Tax Planning for Salaried Employees in India for 2025

Tax planning refers to the strategic arrangement of finances to minimise tax liabilities while complying with tax laws. It involves assessing income, expenses, investments, and other financial activities to identify opportunities for tax savings. The primary goal of tax planning is to achieve maximum tax efficiency, allowing individuals and businesses to retain more of their income.

How to Plan Taxes for Salaried Employees?

1. Understanding the Tax Slabs

The first step in tax planning is understanding the applicable tax slabs based on income and age. As per the financial year 2025-26, the tax rates are categorised into:

• New Tax Regime 
• Old Tax Regime 

New Tax Regime u/s 115BAC

Note: Tax rebate up to Rs.25,000 is applicable for resident individuals if the total income does not exceed Rs 7,00,000 (not applicable for NRIs).

Old Tax Regime

Note: Tax rebate up to Rs.60,000 is available for resident individuals if the total income does not exceed Rs 12,00,000 (not applicable for NRIs)

2. Utilise Section 80C Deductions

Section 80C of the Income Tax Act allows deductions up to Rs. 1,50,000. Common investment options under this section include:

• Employee Provident Fund (EPF)
• Public Provident Fund (PPF)
• National Savings Certificate (NSC)
• Equity-Linked Savings Schemes (ELSS)
• Life Insurance Premium for self, spouse, and children
• Home Loan Principal Repayment

Note: This deduction is only available under the old regime.

3. Take Advantage of Section 80D (Health Insurance)

Health insurance premiums are eligible for deduction under Section 80D:

• Self, Spouse, and Children: Up to Rs. 25,000.
• Parents (Below 60 years): Additional Rs. 25,000.
• Parents (Above 60 years): Additional Rs. 50,000.

If you pay for preventive health check-ups, you can claim up to Rs. 5,000 within the overall limit.

Note: This deduction is only available under the old regime.

4. Claim House Rent Allowance (HRA)

You can claim HRA exemption under Section 10(13A) if you live in rented accommodation. The exemption amount is the least of the following:

• Actual HRA received.
• 50% of salary (40% for non-metros).
• Rent paid minus(-) 10% of salary.

For employees not receiving HRA, deductions under Section 80GG are available.

Note: This deduction is only available under the old regime.

5. Section 80E (Education Loan Interest)

If you have an education loan, the interest paid is fully deductible under Section 80E. This deduction is available for up to 8 years or until the loan is repaid, whichever is earlier.

Note: This deduction is only available under the old regime.

6. Take Advantage of NPS Contributions (Section 80CCD)

The National Pension System (NPS) is an excellent tool for retirement planning. Contributions by the employee are eligible for:

• Section 80CCD(1): Deduction up to Rs. 1,50,000 (included in the 80C limit).
• Section 80CCD(1B): Additional deduction up to Rs. 50,000.

Note: This deduction is only available under the old regime.

• Section 80CCD(2): Under Section 80CCD(2), salaried individuals can claim an additional deduction for employer contributions to the National Pension Scheme (NPS), which is separate from the deductions under Section 80CCD(1). The employer’s contribution can be equal to or greater than the employee’s. This deduction is not included in the overall limit of Section 80CCD, offering extra tax benefits. Section 80CCD(2) allows a salaried individual to claim the following deduction:

7. Standard Deduction

Under the old tax regime, the standard deduction available to salaried individuals and pensioners is Rs. 50,000. However, the standard deduction has been increased to Rs. 75,000 under the new tax regime. 

8. Claim LTA (Leave Travel Allowance)

Employees can claim an LTA exemption for travel expenses incurred during a vacation in India. The exemption covers travel by rail, air, or public transport and is available for two trips in a block of four calendar years.

Note: This deduction is only available under the old regime.

9. Reimbursements and Perquisites

Some allowances and perquisites offered by employers are tax-free or partially taxable, such as:

• Meal coupons or food allowances.
• Telephone and internet reimbursements.
• Uniform allowances.

Note: This deduction is only available under the old regime.

10. File Income Tax Returns (ITR) before Due Date

It is important to file the income tax returns before the due date as filing late would attract interest and penalties.

Conclusion

If you are a salaried employee and want to pay less taxes, you must understand the tax slabs, deductions, and exemptions available under both the old and new tax regimes. This will help you decide which regime is beneficial for you. Additionally, filing income tax returns accurately and on time is key to maximising savings and avoiding penalties.