How To Save Tax For Salary Above 10 Lakhs?

In India, income tax is levied based on progressive tax slabs, and individuals often seek ways to minimise or eliminate their tax liability. While many focus solely on tax deductions, they often overlook the benefits of smart salary structuring and strategic tax planning. If you're earning a salary of over ₹10 lakhs and aiming to reduce your tax outgo—or even bring it down to zero—this article is for you. It outlines effective methods to optimise your income and take full advantage of the latest tax provisions.

For the Financial Year 2025-26, the rebate limit has been increased to ₹60,000. This means individuals with taxable income (excluding income taxed at special rates) up to ₹12 lakhs can enjoy zero tax liability. So, if you earn ₹10 lakhs in FY 2025-26, you may potentially end up paying no income tax at all.

Income Tax Slab Rates for FY 2025-26 (AY 2026-27)

In Budget 2025, the Indian government introduced notable changes to the income tax structure under the new tax regime, aimed at providing relief and simplifying the system. One of the key updates was the expansion of tax slabs to increments of ₹4 lakhs, along with the introduction of a new 25% tax rate.

Below are the revised income tax slabs and rates applicable for FY 2025-26 (AY 2026-27) under the new regime:

These changes aim to offer greater tax relief for middle-income earners and encourage more individuals to opt for the simplified new regime.

Income Tax Slabs: Old Regime vs New Regime (FY 2024-25)

With the introduction of the new tax regime, taxpayers now have the option to choose between two systems while filing their returns. Starting FY 2024-25, the new regime is the default, but individuals can still opt for the old regime if it better suits their financial planning.

Here's a comparison of the income tax slabs under the old and new regimes:

Key Points:

• The old regime allows a range of exemptions and deductions (like HRA, 80C, 80D, etc.).
• The new regime offers lower tax rates but does not allow most deductions or exemptions.
• You can choose the regime that offers you the lowest tax liability while filing your return each year.

Tax regime comparisonOld Regime vs New Regime 2025: Which Tax Regime is Better for You? 

How to Save Tax on a Salary Above ₹10 Lakhs in FY 2025-26

Effectively saving tax begins with understanding your salary structure, the available exemptions, and the deductions permitted under both the old and new tax regimes. Let’s break it down for easy application.

Understanding Your Salary Structure

Your taxable salary is calculated by subtracting eligible exemptions and deductions from your gross income. A sample breakdown might look like this:

By properly utilising salary components, exemptions, and deductions, one can significantly lower taxable income—especially under the old tax regime.

Deductions & Exemptions Available Under the New Tax Regime (FY 2025-26)

The new tax regime offers limited deductions, but a few key benefits are still allowed:

• Standard Deduction – ₹75,000 (for salaried individuals)
• Section 80CCD(2) – Employer’s contribution to NPS (up to 10% of salary)
• Section 80CCH – Investment in Agniveer Corpus Fund
• Section 57(iia) – Family Pension: 1/3rd or up to ₹25,000 (whichever is lower)

Exemptions for:

• Voluntary Retirement (Sec 10(10C))
• Gratuity (Sec 10(10))
• Leave Encashment (Sec 10(10AA))
• Interest on home loan (only for let-out property) – Section 24
• Transport allowance for specially-abled individuals
• Conveyance and travel reimbursements for job-related expenses

Note: The new regime does not allow most traditional deductions (like 80C, 80D, etc.)—so choose wisely based on your income and investment profile.

Exemptions Under the Old Tax Regime

You can make your salary more tax-efficient by structuring it to include tax-exempt allowances, such as:

Deductions Under the Old Tax Regime

Alongside exemptions, the old regime allows you to claim multiple deductions:

 Final Tip: Choose the Right Tax Regime

• If you invest in tax-saving instruments and claim deductions, The old regime is likely better.
• If you prefer lower tax rates and simpler filing with fewer claims, The new regime may work best.

Best tax saving methodsBest Ways to Save Income Tax for FY 2024-25

Smart Tax Saving Tips for ₹10 Lakh Salary: Old vs New Regime

No matter which tax regime you choose—Old or New—you can lower your tax liability significantly by understanding and using the available deductions and exemptions under the Income Tax Act. Here's how:

1. Claim Standard Deduction

• New Regime: ₹75,000
• Old Regime: ₹50,000

This deduction is available to all salaried individuals automatically, with no conditions.

2. Use Rebate Under Section 87A

• Old Regime: Rebate on income up to ₹5,00,000
• New Regime (FY 2024–25): Rebate on income up to ₹7,00,000
• New Regime (From FY 2025–26): Rebate on income up to ₹12,00,000

Note: The rebate is not applicable to income taxed at special rates (e.g. capital gains, betting, etc.).

3. Choose the Most Tax-Beneficial Regime

Compare both regimes carefully:

Run an annual comparison to see which regime is more tax-efficient based on your actual investments and exemptions.

4. Employer’s NPS Contribution (Section 80CCD(2))

You can claim a deduction on your employer’s NPS contributions:

This is in addition to the ₹1.5 lakh limit under Section 80C.

5. Tax-Free Gifts (Section 56)

• Gifts (cash/kind) up to ₹50,000 in a financial year: Tax-free
• If the value exceeds ₹50,000: the Entire amount becomes taxable

Applies in both regimes.

6. Interest on Let-Out Property (Section 24)

Interest paid on a home loan for rented property is fully deductible.

• No upper limit for this deduction.
• Helps offset rental income and reduce taxable salary.

7. Gratuity & Leave Encashment Exemptions

• Exemption allowed for gratuity and leave encashment received on retirement/resignation.
• Subject to limits defined under the Income Tax Act.
• Available in both regimes.

8. Deduction for Additional Employee Cost (Section 80JJA)

• 30% of the cost incurred on employing additional staff is deductible.
• Available regardless of tax regime, especially useful for businesses and startups.

9. Deduction on Agniveer Corpus Fund (Section 80CCH)

• Applicable for individuals under the Agnipath Scheme.
• 100% of the Central Government's contribution to the Agniveer Corpus Fund is deductible.
• No maximum limit. Available under both regimes.

Final Tips:

• Always compare both regimes before filing
• Declare and invest smartly under sections like 80C, 80D, etc., if choosing the old regime
• Utilize employer-linked deductions such as NPS
• Keep your taxable income under ₹12 lakhs to enjoy full rebate under the new regime (from FY 2025–26)

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Example: Tax Calculation Under Old vs New Tax Regime (FY 2025–26)

Meet Mr. Ramesh

• Annual Salary: ₹10,00,000
• He claims the following under the Old Regime:
• HRA Exemption: ₹1,80,000
• Leave Travel Allowance (LTA): ₹35,000
• Children’s Education & Hostel Allowance: ₹10,000
• Standard Deduction: ₹50,000
• Professional Tax: ₹2,400
• PPF Investment under Section 80C: ₹1,50,000
• Health Insurance Premium (Self + Parents): ₹60,000
• Education Loan Interest (Section 80E): ₹40,000

Income Tax Calculation – FY 2025–26

• Rebate Limit in New Regime Increased to ₹12 Lakhs
• Earlier, taxpayers with income up to ₹7L got a full rebate.
• Now, anyone earning up to ₹12L pays zero tax under the new regime.

Under the Old Regime, Mr. Ramesh saves tax by investing and claiming deductions. Under the New Regime (FY 2025–26), even without deductions, he pays zero tax thanks to the enhanced rebate.

So, if Mr. Ramesh does not wish to manage multiple deductions or investments, the new regime is now clearly more favourable.

Other Smart Tax Planning Strategies For Salary Above 10 Lakhs

Earning above ₹10 lakhs puts you in a higher tax bracket, but with smart planning, you can significantly reduce your effective tax liability

Salary Optimisation for Tax Efficiency

A well-structured salary can significantly reduce your tax burden, especially under the old regime. Employees should negotiate for tax-exempt components like HRA, LTA, food coupons, mobile and internet reimbursements, and company-leased accommodation. These components, when aligned with actual expenses, reduce the taxable portion of your salary. For instance, HRA can save substantial tax if you’re paying rent and your salary structure supports it. Flexi-benefits from employers can also be utilised to create a customised, tax-efficient compensation plan.

Strategic Use of Section 80D and Beyond

While most people focus on Section 80C, additional sections like 80D (health insurance), 80E (education loan interest), and 80G (donations) often go unused. Section 80D allows deductions up to ₹25,000 for self/family and an additional ₹50,000 for senior citizen parents. If you’re paying premiums for both, you can claim up to ₹75,000. Likewise, if you’ve donated to eligible charitable institutions, you could claim 50% or 100% of the amount under 80G, depending on the registration status of the charity.

Real Estate: Let-Out Properties and Tax Optimisation

While the interest deduction on home loans for self-occupied properties is capped at ₹2 lakh under Section 24(b), there is no cap for let-out properties. If you own a second house that is rented out, the entire interest paid on the loan can be deducted from your taxable income. This makes real estate a powerful tool for tax reduction, especially if the rental yield covers a significant portion of the EMI. However, the net loss from house property that can be set off against other heads is restricted to ₹2 lakh per year.

Family-Based Income Splitting

Smart tax planning can also be done by leveraging family members' lower or nil tax slabs. For instance, investing money in the name of your non-working spouse, senior citizen parents, or adult children can reduce your overall family tax burden. While clubbing provisions apply in certain cases, you can bypass them by gifting money to parents or adult children, whose income is taxed independently. This is particularly useful if they invest in instruments like fixed deposits, mutual funds, or even rent out a property.

Tax Planning Through Employer’s NPS Contribution

Even under the new regime, contributions made by your employer to the National Pension System (NPS) under Section 80CCD(2) are tax-deductible without limit under 80C. Employers can contribute up to 10% of your basic salary (14% for government employees), and this amount is not considered as taxable income. This is one of the very few deductions still allowed under the new regime and is a highly efficient retirement planning tool.

Choosing Between Regimes Each Year

Since salaried taxpayers can switch between the old and new regime every financial year, it is important to re-evaluate your situation annually. A person with no major deductions might benefit more from the new regime, especially with the enhanced rebate up to ₹12 lakh in FY 2025–26. However, for someone claiming HRA, 80C, 80D, and home loan deductions, the old regime often results in lower taxable income. Comparing both regimes using a tax calculator or consulting a tax advisor before filing is a smart move.

Use of Leave Travel Allowance (LTA)

LTA is an often-overlooked tax exemption under the old regime that can be claimed twice in a block of four calendar years. It covers travel expenses incurred for you and your family within India. The exemption applies only to travel fare (not hotel or food), and requires submission of proof. Utilizing this benefit for planned vacations can reduce tax liability while enjoying leisure time. However, it is not available under the new regime.

Donations as a Tax Strategy

Section 80G allows deductions for donations made to registered charities, temples, and relief funds. Not only does this promote philanthropy, but it also reduces your tax liability if planned well. For example, donations to the PM CARES Fund and some educational institutions offer 100% deduction without limit. Always retain the donation receipts and ensure the organization is eligible under 80G. Under both regimes, donation deductions are only allowed under the old tax regime.

Long-Term Capital Gains and Tax Planning

For investors, long-term capital gains (LTCG) from listed equities above ₹1 lakh are taxed at 10% (without indexation). Tax-saving strategies include harvesting gains annually within the ₹1 lakh exemption limit, investing via ELSS funds (eligible under 80C), and planning redemptions over multiple financial years. Under the new regime, since 80C is not allowed, ELSS loses its tax-saving appeal but remains a low-tax instrument compared to short-term gains.

Last-Minute Tax-Saving Checklist

As the financial year draws to a close (usually March 31), taxpayers often scramble to invest. Keep a checklist handy:

• Have you invested the full ₹1.5 lakh under Section 80C?
• Paid health insurance premiums for self and parents?
• Donated to eligible causes with 80G receipts?
• Checked HRA and rent receipts?
• Reviewed both regimes before filing?

This proactive planning avoids last-minute mistakes and ensures maximum savings.

Need help choosing the right tax regime or maximising your deductions?

Confused about the right tax regime or how to maximise your deductions? Let the experts at IndiaFilings help you make smarter tax decisions with personalised guidance and seamless filing support. Whether you're a salaried individual or managing multiple income sources, our tax advisors will tailor a strategy that fits your financial goals. 

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