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.
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 u/s 115BAC
Income Tax Slabs | Income Tax Rates |
Up to Rs 4 lakh | NIL |
Rs 4 lakh - Rs 8 lakh | 5% |
Rs 8 lakh - Rs 12 lakh | 10% |
Rs 12 lakh - Rs 16 lakh | 15% |
Rs 16 lakh - Rs 20 lakh | 20% |
Rs 20 lakh - Rs 24 lakh | 25% |
Above Rs 24 lakh | 30% |
Note: A 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 Slabs | Income Tax Rates |
Up to Rs 2.5 lakh | Nil |
Rs 2.5 lakh to Rs 5 lakh | 5% |
Rs 5 lakh to Rs 10 lakh | 20% |
Above Rs 10 lakh | 30% |
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)
Section 80C of the Income Tax Act allows deductions up to Rs 1.5 lakh. Common investment options under this section include:
Note: This deduction is only available under the old regime.
Health insurance premiums are eligible for deduction under Section 80D:
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.
You can claim HRA exemption under Section 10(13A) if you live in rented accommodation. The exemption amount is the least of the following:
For employees not receiving HRA, deductions under Section 80GG are available.
Note: This deduction is only available under the old regime.
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.
The National Pension System (NPS) is an excellent tool for retirement planning. Contributions by the employee are eligible for:
Note: This deduction is only available under the old regime.
Particulars | Central / State Government Employer | Other Employer |
Old Regime | 14% of salary (Basic + DA) | 10% of salary (Basic + DA) |
New Regime | 14% of salary (Basic + DA) | 14% of salary (Basic + DA) |
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.
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.
Some allowances and perquisites offered by employers are tax-free or partially taxable, such as:
Note: This deduction is only available under the old regime.
It is important to file the income tax returns before the due date as filing late would attract interest and penalties.
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.
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