Saving tax on a salary isn't about exotic tricks — it's about two things: picking the right regime, and then using the handful of deductions that genuinely matter. Here's the practical order to think about it, with the numbers.
Step 1: pick the regime first
Before any deduction, decide which regime you're in, because it changes everything. The new regime (now the default) has lower rates and a ₹75,000 standard deduction, but almost no other exemptions — and a Section 87A (section 156 of the new Income-tax Act, 2025) rebate that makes tax nil up to ₹12 lakh taxable income. The old regime has higher rates but lets you subtract a long list of deductions first.
The rule of thumb: the new regime wins unless your total deductions are large (roughly above ₹4–4.5 lakh), which usually means significant rent or a home loan. Don't guess — run your exact figures both ways:
Income Tax / Salary CalculatorTry it on your numbersIn-Hand Salary CalculatorCTC to monthly take-home, with full breakupStep 2 (old regime): the deductions that matter, in order
If the old regime wins for you, here's where the real savings are, roughly in order of bang-for-buck:
- HRA exemption — often the single biggest lever if you pay rent. It's the least of three formulas, and most people under-claim it by guessing.
- Section 80C (section 123 of the new Income-tax Act, 2025) (up to ₹1.5 lakh) — EPF, PPF, ELSS, life insurance, kids' tuition, home-loan principal. Many salaried people fill most of this through EPF alone.
- Home-loan interest under Section 24(b) (section 22 of the new Income-tax Act, 2025) — up to ₹2 lakh a year on a self-occupied home. A large, often-overlooked deduction for homeowners.
- NPS under 80CCD(1B) (section 124 of the new Income-tax Act, 2025) — an EXTRA ₹50,000 over and above 80C. The cheapest incremental deduction if you've already maxed 80C.
- Section 80D (section 126 of the new Income-tax Act, 2025) — health insurance premiums for yourself and parents (₹25,000 + up to ₹50,000 for senior-citizen parents).
Step 3: claim HRA properly
HRA is where the most money quietly leaks. Your exemption is the least of: the HRA in your salary, rent paid minus 10% of basic, and 50% of basic (metro) or 40% (non-metro). Keep rent receipts every month — your employer needs them. Work out your exact exemption rather than eyeballing it:
HRA Exemption CalculatorThe honest summary
For most salaried people with few deductions, the new regime now simply pays less — the ₹12 lakh rebate is hard to beat, and there's nothing to claim. If you pay meaningful rent or a home loan, run the old regime and stack HRA + 80C + home-loan interest + NPS. Re-check every March: one new home loan can flip the answer.
Frequently asked questions
- How can I save tax on my salary in FY 2026-27?
- First pick the right regime — the new one wins unless your deductions exceed roughly ₹4–4.5 lakh. If the old regime fits, stack the high-impact deductions: HRA, Section 80C (₹1.5 lakh), home-loan interest (₹2 lakh under 24(b)), the extra ₹50,000 NPS under 80CCD(1B), and 80D health insurance.
- Which salary deduction saves the most tax?
- For renters, HRA exemption is usually the single biggest lever — it's the least of three formulas and most people under-claim it. After that, 80C (often filled by EPF alone) and home-loan interest under Section 24(b) move the needle most.
- What is the extra ₹50,000 NPS deduction?
- Section 80CCD(1B) gives an additional ₹50,000 deduction for NPS contributions, over and above the ₹1.5 lakh 80C limit. It's the cheapest incremental deduction once you've already maxed out 80C.