Tax Planning Guide for Salaried Employees
Everything you need to know about income tax planning in India for FY 2025-26
Last Updated: December 30, 2025 | Financial Year 2025-26
Old vs New Tax Regime: Which One to Choose?
Since FY 2020-21, Indian salaried employees can choose between two tax regimes each financial year. The choice can significantly impact your take-home salary and tax liability.
New Tax Regime (Default)
Tax Slabs FY 2025-26:
- ā¢ 0% up to ā¹3 lakh
- ā¢ 5% from ā¹3-7 lakh
- ā¢ 10% from ā¹7-10 lakh
- ā¢ 15% from ā¹10-12 lakh
- ā¢ 20% from ā¹12-15 lakh
- ā¢ 30% above ā¹15 lakh
Standard Deduction:
ā¹75,000 (increased from ā¹50,000)
ā Pros:
- ā¢ Lower tax rates
- ā¢ Simplified calculations
- ā¢ No need to invest in 80C
ā Cons:
- ā¢ No HRA exemption
- ā¢ No 80C, 80D deductions allowed
- ā¢ No home loan interest benefit
Old Tax Regime (Optional)
Tax Slabs FY 2025-26:
- ā¢ 0% up to ā¹2.5 lakh
- ā¢ 5% from ā¹2.5-5 lakh
- ā¢ 20% from ā¹5-10 lakh
- ā¢ 30% above ā¹10 lakh
Standard Deduction:
ā¹50,000
ā Pros:
- ā¢ HRA exemption available
- ā¢ 80C deductions (up to ā¹1.5L)
- ā¢ 80D for health insurance
- ā¢ Home loan interest benefits
ā Cons:
- ā¢ Higher tax rates
- ā¢ Complex calculations
- ā¢ Requires investment planning
Decision Matrix:
- ā¢ Choose New Regime if: You pay no rent, make minimal 80C investments (<ā¹50K), and your income is below ā¹12 lakhs
- ā¢ Choose Old Regime if: You pay high rent, invest ā¹1.5L+ in 80C instruments, have health insurance (80D), or have a home loan
Section 80C Deductions (Old Tax Regime Only)
The most popular tax-saving section allowing deductions up to ā¹1,50,000 per year.
Eligible Investment Options:
š Investment Options:
- ā¢ Public Provident Fund (PPF)
- ā¢ Employee Provident Fund (EPF)
- ā¢ Equity Linked Savings Scheme (ELSS)
- ā¢ National Savings Certificate (NSC)
- ā¢ Tax-Saving Fixed Deposits (5-year lock-in)
- ā¢ Unit Linked Insurance Plans (ULIP)
š” Other Options:
- ā¢ Life Insurance Premium
- ā¢ Home Loan Principal Repayment
- ā¢ Children's Tuition Fees
- ā¢ Sukanya Samriddhi Yojana
- ā¢ Senior Citizen Savings Scheme
Pro Tip: Your EPF contribution (12% of Basic) is already counted under 80C. If your annual EPF is ā¹60,000, you only need ā¹90,000 more to max out the ā¹1.5L limit.
Section 80D: Health Insurance Deduction
Deduction for health insurance premiums (Old Tax Regime only).
Deduction Limits:
| Category | Limit |
|---|---|
| Self, Spouse, Children (below 60) | ā¹25,000 |
| Self, Spouse, Children (60+ senior citizen) | ā¹50,000 |
| Parents (below 60) | +ā¹25,000 |
| Parents (60+ senior citizen) | +ā¹50,000 |
| Maximum Total Deduction | ā¹1,00,000 |
Additional Benefit:
Preventive health check-ups: Additional ā¹5,000 within the above limits for yourself and family.
HRA Exemption: Save Tax on Rent (Old Regime Only)
If you pay rent, you can claim HRA exemption to reduce your taxable income.
How HRA Exemption is Calculated:
The exemption is the minimum of these three:
- 1. Actual HRA received from employer
- 2. 50% of Basic (if living in metro) or 40% of Basic (non-metro)
- 3. Rent paid minus 10% of Basic Salary
Example Calculation:
ā¢ Basic Salary: ā¹40,000/month (ā¹4.8L/year)
ā¢ HRA Received: ā¹20,000/month (ā¹2.4L/year)
ā¢ Rent Paid: ā¹18,000/month (ā¹2.16L/year)
ā¢ City: Mumbai (Metro)
Calculation:
1. Actual HRA: ā¹2.4L
2. 50% of Basic: ā¹2.4L
3. Rent - 10% Basic: ā¹2.16L - ā¹48K = ā¹1.68L
HRA Exemption: ā¹1.68L (minimum of the three)
Important: HRA exemption is NOT available under New Tax Regime. If you pay high rent, Old Tax Regime might save you more tax.
Smart Tax-Saving Strategies for FY 2025-26
š°1. Max Out Your 80C (Old Regime)
Invest full ā¹1.5 lakh in ELSS or PPF. At 30% tax bracket, this saves ā¹46,800 in taxes annually.
š„2. Health Insurance for Parents (Old Regime)
If your parents are 60+, buying them health insurance gives you ā¹50,000 deduction under 80D. Tax saving: ā¹15,600 at 30% bracket.
š 3. Claim HRA Even If Living with Parents
Pay your parents rent (via bank transfer) and claim HRA. They need to show it as income, but if their total income is below taxable limit, they pay no tax while you save.
š4. Compare Regimes Annually
Run calculations for both regimes each year. If you get married, have a child, or buy a house, Old Regime might become more beneficial.
Calculate Your Tax Savings
Use our calculator to compare Old vs New Tax Regime and see which one saves you more money
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