), rebate of Rs 60,000 or total tax liability, whichever is less if the total income of salaried individual does not exceed Rs 12 lakh.
 

Does following tax planning tips means tax evasion?

No, following tax planning tips does not mean tax evasion. Tax planning is minimizing tax liability by maximizing the use of deductions, exemptions, allowances etc. However, in tax evasion involves use of illegal ways of avoiding taxes by acts such as misreporting income, concealing income, maintaining false book of accounts etc.
 

About the Author
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CA Mohammed S Chokhawala

Content Writer
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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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