How to Save Tax for Salary Above 12 Lakhs?

In India, the income tax department has set up a progressive tax regime, meaning the tax rates keep increasing with your income. However, by familiarizing yourself with effective tax reduction strategies, you can benefit a lot. You can opt for various tax-saving measures to reduce your tax burden. 

For the FY 2025-26, the rebate limit has been increased to Rs. 60,000. This means that taxpayers whose taxable income (excluding income taxed at special rates) is not more than Rs. 12 lakhs will have no tax liability, effectively making their income tax-free.

So, if someone earns Rs. 12 lakhs in FY 2025-26, they won't have to pay any tax, as their income falls below the new Rs. 12 lakh rebate limit.

Tax Slabs Under The New Tax Regime For FY 2025-26

In the Budget 2025, a significant change in the tax slabs and rates was introduced. The slab limits were enhanced to blocks of 4 lakhs and a tax rate of 25% was also introduced. 

The revised tax slabs under the new regime for FY 2025-26 (AY 2026-27) are as follows:

Tax Slabs Under Old vs New Tax Regime For FY 2024-25

The new regime of tax has been made the default regime, you can opt for either the new or the old regime while filing your taxes. Here is a difference between the two:

Note:

• Standard deduction allowed is Rs.75,000 for FY 2024-25
• Deduction on family pension is one third of pension subject to a maximum Rs.25,000  for FY 2024-25

If you file your taxes according to the new regime, you cannot avail the deductions available under Section 80C to 80U and certain other tax benefits/exemptions are restricted to old regime only. To calculate your tax liability using both regimes, you may use the old vs new tax regime calculator. 

Tax Saving Options Under New and Old Tax Regime

Let us take a look at the new and old tax regime tax slab to get an idea regarding how much tax you need to pay in case your income is above Rs 12 lakh:

New Tax Regime

Unlike previous financial years, you can now claim certain deductions if you opt for the new tax regime. The Union Budget 2023-24 announced a list of tax deductions that you can claim under the new tax regime, The following are the deductions available  for the financial year 2024-25.

• Standard Deduction of Rs.75,000
• Deduction for Agniveers under Section 80CCH
• Deduction of employer’s contribution to National Pension Scheme under Section 80CCD(2)
• Family pension as per section 57(iia)
• Conveyance Allowance 
• Transport Allowance with respect to physically challenged.
• Exemption on voluntary retirement 10(10C), gratuity u/s 10(10) and Leave encashment u/s 10(10AA) 
• Interest on Home Loan on the let-out property (Section 24)
• Transport allowances in case of a specially-abled person. 

Old Tax Regime

Now let us check out all the exemptions and deductions applicable in case you opt to pay your tax using the old tax regime:

Part 1- Benefits available Under the Head Salary

You can find out your salary structure from the CTC, which generally looks like:

Part 2- General Deductions

When you are tax planning for salary above 10 lakhs, you can get deductions on the following:

How to Save Taxes for 12 Lakh Salary? 

Irrespective of the regime you choose, you can consider the below points to derive maximum benefits of the deductions available under the Income Tax Act. 

Claim Standard Deduction 

• Standard deduction is the favorite deduction among both general public and professionals.
• It is available against salary income without any conditions attached. 
• If you choose new tax regime, a standard deduction of Rs.75,000 is available. Rs.50,000 of standard deduction is available in case of old regime.

Choose the Most Beneficial Regime 

• Lets understand the tax implications related to slab rates. Lower the slab rates, higher will be tax liability. For example, when the income upto Rs. 2,50,000 is tax exempt in the old tax regime. Whereas, the income up to Rs.3,00,000 is exempt for new tax regime. 
• So we need to pay tax for amount exceeding Rs.2,50,000 under the old regime. Whereas in new regime, no tax liability arises as long as it does not exceed Rs.3,00,000. So, we can infer that higher the slab rates, more beneficial it is.  
• The old tax regime has a lot of tax deduction options with low slab rates. Whereas, the new tax regime has limited tax deduction options with higher slab rates.
• You can analyze and find the most beneficial regime for you, considering the tax deduction investments you have made and level of income. Choice of beneficial regime greatly reduces tax liability.

Claim Employer’s Contribution to NPS u/s 80CCD(2)

• Section 80CCD(2) allows deduction for contribution made by employer in National Pension Scheme (NPS). 
• Deduction is available under both new regime for this amount, though the limit for deduction differs according to choice of regime. 

The following table describes the quantum of deduction available under both the regimes for contributions made by the employer in the NPS scheme under section 80CCD (2)

Claim Exemption on Gifts Received

• Gifts received either in cash or through kind if the amount or the value of the gift received is up to Rs.50,000 is not taxable under section 56 of the Income Tax Act. 
• If the amount received or the monetary value of the gift received in kind exceeds Rs.50,000, then entire amount is taxable. 
• This tax saving option is available for both old and new tax regimes.

Claim Deduction for Interest on Borrowing for Let Out Property

• If the assessee has rented out his property (residential or commercial building), deduction under section 24 can be availed. 
• The amount of interest paid for amount borrowed for purchase or construction of immovable property can be allowed as a deduction. 
• There is no maximum limit fixed for claiming this deduction. 

Gratuity and Leave Encashment

• Exemption is available for the amount received as gratuity and leave encashment at the end of the employment tenure. The employee may either retire or terminate the employment before retirement. 
• The Income Tax Act provides the maximum amount eligible for deduction for both gratuity and leave encashment. 
• This exemption is equally available for both old and new tax regimes.

Claim Deduction on Additional Employee Cost

Deduction under section 80JJA is available irrespective of choice of regime of the assessee. 30% of the amount expended on additional employees can be allowed as a deduction.  

Claim Deduction on Agniveer Corpus Fund

• Contribution made by the Central Government in Agniveer Corpus Fund of the assessee is allowed as a deduction under section 80CCH(2). 
• Individuals enrolled in the Agnipath Scheme for the armed forces are eligible to claim this deduction.
• There is no maximum limit for deduction under this section. The entire amount contributed by Central Government can be allowed as a deduction
• This deduction is also available under both old and new regimes.

12 Lakh Income Tax Calculation in Old & New Tax Regime

Mr A has a Gross Salary income of Rs. 12 lakhs. He is also eligible to claim an HRA exemption of Rs. 60,000, LTA exemption of Rs. 20,000, and Profession tax of Rs 2,400. He further invested Rs. 1.5 lakhs in PPF, Paid medical insurance premium of Rs. 50,000 for parents (Senior Citizen), Paid Interest on Education loan of Rs. 25,000. Tax calculation under new and old tax regimes will be as under:

Tax Computation For FY 2025-26 Under The Old & New Tax Regime

For a taxpayer having a total income of Rs. 12 lakhs in FY 2025-26, opting for the new tax regime will be more beneficial as the tax liability will be Zero. Thus, resulting in tax savings of Rs. 84,261.

Tax Computation For FY 2024-25 Under The Old & New Tax Regime

Final Word

If you learn the intricacies of the taxation system, you can judiciously use the old and new tax regimes to save taxes. If you want to opt for the old tax regime, invest in schemes like the National Pension Scheme (NPS), Equity Linked Savings Scheme (ELSS) Investment, Sukanya Samridhhi Yojana (SSY), and many more. If you wish to opt for the new tax regime, you can still plan your investments and save yourself from paying hefty taxes by claiming a deduction under Standard deduction, Employer contribution to NPS etc.

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