How to Save Tax on Rs. 12 Lakh Salary
- PRITI SIRDESHMUKH
- 4 days ago
- 12 min read
The income tax department in India has implemented a progressive tax system, which means that as your income rises, so do the tax rates. However, you can gain a lot of advantages by being familiar with efficient tax reduction techniques. To lessen your tax burden, you can choose from a number of tax-saving strategies. A number of initiatives were announced in the Union Budget 2025 by Finance Minister Nirmala Sitharaman with the intention of reducing the tax burden on individual taxpayers. The raised income tax rebate threshold under the new tax regime, which exempts anyone making up to Rs. 12 lakh yearly from paying taxes, is a highlight of this year's budget. Because of the standard deduction, this limit increases to Rs. 12.75 lakh for salaried taxpayers. Saving taxes as a salaried taxpayer in India requires a thorough knowledge of tax slabs, deductions, and other techniques.
Table of Contents
What Changed for Salaried Taxpayers in FY 2025-26?
In order to help the salaried class, the Union Budget 2025–2026 made significant revisions to the new tax regime, which was the default starting in FY 2023–2024.
Standard deduction has been increased from Rs. 50,000 to Rs. 75,000. By applying the standard deduction prior to tax calculation, the taxable income is essentially decreased. All salaried people, including pensioners, are covered by it. For example, a standard deduction of Rs. 75,000 will be applied to your Rs. 12 lakh income, lowering your taxable income to Rs. 11.25 lakh. Only the new regime is affected by it.
Section 87A rebate has been raised from Rs. 25,000 Section 87A rebate has been raised to Rs. 60,000. This implies that under the new system, you won't be required to pay any taxes if your taxable income is less than Rs. 12.75 lakh. Every Indian resident is eligible for this benefit, which is only accessible once a year. We'll go into more depth about this later.
Without requiring expenditures in conventional tax-saving tools, this action promotes increased take-home income and makes tax planning easier for many. It is important to be aware of the tax rates under the new and old tax regimes before delving into the specifics of figuring out taxes for an income of Rs. 12 lakh.
Tax Slabs Under the New Tax Regime For FY 2025-26
A substantial alteration to the tax slabs and rates was proposed in the Budget 2025. Blocks of 4 lakhs were added to the slab limits, and a 25% tax rate was also implemented. The following are the updated tax slabs for FY 2025–2026 (AY 2026–2027) under the new regime:
Income Tax Slabs
| Tax Rate
|
Up to Rs. 4 lakhs | NIL |
Rs. 4 lakhs - Rs. 8 lakhs | 5% |
Rs. 8 lakhs - Rs. 12 lakhs | 10% |
Rs. 12 lakhs - Rs. 16 lakhs | 15% |
Rs. 16 lakhs - Rs. 20 lakhs | 20% |
Rs. 20 lakhs - Rs. 24 lakhs | 25% |
Above Rs. 24 lakhs | 30% |
Tax Slabs Under Old vs New Tax Regime For FY 2024-25
When filing your taxes, you have the option to use the old or new tax system; the new regime is now the default. Here's how the two differ from one another:
Tax Slab
| Tax Rate (Old tax regime) for FY 2024-25
| Tax Slab
| Tax Rate (New tax regime) for FY 2024-25
|
Up to Rs 2,50,000 | Nil | Up to Rs 3,00,000 | Nil |
Rs 2,50,000 – Rs 5,00,000 | 5% | Rs 3,00,001 – Rs 7,00,000 | 5% |
Rs 5,00,000 – Rs 10,00,000 | 20% | Rs 7,00,001 – Rs 10,00,000 | 10% |
Rs 10,00,000 and beyond | 30% | Rs 10,00,001 – Rs 12,00,000 | 15% |
NA | NA | Rs 12,00,001 – Rs 15,00,000 | 20% |
NA | NA | Rs 15,00,000 and beyond | 30% |
For FY 2024–2025, a standard deduction of Rs. 75,000 is permitted. Additionally, the deduction on family pension is one-third of the pension, up to a maximum of Rs. 25,000. The deductions under Sections 80C to 80U are not accessible to you if you file your taxes under the new system, and some additional tax benefits and exemptions are only available under the previous regime. You can use the old vs. new tax system calculator to determine your tax liability under both regimes.
What are the Tax Saving Options Under the Old and New Tax Regime
Before opting for a tax regime as a salaried taxpayer, you must understand the tax-saving alternatives under the old and new regimes to choose wisely.
Tax Saving Options Under the Old Tax Regime
The deductions and exemptions that apply if you choose to pay your taxes under the old tax system are as follows:
Section 1: Benefits Under the Head Salary- The CTC may tell you your pay structure, which typically looks like this:
Salary Component
| Taxability
|
Basic Pay | Fully taxable |
Dearness Allowance | Fully taxable |
Standard Deduction | Rs 50,000 (Applicable to all without any restrictions) |
Leave Travel Allowance (LTA) | As per Section 10(5), the actual travel ticket expense exempt for 2 years in a block of 4 years under 10(5) |
House Rent Allowance (HRA) | Exempt up to a specified limit |
Children's Education and Hostel Allowance | Rs. 4800 per child (up to a maximum of 2 children) |
Mobile/ Internet reimbursement | Exempt if:
– used predominantly for office purposes – proofs/bills submitted
|
Professional Tax | Generally Rs 2,400 (may vary state-wise) |
Food | Rs. 50 per meal (maximum 2 meals a day) Annual = Rs. 26,400 (50*2*22 days*12 months) |
Part 2: General deductions- The following deductions are available to salaried taxpayers drawing over Rs. 10 lakh:
Section
| Conditions
|
Section 80D for health insurance policy
premiumÂ
| Self, your spouse, and dependent children:Â Rs 25,000 (Rs 50,000 for people aged 60 and above) Rs. 25,000 for parents (Rs 50,000 if aged 60 and above) |
Section 80E for education loan | Interest for 8 years from the year of loan repayment for higher education loan of yourself/spouse/dependent children/a student of whom you are the legal guardian |
Section 80G for charitable donations | 50% or 100% of the eligible amount for specified institutions |
Annual tax benefit of Rs.1,50,000 for investment in: – Employees’ Provident Fund (EPF)– Public Provident Fund (PPF))– Home loan repayment and Stamp duty– Equity Linked Saving Scheme funds (ELSS)– National Savings Certificate (NSC)– Sukanya Smriddhi Yojana (SSY) | |
Section 80DD for treatment costs for disabled dependents | If you bear medical expenses for treatment of a disabled dependent, the tax relief available is: – Rs.75,000 for 40% disability: – Rs.1,25,000 for 80% or severe disability |
Deductions on home loan payments | Principal amount: Deduction up to Rs 1.5 lakhs under Section 80C Interest amount: Deduction up to Rs 2 lakhs paid under Section 24b |
Tax Saving Options Under the New Tax Regime
If you want to use the new tax regime, you can now claim specific deductions, unlike in prior fiscal years. The list of tax deductions accessible under the new tax regime was released in the Union Budget 2023-24. The deductions for the fiscal year 2024-25 are as follows.
Standard Deduction of Rs.75,000
Deduction of employer’s contribution to National Pension Scheme (NPS) u/s 80CCD(2)
Family pension as per section 57(iia)
Deduction for Agniveers under Section 80CCH
Conveyance Allowance
Transport Allowance for the physically-challenged
Transport allowances for a specially-abled person.
Interest on Home Loan on the let-out property u/s 24
Exemption on gratuity u/s 10(10), leave encashment u/s 10(10AA), and voluntary retirement u/s 10(10C)
Steps to Save Tax for Rs. 12 Lakh Salary
Choose a Favourable Tax Regime
Numerous tax deduction possibilities with low slab rates were available under the previous tax system. On the other hand, the new tax regime has higher slab rates and fewer opportunities for tax deductions. For instance, under the old regime, income up to Rs. 2,50,000 was exempt from taxes. However, under the new tax regime, income up to Rs. 3,000,000 is free. You can examine and choose which regime is best for you based on your income level and the tax deduction investments you have made. Selecting a favourable regime significantly lowers tax obligations.
Claim Standard Deduction
The most popular deduction among professionals and the general public is the standard deduction. It is offered without any restrictions against salary income. A standard deduction of Rs. 75,000 is available if you select the new tax system. In the case of the previous regime, a standard deduction of Rs. 50,000 is provided.
Claim Employer’s Contribution to NPS u/s 80CCD(2)
Employer contributions to the National Pension Scheme (NPS) may be deducted under Section 80CCD(2). Both of the new regimes allow for this amount to be deducted, albeit the maximum deduction varies depending on the regime selected. The amount of deduction possible under both regimes for employer payments to the NPS plan under section 80CCD (2) is shown in the following table.
Regime
| 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) |
Seek Deduction for Interest on Borrowing for Let-Out Property
A deduction under section 24 may be obtained if the assessee has rented out his property (a residential or commercial building). It is possible to deduct the interest paid on loans taken out for the construction or acquisition of real estate. The maximum amount that can be deducted is not set.
Claim Exemption for Gifts Received
Under section 56 of the Income Tax Act, gifts that are received in cash or in kind and have a value of up to Rs. 50,000 are exempt from taxation. The full amount is taxable if the amount received or the monetary worth of the in-kind gift exceeds Rs. 50,000. Both the old and the new tax regimes can benefit from this tax-saving strategy.
Claim Exemption for Gratuity and Leave Encashment
The sum paid as a gratuity and leave encashment at the conclusion of the employment term is exempt. The worker has the option to retire or leave their job before they do. The maximum amount that can be deducted for both gratuities and leave encashment is specified in the Income Tax Act. Both the old and new tax regimes are equally eligible for this exemption.
Claim Deduction on Agniveer Corpus Fund
Section 80CCH(2) permits the Central Government's contribution to the assessee's Agniveer Corpus Fund to be deducted. This deduction is available to those who are enrolled in the military forces' Agnipath Scheme. This area has no upper limit on the amount that can be deducted. The full amount of the Central Government's contribution may be deducted. Both the old and new regimes allow for this deduction.
Claim Deduction on Additional Employee Cost
Section 80JJA allows for deductions regardless of the assessee's regime preference. A deduction of 30% of the cost of hiring more staff may be permitted.
How to Calculate Income Tax for Rs. 12 Lakh Salary in Old & New Tax Regime
We will explain the process for the calculation of income tax on a Rs. 12 lakh salary in the old and new tax regimes with an example. Mr. X earns Rs. 12 lakhs in gross salary. Additionally, he is qualified to receive a Rs. 60,000 HRA exemption, a Rs. 20,000 LTA exemption, and a Rs. 2,400 professional tax exemption. He also contributed Rs. 1.5 lakhs to PPF, paid Rs. 50,000 for his parents' (seniors) medical insurance premium, and paid Rs. 25,000 in interest on his education loan. The following is how taxes will be calculated under the new and old tax regimes:
Particular
| FY 2025-26: Old Tax Regime
| FY 2025-26: New Tax Regime
|
Gross Salary under Section 17(1) | 12,00,000 | 12,00,000 |
Less: Exemption under Section 10 | ||
HRA Exemption | 60,000 | NA |
LTA Exemption | 20,000 | NA |
Reimbursement | NA | NA |
Children's education and hostel allowance | NA | NA |
Less: Deduction under Section 16 | ||
Standard deduction | 50,000 | 75,000 |
Deduction of Professional Tax Paid | 2,400 | NA |
Income under the Head Salary | 10,67,600 | 11,25,000 |
Less: Deduction under Chapter VI-A | ||
Section 80C | 1,50,000 | NA |
Section 80D | 50,000 | NA |
Section 80E | 25,000 | NA |
Net Total Income | 8,42,600 | 11,25,000 |
Income Tax (Including Surcharge and Cess) | 84,261 | 52,500 |
Less: Rebate u/s 87A | 0 | 52,500 |
Tax Liability (Including Cess) | 84,261 | 0 |
Choosing the new tax regime will be more advantageous for a taxpayer with a total income of Rs. 12 lakhs in FY 2025–2026 because there will be no tax due. Consequently, Rs. 84,261 in tax savings are achieved.
Now, let us calculate the same tax liability for Mr. X for the financial year 2024-25 for both old and new regimes.
Particulars
| FY 2024-25: Old Tax Regime
| FY 2024-25: New Tax Regime
|
Gross Salary under Section 17(1) | 12,00,000 | 12,00,000 |
Less: Exemption under Section 10 | ||
HRA Exemption | 60,000 | NA |
LTA Exemption | 20,000 | NA |
Reimbursement | NA | NA |
Children's education and hostel allowance | NA | NA |
Less: Deduction under Section 16 | ||
Standard deduction | 50,000 | 75,000 |
Deduction of Professional Tax Paid | 2,400 | NA |
Income under the Head Salary | 10,67,600 | 11,25,000 |
Less: Deduction under Chapter VI-A | ||
Section 80C | 1,50,000 | NA |
Section 80D | 50,000 | NA |
Section 80E | 25,000 | NA |
Net Total Income | 8,42,600 | 11,25,000 |
Income Tax (Including Surcharge and Cess) | 84,261 | 71,500 |
Less: Rebate u/s 87A | 0 | 0 |
Tax Liability (Including Cess) | 84,261 | 71,500 |
Despite the claimed discount and exemption, the new tax regime is more advantageous than the old one, as illustrated by the example above. This is a result of lower tax slab rates offered by the new tax system. However, the previous tax system will be advantageous if the person has access to additional deductions.
Who Should Choose the Old Tax Regime in FY 2025-26?
For people who claim larger deductions through various financial instruments, the old tax code may still be more advantageous despite the new regime's attraction. Think about sticking with the previous system if:
You make large investments in Section 80C tax-saving products like PPF, ELSS, EPF, life insurance, and five-year fixed deposits.
You wish to make a claim for home loan interest deduction of Rs. 2 lakh under Section 24B and an extra Rs. 1.5 lakh for first-time homebuyers under Section 80EEA.
You wish to request an exemption from the House Rent Allowance since you pay rent and receive HRA.
You wish to claim deductions under Section 80D (Rs. 25,000 to Rs. 75,000) for health insurance that you and your parents pay for.
Who Should Choose the New Tax Regime in FY 2025-26?
For you, the new tax system is best if:
You prefer a more straightforward tax system with fewer compliance obligations.
You don't claim several deductions (such as 80C, 80D, HRA, and house loan interest).
You wish to lawfully avoid paying income tax since your yearly income is Rs. 12.75 lakh or less.
Your goal is to increase your take-home pay each month.
Conclusion
You can save taxes by using both the old and new tax regimes wisely if you understand the complexities of the taxing system. Invest in tax-saving schemes like EPF, NPS, SSY, and ELSS if you wish to stick with the previous tax system. By claiming a deduction under the Standard deduction, employer contributions to NPS, etc., you can still plan your investments and avoid paying high taxes if you choose to use the new tax system.
Frequently Asked Questions
Can you pay zero tax on a Rs 12 lakh salary?
Yes, you can claim deductions and exemptions such as the HRA exemption, the 80C deduction, the standard deduction, the housing loan interest, etc. to pay zero tax on a salary of Rs 12 lakhs. Under the previous tax system, it was possible to pay zero tax on a salary of Rs 12 by utilising all of the current exemptions and deductions. However, paying zero tax on Rs. 12 lakhs is a rare possibility under the current tax regime because of the limited deductions and exemptions.
What is in-hand salary for a Rs. 12 lakh salary?
Your Rs 12 lakh in-hand pay will be determined by your CTC, PF contribution, PT deduction, and TDS deduction.
Which tax regime is better for a Rs. 12 lakh salary for FY 2025-26?
Since there is no tax obligation on income up to Rs. 12 lakhs for FY 2025–2026 under the new regime, it is advantageous.
How to claim a tax rebate under section 87A?
If, after deducting all relevant deductions and exemptions, your taxable income is less than Rs. 5,00,000 when you file your income tax return, you may be eligible for a tax refund of up to Rs. 12,500 under the previous regime and Rs. 25,000 under the current one.
What is the limit for tax deduction under section 80D?
Medical policy premiums can be tax-deductible under Section 80D. You can deduct up to Rs. 25,000 if you are paying your own insurance payments. A deduction of Rs. 50,000 is allowed if you pay the premium for both you and your parents under the age of sixty. The tax benefit increases to Rs. 75,000 if both of your parents are above 60.
What tax deductions do Agniveers get under section 80CCH?
After enrolling in the Agnipath Scheme, Agniveers who serve in the Indian Armed Forces are eligible to receive a deduction equal to the amount they contribute to the Agniveer Corpus Fund.
How is the house rent allowance calculated?
If your rent is less than 10% of your base pay and DA, you can collect your entire house rent allowance. You can claim 40% of your basic plus DA compensation if you live in a non-metropolitan area and 50% of your basic plus DA salary if you remain in a metro area.
What is the maximum tax benefit you can claim under children's allowance?
You are eligible to receive a maximum tax exemption of Rs. 1,200 annually on your employer's children's allowance. This is permitted for a maximum of two children, though.
Should I invest in 80C instruments to save tax under the new regime?
No. The majority of deductions, including 80C, 80D, and HRA, are prohibited under the new regime. Based only on slab rates and the standard deduction, your income is tax-free.
Can I still buy life insurance even if it doesn't give a tax deduction?
Even though the new system does not allow for 80C deductions, life insurance helps safeguard your family's future and delivers a tax-free maturity under Section 10(10D).
Can I switch tax regimes every year?
Yes, while filing their tax returns each fiscal year, salaried taxpayers have the option to select between the old and new regimes.
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