India follows a progressive tax system, where tax rates rise as income increases. By understanding the available tax-saving options, you can lower your overall tax outflow. Various deductions and exemptions can help reduce your taxable income.
For FY 2025–26, the rebate limit has been raised to ₹60,000. As a result, individuals whose taxable income (excluding income taxed at special rates) does not exceed ₹12 lakh will have zero tax liability. This effectively means an income of up to ₹12 lakh becomes tax-free for the year.
Therefore, someone earning ₹12 lakh in FY 2025–26 will not pay any tax, as their taxable income remains within the revised rebate threshold.
Key Takeaways – Tax Saving for a Salary of ₹12 Lakhs
- For most taxpayers in this income bracket, the new tax regime works better.
- A higher standard deduction of ₹75,000 is available under the new regime.
- You can ask your HR to initiate NPS contributions, allowing you to claim a deduction on the employer’s contribution up to 14% of basic salary under the new regime.
- If your total deductions under the old regime (including investments, home loan interest, and other eligible benefits) exceed ₹3,80,500 for FY 2024–25 within an income range of ₹12.5 lakh, then the old regime may be more advantageous.
Tax Slabs Under the New Tax Regime for FY 2025–26
Budget 2025 introduced major revisions to the tax slab structure, increasing slab ranges to ₹4 lakh blocks and adding a 25% tax rate category.
Below are the revised slabs for FY 2025–26 (AY 2026–27):
| Income Tax Slabs | Tax Rate |
| Up to ₹4 lakhs | NIL |
| ₹4 lakhs – ₹8 lakhs | 5% |
| ₹8 lakhs – ₹12 lakhs | 10% |
| ₹12 lakhs – ₹16 lakhs | 15% |
| ₹16 lakhs – ₹20 lakhs | 20% |
| ₹20 lakhs – ₹24 lakhs | 25% |
| Above ₹24 lakhs | 30% |
Tax Slabs Under Old vs New Tax Regime for FY 2024-25
The new tax regime is now the default option, though you may still choose between the new and old regimes when filing your return. The comparison between the two is as follows:
| Tax Slab | FY 2024-25 Tax Rate (Old Regime) | Tax Slab | FY 2024-25 Tax Rate (New Regime) |
| Up to ₹2,50,000 | Nil | Up to ₹3,00,000 | Nil |
| ₹2,50,000 – ₹5,00,000 | 5% | ₹3,00,001 – ₹7,00,000 | 5% |
| ₹5,00,000 – ₹10,00,000 | 20% | ₹7,00,001 – ₹10,00,000 | 10% |
| ₹10,00,000 and above | 30% | ₹10,00,001 – ₹12,00,000 | 15% |
| — | — | ₹12,00,001 – ₹15,00,000 | 20% |
| — | — | ₹15,00,000 and above | 30% |
Notes:
- Standard deduction for FY 2024-25 is ₹75,000.
- Family pension deduction is one-third of the pension, capped at ₹25,000 for FY 2024-25.
- Under the new regime, deductions under Sections 80C to 80U and certain other exemptions are not available. Many tax benefits remain exclusive to the old regime.
- You may use an old vs new tax regime calculator to compare your tax liability under both systems.
Tax Saving Options Under New and Old Regimes
Here is an overview of the tax rules for individuals earning above ₹12 lakh, based on the structure of both regimes:
New Tax Regime
Under the revised new regime, some deductions are now allowed. As per the Union Budget 2023-24, the following deductions can be claimed in FY 2024-25:
- Standard Deduction of ₹75,000
- Deduction for Agniveers under Section 80CCH
- Employer’s contribution to NPS under Section 80CCD(2)
- Family pension under Section 57(iia)
- Conveyance Allowance
- Transport Allowance for individuals with disabilities
- Exemptions on voluntary retirement [Section 10(10C)], gratuity [Section 10(10)], and leave encashment [Section 10(10AA)]
- Deduction for home loan interest on let-out property under Section 24
- Transport allowance for specially-abled individuals
Old Tax Regime
Under the old regime, several exemptions and deductions are available. Below are the benefits applicable under the “Salary” head:
Part 1 – Benefits Available Under Salary
| Salary Component | Tax Treatment |
| Basic | Fully taxable |
| Dearness Allowance | Fully taxable |
| House Rent Allowance (HRA) | Partly exempt up to specified limits |
| Leave Travel Allowance (LTA) | Exempt for actual ticket cost twice in a block of four years under Section 10(5) |
| Mobile/Internet Reimbursement | Exempt if used mainly for work purposes and bills are submitted |
| Children’s Education & Hostel Allowance | ₹4,800 per child (max 2 children) |
| Food Allowance | ₹50 per meal (maximum 2 meals per working day) — approx. ₹26,400 annually |
| Professional Tax | Usually ₹2,400 (varies by state) |
| Standard Deduction | ₹50,000 allowed to all employees |
Part 2 – General Deductions
When planning taxes for a salary above ₹10 lakhs, you can claim deductions under the following sections:
| Deduction Category | Details |
| Health Insurance Premium (Section 80D) | Self, spouse, and dependent children: ₹25,000 (₹50,000 if any member is 60 or above). Parents: ₹25,000 (₹50,000 for senior citizens). |
| Education Loan (Section 80E) | Deduction for interest paid for 8 years from the start of repayment for higher education of self, spouse, children, or a dependent student. |
| Donations (Section 80G) | 50% or 100% deduction for eligible donations made to specified institutions. |
| Tax-Saving Investments (Section 80C) | Deduction up to ₹1,50,000 on investments such as: |
| – EPF | |
| – PPF | |
| – ELSS | |
| – Home loan principal & stamp duty | |
| – SSY | |
| – NSC | |
| – Fixed-income schemes | |
| Treatment of Disabled Dependents (Section 80DD) | Deduction for medical expenses for disabled dependents: |
| – 40% disability: ₹75,000 | |
| – 80% or severe disability: ₹1,25,000 | |
| Home Loan Payments | Principal: Up to ₹1.5 lakh under Section 80C |
| Interest: Up to ₹2 lakh under Section 24(b) |
How to Save Taxes on a Salary of ₹12 Lakhs?
Regardless of which regime you select, the following points help you maximize available deductions under the Income Tax Act:
Claim Standard Deduction
The standard deduction is widely used by salaried taxpayers.
- It is available without any conditions.
- Under the new regime, the deduction is ₹75,000.
- Under the old regime, the deduction is ₹50,000.
Choose the Most Beneficial Regime
Tax liability differs based on slab rates. Lower slab limits increase tax liability, while higher exempt limits reduce it.
- In the old regime, income up to ₹2,50,000 is exempt.
- In the new regime, income up to ₹3,00,000 is exempt.
Thus, under the old regime, tax applies once income crosses ₹2,50,000, whereas under the new regime, tax starts after ₹3,00,000.
The old regime provides more deductions but has lower slab limits, while the new regime offers fewer deductions but higher slab bands.
Compare both regimes based on your income and available deductions to determine which reduces your tax burden the most.
Claim Employer’s Contribution to NPS Under Section 80CCD(2)
Section 80CCD(2) allows a deduction for employer contributions to the National Pension Scheme.
- This benefit is available in both regimes, but limits differ.
- The table below shows the deduction allowed under each regime:
| Particulars | Central/State Government Employer | Other Employer |
| Old Regime | 14% of salary (basic + DA) | 0% of salary (basic + DA) |
| New Regime | 14% of salary (basic + DA) | 14% of salary (basic + DA) |
Claim Exemption on Gifts Received
Gifts received in cash or kind are exempt from tax under Section 56 of the Income Tax Act if their total value does not exceed ₹50,000.
However, once the value of gifts crosses ₹50,000 in a year, the entire amount becomes taxable.
This exemption rule applies under both the old and new tax regimes.
Claim Deduction for Interest on Borrowing for Let-Out Property
If a taxpayer has a rented-out property—whether residential or commercial—Section 24 allows a deduction on the interest paid on funds borrowed for purchasing or constructing that property.
There is no upper limit on the amount that can be claimed as a deduction under this section.
Gratuity and Leave Encashment
Amounts received as gratuity or leave encashment at the time of retirement or upon ending employment (even before official retirement age) are eligible for exemption.
The Income Tax Act specifies the maximum limits for exemption on both these components.
These exemptions are available under both tax regimes.
Claim Deduction on Additional Employee Cost
Under Section 80JJA, taxpayers can claim a deduction of 30% of additional employee cost, regardless of whether they opt for the old or new tax regime.
Claim Deduction on Agniveer Corpus Fund
Under Section 80CCH(2), contributions made by the Central Government to an individual’s Agniveer Corpus Fund are fully deductible.
This benefit is available to individuals enrolled under the Agnipath Scheme.
There is no maximum cap for this deduction—the entire contribution made by the government is eligible.
This deduction can be claimed under both tax regimes.
Tax Calculation for ₹12 Lakh Income in Old & New Tax Regime
Mr. A earns a gross salary of ₹12,00,000. He is entitled to claim an HRA exemption of ₹60,000, LTA exemption of ₹20,000, and profession tax of ₹2,400.
He has further invested ₹1.5 lakh in PPF, paid ₹50,000 as medical insurance premium for senior citizen parents, and paid ₹25,000 interest on an education loan.
The tax calculation under both regimes is summarised below.
Tax Computation for FY 2025–26
Old vs. New Tax Regime
| Particulars | Old Tax Regime (FY 2025–26) | New Tax Regime (FY 2025–26) |
| Gross Salary u/s 17(1) | 12,00,000 | 12,00,000 |
| Less: Exemption u/s 10 | ||
| HRA Exemption | 60,000 | NA |
| LTA Exemption | 20,000 | NA |
| Less: Deductions u/s 16 | ||
| Standard Deduction | 50,000 | 75,000 |
| Profession Tax | 2,400 | NA |
| Income under Salary | 10,67,600 | 11,25,000 |
| Less: Chapter VI-A Deductions | ||
| Section 80C | 1,50,000 | NA |
| Section 80D | 50,000 | NA |
| Section 80E | 25,000 | NA |
| Net Taxable Income | 8,42,600 | 11,25,000 |
| Tax (incl. cess & surcharge) | 84,261 | 52,500 |
| Less: Rebate u/s 87A | 0 | 52,500 |
| Final Tax Liability | 84,261 | 0 |
📌 Conclusion:
Choosing the new tax regime results in zero tax, leading to savings of ₹84,261 compared to the old regime.
FAQs on Tax Deductions and Exemptions
What tax deductions do Agniveers get under Section 80CCH?
Agniveers enrolled under the Agnipath Scheme can claim a deduction equal to the amount contributed to the Agniveer Corpus Fund. This deduction is available under Section 80CCH, covering both the individual’s contribution and the Central Government’s contribution credited to the fund.
How is House Rent Allowance (HRA) calculated?
HRA exemption is calculated based on the following three values, and the lowest amount is allowed as exemption:
- Actual HRA received
- Rent paid minus 10% of Basic Salary + DA
- 50% of Basic Salary + DA (for metro cities) or 40% (for non-metro cities)
Your exemption will be whichever of the above three is least.
What is the tax deduction limit under Section 80D?
Section 80D offers deductions for medical insurance premiums:
- ₹25,000 for self, spouse, and dependent children if all are below 60
- ₹50,000 if you pay for yourself and your parents below 60
- ₹75,000 if parents are above 60
These limits include health check-up expenses within the overall cap.
Can you pay zero tax on a ₹12 lakh salary?
Yes, under the old tax regime, you can reduce your taxable income to zero by using all available deductions and exemptions such as HRA, Section 80C, Standard Deduction, health insurance premiums, and housing loan interest.
Under the new tax regime, claiming zero tax on ₹12 lakh income is uncommon due to limited deductions—with the exception of FY 2025–26, where income up to ₹12 lakh becomes tax-free after considering the rebate.
What is the maximum tax benefit available under children’s allowance?
You can claim a maximum exemption of ₹100 per month per child, up to two children, which totals to ₹1,200 per year as children education allowance.
What is the in-hand salary for a ₹12 lakh CTC?
Your take-home salary depends on various components such as PF contributions, professional tax, TDS, and company-provided allowances. To know your exact monthly in-hand salary, you can use an in-hand salary calculator for accurate computation.
Which tax regime is better for a ₹12 lakh income in FY 2025–26?
The new tax regime is more beneficial for FY 2025–26, as it offers zero tax liability on income up to ₹12 lakh after considering the rebate under Section 87A.
How to claim a tax rebate under Section 87A?
If your taxable income (after all deductions and exemptions) is ₹5,00,000 or below, you can claim a rebate under Section 87A:
- Up to ₹12,500 in the old tax regime
- Up to ₹25,000 in the new tax regime
The rebate is applied while filing the income tax return.
Is standard deduction available in both tax regimes?
Yes, a standard deduction of ₹50,000 is available under the old regime, and ₹75,000 under the new regime (for FY 2025–26 onwards).
Which investments qualify for deduction under Section 80C?
You can claim up to ₹1,50,000 for investments such as PPF, NPS (Tier I), ELSS, Life Insurance premiums, 5-year tax-saving FD, SSY, and repayment of housing loan principal.
Is LTA exemption available under the new tax regime?
No. Exemptions such as Leave Travel Allowance (LTA), HRA, and other allowances are allowed only under the old tax regime.
