Save Tax for Salary Above 12 Lakhs

Table of Content

1. Income Tax Slabs Under New Tax Regime (FY 2025-26)

2. Income Tax Calculation for ₹12 Lakh Salary (New Regime)

3. Tax Slabs Under Old Tax Regime (FY 2025-26)

4. Exemptions and Deductions (Available under Old Tax Regime):

5. Income Tax Calculation for ₹12 Lakh Salary (Old Regime)

6. Old vs New Tax Regime – Which is Better for a 12 Lakh Salary?

7. How to Save Taxes for a ₹12 Lakh Salary?

8. Conclusion

9. Frequently Asked Questions (FAQ)

Income Tax Slabs Under New Tax Regime (FY 2025-26)

Since April 2025, India’s Finance Minister, Nirmala Sitharaman, has introduced certain changes to the income tax slabs. These changes are applicable under the Union Budget 2025 New Tax Regime. Based on income brackets, tax slabs are updated to offer progressive taxation. 

 As per the New Tax Regime (FY 2025-26):

Note: These changes will help you save tax for salary above 12 lakhs up to ₹1.14 Lakh per annum for everyone. Therefore, there is no income tax till 12 lakhs per annum after the rebate benefit of Rs. 60,000  under Section 87A of the Income Tax Act, 1961.

Income Tax Calculation for ₹12 Lakh Salary (New Regime)

One of the major highlights of the new tax regime outlined in Budget 2025 is an increase in the tax rebate under Section 87A of the Income Tax Act, 1961. According to this section, a tax rebate has been increased from ₹25,000 to ₹60,000 for those with a ₹12 lakh income tax. 

Here is a step-by-step calculation with slab breakdown: 

Tax Slabs Under Old Tax Regime (FY 2025-26)

The Old Tax Regime (FY 2025–26, AY 2026–27) follows traditional slab rates and offers tax-saving opportunities through deductions under sections such as 80C, 80D, and 80G, as well as exemptions like HRA and LTA. This makes it more beneficial for individuals to save tax for salary above 12 lakhs.

The following table summarises the income tax slabs and rates under the Old Tax Regime for individuals below 60 years of age:

Additional Notes:

• Rebate u/s 87A: Available if taxable income ≤ ₹5,00,000 → full rebate up to ₹12,500 (not applicable to NRIs).

• Surcharge: Applicable if total income > ₹50 lakh (ranges 10%–37%).

• Health and Education Cess: 4% on income tax (after rebate).

Exemptions and Deductions (Available under Old Tax Regime):

The biggest difference from the new tax regime is that you can claim various exemptions and deductions under the old tax regime, such as:

• Salary 

• Standard Deduction Rs. 50,000 (for salaried as well as pensioners).

• House Rent Allowance (HRA) under Section 10(13A) - Exemption is available up to the least of: (i) actual HRA received, (ii) 50% of salary if residing in metro cities (40% for non-metros), or (iii) rent paid minus 10% of salary.

• Leave travel concession under Section 10(5) is available for the actual travel cost of the employee and his family and does not cover food or lodging expenses.

• House Property – Under Section 24(b), interest paid on housing or home improvement loans is deductible upto Rs. 2,00,000 for self-occupied property, as detailed in the table given below:

• Tax Deductions specifies under Chapter VIA of the Income Tax Act, 1961

1. Section 80C, 80CCC, 80CCD(1): Up to ₹1,50,000 combined (PF, ELSS, LIC, tuition fees, principal on home loan, Annuity plan towards Pension Scheme, Pension Scheme of Central Government etc.).

2. Section 80CCD(1B): Additional up to Rs. 50,000 (Payments made towards Pension Scheme of Central Government excluding deduction claimed under 80CCD (1)).

3. Section 80CCD (2): Deduction towards employer’s contribution to the Central Government Pension Scheme is allowed up to 10% of salary for PSU/other employers and up to 14% of salary for Central or State Government employers.

4. Section 80D: Medical insurance premium paid on the health of self, spouse, and children. The maximum deduction available for the family shall be ₹25,000. In case the insurance premium paid on the health of a senior citizen in the family then an additional deduction of ₹25,000 shall be available.

5. Other deductions: 80E (education loan interest), 80G (donations), etc.

Income Tax Calculation for ₹12 Lakh Salary (Old Regime)

While computing income tax in India, salaried taxpayers can opt between the Old Tax Regime and the New Tax Regime. The old system is according to conventional slab rates, but lets taxpayers save on a lot of taxable income by claiming several deductions and exemptions like 

• Section 80C Investments.

• Health Insurance Premium (80D)

• National Pension Scheme Contribution (80CCD)

• House Rent Allowance (HRA)

• Interest for Home Loan (Section 24(b))

This makes the old tax regime especially useful for those who make active investments in tax-saving products or incur qualifying expenditure. In contrast, if there are no deductions, the old tax regime can cause one to pay more tax than the new regime, which helps save tax for salary above 12 lakhs.

To illustrate the impact of deductions under the old tax regime, let us consider a case of an individual earning an annual salary of ₹12,00,000. We will calculate the tax liability in two scenarios:

1. Without any deductions or exemptions (worst case)

2. With full deductions and exemptions (best case, illustrative)

Example A: With No Deductions

Here is the tax calculation without the applicable deductions:

• Gross Salary = ₹12,00,000

• Taxable Income = ₹12,00,000

Example B: With Full Deductions/Exemptions

The following table shows the applicable deductions:

The table below shows the tax payable calculation after applying the deduction:

Comparison Table

The following table shows a comparison of both the tax calculations (with and without standard deductions):

• Without deductions → Tax = ₹1.79 lakh

• With deductions → Tax = ₹39k

• Savings = ₹1.40 lakh just by utilising exemptions/deductions under the old regime.

Old vs New Tax Regime – Which is Better for a 12 Lakh Salary?

Whether to opt for the old or new tax regime is highly dependent on the individual's willingness and capability to save tax for salary above 12 lakhs. Both schemes have their positive sides, and which one is better will differ from person to person.

The following table shows a comparative calculation of both the old and the new tax regimes:

• Old Regime Benefit

Assuming you have investments in tax-saving options like PPF, ELSS, EPF, NPS, and deductions like HRA or interest on housing loan, the old regime leads to significantly lower taxable income. Here, the difference comes close to ₹43,500 of tax saved.

• New Regime Benefit

If you lack major deductions (for instance, you do not pay rent, do not have a home loan, or do not invest much in 80C/80D instruments), the new regime provides ease with reduced slab rates, and an increased standard deduction helps you save tax for salary above 12 lakhs.

• Who to Choose Which Regime?

Opt for Old Tax Regime if you have a home loan, pay rent, invest in NPS, or avail yourself of 80C deductions.

Opt for New Tax Regime if you have limited financial liabilities and do not wish to go through the hassles of filing returns because it offers no income tax above 12 lakhs.

Briefly put, for a ₹12 lakh salary, the old regime is preferable if you take full deductions, whereas the new regime is preferable for small investments.

How to Save Taxes for a ₹12 Lakh Salary?

When your income for the year is ₹12 lakh, efficient tax planning lowers liability considerably. The savings vary depending on whether you avail the old regime (with deductions and exemptions) or the new regime (with restricted choices). Here are some tax-saving tips for high-income earners:

1. Old Tax Regime (Available Deductions)

Multiple deductions and exemptions under the old regime can lower your taxable income:

• Section 80C, 80CCC, 80CCD(1) (max. ₹1.5 lakh): You can invest in assets such as PPF, ELSS mutual funds, EPF contributions, life insurance premiums, repayment of principal on a home loan, Annuity Plan of Life Insurance Companies & Pension Scheme of Central Government.

• Section 80D: Health insurance premiums paid for self, spouse, children, and parents are eligible for deduction. The maximum limit for Self, Spouse and Dependent Children is up to ₹25,000/₹50,000 for senior citizens  additionally for Parents ₹25,000/₹50,000 for senior citizens.

• HRA Exemption: In case you reside in rented house accommodation, you can claim exemption under Section 10(13A) of the Income Tax Act, 1961  based on rent paid, basic pay, and city of work, Wherein maximum limit set upto actual HRA received, 50% of salary in metros (40% in non-metros), or rent paid minus 10% of salary.

• Interest on Housing Loan (Section 24b): Deduction of up to ₹2 lakh in interest paid on a home loan is permissible.

• NPS Deduction (Section 80CCD(2)): You get an extra deduction of ₹50,000 in case you put money into the National Pension Scheme, in addition to Section 80C.

• Allowance for income of minor under Section 10(32)

With proper planning, these advantages can lower tax payable to a large extent, resulting in considerable tax benefits.

2. New Tax Regime (Limited Deductions)

The new regime has lower slab rates but limits the exemptions. The main available options to save tax for salary above 12 lakhs are:

• Standard Deduction: ₹75,000 deduction is available under New Tax Regime.

• Employer's Contribution to NPS: The employer contributions to NPS is deductible under Section 80CCD(2) up to 10% of basic wages plus dearness allowance (14% for Central/State Government employees), can be claimed as deductions, Without being clubbed in the overall ceiling limit of Section 80CCE of the Income Tax Act, 1961. 

• EPF and Gratuity: EPF and gratuity contributions continue to be tax-free within limits – employee’s own contribution deductible under Section 80C up to ₹1.5 lakh, employer’s share exempt up to 12% of basic + DA, and interest exempt subject to the ₹2.5 lakh (₹5 lakh if no employer contribution) annual cap—while gratuity is tax-free up to ₹20 lakh under Section 10(10).

Although the new regime is less complicated, tax benefits are less for salaried persons who have a number of deductions. Thus, the employees who have greater eligible deductions tend to gain more from the old regime, whereas those who have fewer investments may find the new regime preferable.

Example of Tax Saving for ₹12 Lakh Salary

• Case Study 1: Without Deductions (New Regime)

Gross Annual Salary: ₹12,00,000

Standard Deduction: ₹75,000

Deduction under Section 80CCD(2) - ₹60,000

Taxable Income: ₹11,25,000

• Case Study 2: With Full Deductions (Old Regime)

To calculate the income tax on a 12-lakh salary, let us assume the maximum deductions available:

Calculation of income tax for 12 lakhs per annum:

• Comparison

Without Deductions: ₹9,100 tax

With  Deductions: ₹31,720 tax

Savings = ₹22,620

Conclusion

For a pay of ₹12 lakh, whether one goes for the old or new tax regime is a matter of financial profile. The new regime gives ease with uniform standard deduction and lower rates that helps you save tax for salary above 12 lakhs. The old regime, in contrast, gives rebates for intelligent tax planning by way of deductions under 80C, 80D, NPS, HRA, and home loan exemptions. Hence, smart tax planning, tailored to one’s financial goals, ensures lower tax outgo, better savings, and stronger long-term financial security.

Frequently Asked Questions (FAQ)

1. Is there zero income tax up to ₹12 lakh?

No, the income of ₹12 lakh attracts tax. However, under the Old Tax Regime, smart use of deductions like 80C, 80D, HRA, NPS, and home loan interest can substantially reduce or even eliminate tax liability, while under the New Regime for A.Y. 2026-27, income up to ₹12 lakh becomes tax-free due to the enhanced rebate of ₹60,000 under Section 87A of the Income Tax Act, 1961.

2. What is the tax for a ₹12 lakh salary per annum?

Under the New Tax Regime with ₹75,000 standard deduction, tax liability is around ₹1.04 lakh. In the Old Tax Regime, without deductions, it is ₹1.63 lakh. With full deductions, it can be reduced drastically to as low as ₹20,800.

3. Which tax regime is better for a ₹12 lakh salary?

The better regime depends on your eligible deductions. If you can claim many deductions under Section 80C, Section 80D, HRA, NPS, and home loan benefits, then the Old Regime saves more. While the New Tax Regime suits you better if less deductions are available to claim since for A.Y. 2026-27 income up to ₹12 lakh becomes tax-free due to the ₹60,000 rebate under Section 87A of the Income Tax Act, 1961.

4. Can I pay 0 tax on a ₹12 lakh salary?

Yes, it is possible under the Old Regime with maximum deductions and exemptions. For instance, using Sections 80C, 80D, NPS, HRA, and housing loan interest effectively can bring taxable income within rebate limits, reducing tax payable to zero.

5. What investments help save tax for a ₹12 lakh income?

Tax-saving investments include ELSS mutual funds, Public Provident Fund, Life Insurance, and NPS under Section 80C and 80CCD of the Income Tac Act, 1961. Additional deductions from health insurance premiums, home loan interest, and HRA exemptions can help significantly reduce your overall tax burden.

Note: If assessee has opted for Old tax regime, assesses shall be eligible to claim deduction under chapter VI-A (like Sections 80C, 80D, 80CCC, etc). If assessee has opted for New tax regime only few deductions under Chapter VI-A (such as Sections 80JJAA, 80CCD(2), 80CCH(2)) are available.