If you're a salaried employee in India, you're probably paying more tax than you need to. The Indian tax code has over a dozen legal deductions and exemptions — most employees claim only 2–3 of them.
This guide covers every deduction you can use in 2025–26, with exact numbers and calculations.
New Tax Regime vs Old Tax Regime: Which Should You Choose?
This is the first question everyone asks. Here's the honest answer: it depends on your deductions.
New Tax Regime Slabs (FY 2025–26)
| Income | Tax Rate | |---|---| | Up to ₹4,00,000 | Nil | | ₹4,00,001 – ₹8,00,000 | 5% | | ₹8,00,001 – ₹12,00,000 | 10% | | ₹12,00,001 – ₹16,00,000 | 15% | | ₹16,00,001 – ₹20,00,000 | 20% | | ₹20,00,001 – ₹24,00,000 | 25% | | Above ₹24,00,000 | 30% |
Rebate: Tax is nil up to ₹12L income under the new regime.
Old Tax Regime Slabs
| Income | Tax Rate | |---|---| | Up to ₹2,50,000 | Nil | | ₹2,50,001 – ₹5,00,000 | 5% | | ₹5,00,001 – ₹10,00,000 | 20% | | Above ₹10,00,000 | 30% |
Which to Choose?
Stick with the old regime if your total deductions exceed:
| Annual Income (CTC) | Deductions needed to prefer old regime | |---|---| | ₹7L | ₹1.5L+ | | ₹10L | ₹2.5L+ | | ₹15L | ₹3.75L+ | | ₹20L | ₹4.5L+ |
If you have a home loan, HRA, NPS, and 80C fully utilised — the old regime almost always wins above ₹10L.
Use the SalarIQ tax calculator to compare both regimes instantly with your actual numbers.
Section 80C: ₹1,50,000 Deduction
The most well-known deduction. You can invest/spend up to ₹1.5L and deduct it from your taxable income.
What qualifies under 80C:
| Investment | Returns | Lock-in | |---|---|---| | ELSS Mutual Fund | Market-linked (~12–15%) | 3 years | | PPF | 7.1% (tax-free) | 15 years | | EPF (employee contribution) | 8.25% | Until retirement | | NPS Tier-I (80CCD(1)) | Market-linked | Until age 60 | | Life insurance premium | — | Policy term | | 5-year bank FD | 6–7% | 5 years | | Sukanya Samriddhi Yojana | 8.2% | Until daughter turns 21 | | Home loan principal repayment | — | — | | Children's tuition fees | — | — |
Recommendation: Use ELSS first (shortest lock-in, best returns) → then EPF (already mandatory) → then PPF or NPS.
Tax saved at different income levels:
- ₹7L salary: ₹7,500 (5% slab)
- ₹10L salary: ₹30,000 (20% slab)
- ₹15L salary: ₹45,000 (30% slab)
Section 80CCD(1B): Extra ₹50,000 via NPS
NPS (National Pension System) offers an additional ₹50,000 deduction over and above the ₹1.5L 80C limit.
This is often overlooked. At ₹10L income (20% slab), this saves an extra ₹10,000/year in tax.
At ₹15L+ income (30% slab), this saves ₹15,000/year + surcharge.
How to invest: Open an NPS account at any bank, NPS app (KFintech, NSDL), or directly at npscra.nsdl.co.in
Section 80D: Health Insurance Premium
| Who is covered | Maximum deduction | |---|---| | Self + family (below 60) | ₹25,000 | | Self + family + parents (below 60) | ₹25,000 + ₹25,000 = ₹50,000 | | Self + family + parents (parents above 60) | ₹25,000 + ₹50,000 = ₹75,000 |
A family floater health insurance policy typically costs ₹15,000–₹25,000/year. At ₹10L income, this deduction saves ₹3,000–₹5,000 in tax.
Note: Corporate health insurance doesn't qualify for 80D. You need a personal policy.
HRA: House Rent Allowance
If you pay rent and receive HRA as part of your salary, this exemption can save a significant amount.
HRA exemption = Minimum of:
- Actual HRA received
- 50% of basic salary (metro) / 40% (non-metro)
- Rent paid minus 10% of basic salary
Example:
- Basic salary: ₹30,000/month
- HRA received: ₹12,000/month
- Rent paid: ₹15,000/month (Mumbai)
HRA exemption = Min(₹12,000, ₹15,000, ₹15,000 – ₹3,000) = ₹12,000/month = ₹1,44,000/year
At 20% tax rate, this saves ₹28,800/year.
Important: You must submit rent receipts and landlord PAN (if rent > ₹1L/year) to your employer.
Section 24(b): Home Loan Interest
If you have a home loan, the interest component is deductible up to ₹2,00,000/year for self-occupied property.
This is separate from 80C (which covers principal repayment).
At ₹10L income (20% slab): saves up to ₹40,000/year.
Leave Travel Allowance (LTA)
If your salary structure includes LTA:
- Claim it twice in a 4-year block
- Covers actual travel expenses (flight/train tickets) for self + family within India
- Typical annual allowance: ₹15,000–₹30,000
At 20% tax slab: saves ₹3,000–₹6,000/year.
Standard Deduction: ₹75,000 (Auto-Applied)
Under both regimes, a standard deduction of ₹75,000 is automatically applied to all salaried employees. You don't need to do anything.
Under the old regime: ₹75,000 × 30% = ₹22,500 saved at the highest slab.
Total Tax Savings: What's Possible?
Here's a realistic scenario for a ₹15L CTC employee using all available deductions (old regime):
| Deduction | Amount | |---|---| | Standard deduction | ₹75,000 | | 80C (ELSS + EPF) | ₹1,50,000 | | 80CCD(1B) — NPS | ₹50,000 | | 80D — Health insurance | ₹25,000 | | HRA | ₹80,000 | | Total deductions | ₹3,80,000 |
Taxable income: ₹15,00,000 − ₹3,80,000 = ₹11,20,000
Tax on ₹11.2L (old regime): ~₹1,73,400 + cess = ~₹1,80,300
Without deductions, tax would be ~₹3,12,000.
Savings: ₹1,31,700/year — over ₹10,000/month back in your pocket.
Step-by-Step Action Plan
Do this now (before March 31, deadline):
- Submit investment proof to HR — ELSS statements, insurance premium receipts, rent receipts
- Open NPS account for the extra ₹50K deduction (takes 20 mins online)
- Buy a personal health insurance policy if you don't have one (don't rely only on corporate cover)
- Calculate both regimes — use SalarIQ's free tax calculator to see which regime saves you more
Do this when you get your increment: 5. Step up your ELSS SIP to keep 80C fully utilised as your income grows
How to Calculate Your Exact Tax Saving
Every salary structure is different. CTC, HRA %, basic %, allowances — all vary by company.
The fastest way: enter your details in SalarIQ (free). It shows:
- Your exact in-hand salary
- Tax under old vs new regime
- How much each deduction saves you
- What you can do to pay less
Takes 2 minutes. No account needed to see the numbers.
This guide reflects the tax rules for FY 2025–26. Consult a CA for complex situations like capital gains, multiple income sources, or foreign income.