If your annual salary is above ₹12 lakhs, you might be wondering how to reduce your tax burden. There is a progressive tax structure in India, which means the higher your income, the higher the tax rate for the income slab. In addition, the Indian tax system provides two regimes—the old tax regime and the new one, each with different slab rates and benefits.
If you want to know how to save income tax for a salary above ₹12 lakhs, it is important to know the taxation for your income slab and what tax-saving benefits are available under each regime.
Tax Rates Under the New Regime
As per the Finance Act 2025 tabled during the Union Budget 2025, individuals earning up to ₹12,00,000 will not have to pay any taxes under the new regime because of the increased rebate of ₹60,000.
For salaried employees, incomes up to ₹12,75,000 will also be tax-free, thanks to the ₹75,000 standard deduction. Here are the revised tax rates for FY2025-26.
Income Tax Slabs
| Tax Rate
|
Income up to ₹4,00,000
| NIL
|
Between ₹4,00,001 - ₹8,00,000
| 5%
|
Between ₹8,00,001 - ₹12,00,000
| 10%
|
Between ₹12,00,001 - ₹16,00,000
| 15%
|
Between ₹16,00,001 - ₹20,00,000
| 20%
|
Between ₹20,00,001 - ₹24,00,000
| 25%
|
Above ₹24,00,000
| 30%
|
Tax Rates under the Old Regime
For multiple reasons, people may choose to opt for the old tax regime. As per the old tax regime, these are the rates for different slabs.
In the case of every individual, who is below sixty years of age.
Income Tax Slabs
| Tax Rate
|
Up to ₹2,50,000
| Nil
|
Between ₹2,50,000 - ₹5,00,000
| 5%
|
Between ₹5,00,000 - ₹10,00,000
| 20%
|
₹10,00,00 and more
| 30%
|
In the case of every individual, being a resident in India, who is of the age of sixty years or more but less than eighty years at any time during the previous year.
Total Income
| Tax Rates
|
Up to INR 3,00,000
| Nil
|
From INR 3,00,001 to INR 5,00,000
| 5%
|
From INR 5,00,001 to INR 10,00,000
| 20%
|
INR 10,00,001 and above
| 30%
|
In the case of every individual, being a resident in India, who is of the age of eighty years or more at any time during the previous year.
Total Income
| Tax Rates
|
Up to INR 5,00,000
| Nil
|
From INR 5,00,001 to INR 10,00,000
| 20%
|
INR 10,00,001 and above
| 30%
|
As you can see, the tax rates for each regime differ widely. Hence, choosing the right tax regime is essential when planning how to save income tax for a salary above ₹12 lakhs.
Let’s analyse the tax-saving benefits of each regime to get clarity.
Tax-saving Options Under the New Regime
As the above table shows, a key benefit under the new regime is the tax rebate for the slab of ₹12 lakh.
However, the new regime does not allow popular deductions such as 80C (PPF, ELSS), 80D (health insurance), and HRA. But, along with the tax rebate for ₹12 lakh slab limit, the new tax updates have added some lucrative tax benefits to encourage more people to the new regime:
A standard deduction of ₹75,000 is allowed for salaried individuals and pensioners alike.
Your employer’s contributions to NPS (National Pension System) for the year can help reduce your tax outgo under the new regime. The maximum deduction allowed is 14% of salary (basic + DA).
Transport and conveyance allowances for specially abled individuals can help reduce their tax liability.
Exemptions are available on voluntary retirement (Section 10(10C)), gratuity (Section 10(10)), and leave encashment (Section 10(10AA))
A deduction can be claimed against the home loan interest on let-out properties under Section 24 of the Income Tax Act.
One-third of the family pension amount can be used to deduct taxes subject to a maximum limit of ₹25,000. (Section 57(iia)).
The maturity amount of a life insurance policy is tax-exempt if certain conditions are met.
Tax-Saving Options Under the Old Regime
By opting for the old regime, your tax liability may increase. However, you also become eligible to enjoy a host of tax-free investments and deductions.
Tax-free Investments (Section 80C)
This is the most important tax-saving section of the Income-tax Act. Under Section 80C, investing in PPF, EPF, NSC, Sukanya Samriddhi Yojana, ELSS, ULIPs, and tax-saving FDs can help you claim up to ₹1.5 lakh in deductions. Note that the maximum you can claim (for all your tax-free investments) under this Section is ₹1.5 lakhs.
House Rent Allowance (HRA) Exemption
If you live in a rented house and have an HRA component in your salary, you can claim tax exemption on rent paid as long as you meet the necessary conditions.
Home Loan Benefits (Section 80C & 24B)
While the principal repayment qualifies for a deduction under Section 80C, the interest amount paid on the loan qualifies for a deduction up to ₹2 lakh per year under Section 24(b).
Medical Insurance (Section 80D)
As per prevailing laws, you can claim up to ₹25,000 deduction for health insurance premiums paid for self, spouse, and children (all under 60 years). In addition, if you have health insurance for your parents (over 60 years old), you can claim an additional ₹50,000.
Education Loan Interest Deduction (Section 80E)
If you are repaying an education loan for higher studies, the interest component can be deducted for up to 8 years.
Leave Travel Allowance (LTA)
The LTA component of your salary can be claimed for two years in a block of four years under Section 10(5).
Donations (Section 80G)
Donations made to notified charitable organisations are eligible for a tax deduction of 50% to 100%.
Life Insurance Maturity Amount [Section 10(10)D]
If you have a life insurance policy, its maturity amount is tax-free under specific conditions. For instance, for policies issued before April 1, 2012, the premium should be at least 20% of the sum assured to be eligible for the exemption. For policies issued after that date, the premium should be at least 10% of the sum assured. In addition, ULIPs have separate conditions.
Standard Deduction
A deduction of ₹50,000 is available for all without any conditions.
Which Regime is Better for Salaries Above ₹12 Lakhs?
While the new regime offers lower rates, the old regime allows you to opt for a higher list of tax-free investments. The choice between the old and new tax regimes depends on your preferences:
Ideally, you should choose the new tax regime if:
i.) You prefer lower tax rates.
ii.) You do not have significant tax-saving investments.
iii.) You want a simpler tax filing process.
On the other hand, choose the old tax regime if:
i.) You have major tax-saving investments like PPF, NPS, and home loans.
ii.) You can claim deductions exceeding ₹2.5–₹3 lakh per year.
Tips to Optimise Your Tax-Saving Strategy
In addition to choosing the right tax regime, you can follow these tips to ensure tax efficiency:
Use an income tax calculator. It will give you an estimate of your tax liability based on your income and eligible tax benefits. This will give you an idea of how much you will be paying under each regime and what your post-tax income will be.
File your ITR on time. Delays in filing ITR can lead to penalties which may reduce your post-tax income. Ensure to choose the correct ITR as well.
Consult a licenced tax expert. They may offer you personalised guidance based on what’s ideal for you as per your needs and goals.
There are various options for you to save tax if your salary is above ₹12 lakhs. Make sure to learn both the tax regimes in detail and choose the right one for you. Once chosen, ensure to maximise the deductions and exemptions available under it. For best results, use the income tax calculator and/or reach out to a financial expert.
**Tax exemptions are as per applicable tax laws from time to time.
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