Tax Planning Guide for Salaried Employees
Everything you need to know about income tax planning in India for FY 2026-27
Last Updated: August 1, 2026 | Financial Year 2026-27
Source Notes
This guide explains tax-planning concepts for salaried employees. Use it as a starting point and verify final filing decisions with official sources or a qualified tax professional.
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 2026-27:
- • 0% up to ₹4 lakh
- • 5% from ₹4-8 lakh
- • 10% from ₹8-12 lakh
- • 15% from ₹12-16 lakh
- • 20% from ₹16-20 lakh
- • 25% from ₹20-24 lakh
- • 30% above ₹24 lakh
Standard Deduction:
₹75,000 (increased from ₹50,000)
Pros:
- • Lower tax rates
- • Simplified calculations
- • No need to invest in 80C
Cons:
- • No HRA exemption
- • No 80C, 80D deductions allowed
- • No home loan interest benefit
Old Tax Regime (Optional)
Tax Slabs FY 2026-27:
- • 0% up to ₹2.5 lakh
- • 5% from ₹2.5-5 lakh
- • 20% from ₹5-10 lakh
- • 30% above ₹10 lakh
Standard Deduction:
₹50,000
Pros:
- • HRA exemption available
- • 80C deductions (up to ₹1.5L)
- • 80D for health insurance
- • Home loan interest benefits
Cons:
- • Higher tax rates
- • Complex calculations
- • Requires investment planning
Decision Matrix:
- • Choose New Regime if: You pay no rent, make minimal 80C investments (<₹50K), and your taxable income is up to ₹12 lakh
- • Choose Old Regime if: You pay high rent, invest ₹1.5L+ 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 ₹1,50,000 per year.
Eligible Investment Options:
Investment Options:
- • Public Provident Fund (PPF)
- • Employee Provident Fund (EPF)
- • Equity Linked Savings Scheme (ELSS)
- • National Savings Certificate (NSC)
- • Tax-Saving Fixed Deposits (5-year lock-in)
- • Unit Linked Insurance Plans (ULIP)
Other Options:
- • Life Insurance Premium
- • Home Loan Principal Repayment
- • Children's Tuition Fees
- • Sukanya Samriddhi Yojana
- • Senior Citizen Savings Scheme
Pro Tip: Your EPF contribution (12% of Basic) is already counted under 80C. If your annual EPF is ₹60,000, you only need ₹90,000 more to max out the ₹1.5L limit.
Section 80D: Health Insurance Deduction
Deduction for health insurance premiums (Old Tax Regime only).
Deduction Limits:
| Category | Limit |
|---|---|
| Self, Spouse, Children (below 60) | ₹25,000 |
| Self, Spouse, Children (60+ senior citizen) | ₹50,000 |
| Parents (below 60) | +₹25,000 |
| Parents (60+ senior citizen) | +₹50,000 |
| Maximum Total Deduction | ₹1,00,000 |
Additional Benefit:
Preventive health check-ups: Additional ₹5,000 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:
• Basic Salary: ₹40,000/month (₹4.8L/year)
• HRA Received: ₹20,000/month (₹2.4L/year)
• Rent Paid: ₹18,000/month (₹2.16L/year)
• City: Mumbai (Metro)
Calculation:
1. Actual HRA: ₹2.4L
2. 50% of Basic: ₹2.4L
3. Rent - 10% Basic: ₹2.16L - ₹48K = ₹1.68L
HRA Exemption: ₹1.68L (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 2026-27
1. Max Out Your 80C (Old Regime)
Invest full ₹1.5 lakh in ELSS or PPF. At 30% tax bracket, this saves ₹46,800 in taxes annually.
2. Health Insurance for Parents (Old Regime)
If your parents are 60+, buying them health insurance gives you ₹50,000 deduction under 80D. Tax saving: ₹15,600 at 30% bracket.
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.
4. 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
Tax CalculatorTax Planning Calculators
In-Hand Salary Calculator
Convert CTC to estimated monthly take-home salary.
Reverse Salary Calculator
Find the CTC needed for a target in-hand salary.
HRA Calculator
Estimate HRA exemption for old-regime planning.
PF Calculator
Calculate employee and employer PF contributions.
Gratuity Calculator
Estimate gratuity from basic salary and service.
Salary Hike Calculator
Calculate raise percentage and new package.
Notice Period & Buyout Calculator
Estimate notice pay shortfall recovery, GST liability, and net reimbursement.
Step-Up SIP Calculator
Calculate wealth growth by linking monthly SIP increases to annual salary hikes.
NPS Calculator
Calculate pension corpus, 60% tax-free lump sum, and 80CCD tax savings.
Home Loan Eligibility & EMI
Calculate max loan eligibility, monthly EMI, and Sec 24(b) & 80C tax savings.