06 April 2023

Updated: May 2026

Tax Planning for Salaried Employees in India: Complete Guide for FY2025–26

Salaried employees often believe their taxes are fully handled by their employer through TDS — and leave significant money on the table as a result. The choice between the old and new tax regime, optimal structuring of salary components, and timely investments can substantially reduce your tax liability. At Regi Tom Antony And Associates, we advise salaried individuals on tax planning year-round, not just at March end.

Step 1: Choose the Right Tax Regime

Since FY2024–25, the new tax regime is the default under Section 115BAC. If you do not opt out, the new regime applies automatically. The choice is critical because the two regimes have fundamentally different structures:

New Tax Regime — Slabs for FY2025–26

• Up to ₹3 lakh: Nil
• ₹3 lakh – ₹7 lakh: 5%
• ₹7 lakh – ₹10 lakh: 10%
• ₹10 lakh – ₹12 lakh: 15%
• ₹12 lakh – ₹15 lakh: 20%
• Above ₹15 lakh: 30%

Standard deduction: ₹75,000 for salaried employees under the new regime (increased in Union Budget 2024–25). Rebate under Section 87A: tax liability is nil if total income does not exceed ₹7 lakh under new regime.

Old Tax Regime — Slabs

• Up to ₹2.5 lakh: Nil
• ₹2.5 lakh – ₹5 lakh: 5%
• ₹5 lakh – ₹10 lakh: 20%
• Above ₹10 lakh: 30%

The old regime allows most deductions and exemptions — HRA, LTA, 80C, 80D, home loan interest, etc.

Decision rule: Run a comparative calculation. The new regime is generally better for income above ₹15 lakh with limited deductions; the old regime is better if your deductions (HRA + 80C + 80D + home loan) exceed approximately ₹3.75 lakh. Always compute both before deciding.

Key Tax-Saving Strategies Under the Old Regime

Section 80C — Up to ₹1.5 Lakh Deduction

The most widely used deduction. Eligible investments and payments:

• Employee Provident Fund (EPF) contribution — automatic via payroll
• Public Provident Fund (PPF) — up to ₹1.5 lakh per year, 15-year lock-in, returns tax-free
• ELSS (Equity Linked Savings Scheme) mutual funds — 3-year lock-in, market-linked returns, most flexible 80C instrument
• Life insurance premiums (own, spouse, children)
• NSC (National Savings Certificate)
• Principal repayment on home loan
• Children's tuition fees (up to 2 children)
• Tax-saving FDs (5-year lock-in, interest taxable)
• Sukanya Samriddhi Yojana (for girl child)

Section 80D — Health Insurance Premium

• Up to ₹25,000 for self, spouse, and children's health insurance premiums
• Additional ₹25,000 for parents' health insurance (₹50,000 if parents are senior citizens)
• Maximum total deduction: ₹75,000 if all family members are senior citizens
• Preventive health check-up expenses up to ₹5,000 within the overall limit

House Rent Allowance (HRA) — Section 10(13A)

If HRA is part of your CTC and you pay rent, the exempt portion is the least of:

• Actual HRA received
• 50% of basic salary (metro) or 40% (non-metro)
• Actual rent paid minus 10% of basic salary

Ensure you collect rent receipts and have the landlord's PAN if annual rent exceeds ₹1 lakh.

Home Loan Deductions

• Section 24(b): Interest on home loan — up to ₹2 lakh per year for self-occupied property (no limit for let-out property, but losses set-off against other income capped at ₹2 lakh)
• Section 80C: Principal repayment — within overall ₹1.5 lakh 80C limit
• Section 80EEA: Additional ₹1.5 lakh interest deduction for first-time homebuyers under affordable housing (loan sanctioned before 31 March 2022 — check if applicable to you)

Leave Travel Allowance (LTA) — Section 10(5)

LTA is exempt for travel within India (to any destination) for self and family. Claim twice in a block of 4 years. Current block: 2022–2025. Only travel costs (air/rail/bus) are exempt — hotels, food not included. Actual travel must occur.

Section 80CCD(1B) — NPS Additional Deduction

An additional ₹50,000 deduction over and above the 80C limit for contributions to National Pension System (NPS) Tier I account. This is available under the old regime and is one of the few deductions that extends beyond the ₹1.5 lakh 80C cap.

Section 80E — Education Loan Interest

Interest paid on education loans for self, spouse, or children is fully deductible under Section 80E for up to 8 years from the year of first repayment. No monetary ceiling — the full interest paid is deductible.

Salary Restructuring — Often Overlooked

Many employers allow employees to structure their CTC to include tax-efficient components. If your employer permits this, consider:

• Meal vouchers/coupons: Up to ₹50 per meal (2 meals/day) is tax-free — ₹26,400 per year
• Phone and internet reimbursement: Actual expenses reimbursed for business use are exempt
• Car maintenance allowance: If a car is provided by the employer, the perquisite value is lower than taking the equivalent as salary
• NPS employer contribution: Employer's contribution to NPS under Section 80CCD(2) is deductible — up to 10% of basic+DA for private sector employees (14% for central government). This deduction is available even under the new tax regime.

Tax Planning Calendar for Salaried Employees

• April: Submit investment declaration to employer for TDS computation. Choose regime. Plan 80C investments.
• June: First advance tax instalment (15 June) if other income (rent, capital gains, interest) creates liability beyond TDS
• July 31: ITR filing deadline (original)
• September: Second advance tax instalment (15 September)
• December: Submit actual investment proofs to employer. Third advance tax instalment (15 December).
• January–March: Ensure all investments are completed. Final TDS adjustment by employer in February/March salary.
• March 15: Fourth advance tax instalment
• March 31: Last date for tax-saving investments for FY

For personalised tax planning and ITR filing assistance, contact Regi Tom Antony And Associates. NRI salaried employees with India-sourced income can find specific guidance at www.nriblueprint.com.

Frequently Asked Questions

Can I switch between old and new tax regime every year?

Salaried employees (without business income) can switch between the old and new tax regime every year at the time of filing their ITR. You can also change your declaration to the employer during the year. However, if you have business or professional income, switching is more restricted — once you opt out of the new regime, you can only return to it once.

What is the standard deduction for salaried employees in FY2025–26?

The standard deduction is ₹75,000 for salaried employees under the new tax regime (increased from ₹50,000 in the Union Budget 2024–25). Under the old tax regime, the standard deduction remains ₹50,000. This is a flat deduction from salary income — no bills or proofs required.

Is EPF contribution mandatory, and is it tax-efficient?

EPF contribution is mandatory for employees of establishments covered under the EPF Act (generally establishments with 20+ employees). The employee's contribution (12% of basic salary + DA) qualifies as a deduction under Section 80C within the ₹1.5 lakh limit. The employer's matching contribution (12%) is not taxable in the employee's hands. Interest credited to EPF is tax-free up to 9.5% per annum; interest on contributions above ₹2.5 lakh per year (by the employee) is taxable — relevant for high earners.