How to Save Tax on Salary in India: A Practical Guide
Saving tax on salary starts with choosing the right regime. What survives in the new regime, where the money actually is in the old one, and what does not work.
The first decision that matters is which tax regime you file under, because it determines whether any of the classic deductions exist for you at all. Under the new regime, which is now the default, almost everything is gone except the standard deduction and employer NPS. Under the old regime, HRA, 80C, 80D and home loan interest are all available but you pay higher slab rates.
Everything else people call “tax saving” is downstream of that single choice. Get it wrong and you can pay more tax while doing more paperwork.
Step one: choose the regime, with numbers
Do not accept the default and do not follow what a colleague did. The right answer depends entirely on how much you actually claim.
| Old regime | New regime | |
|---|---|---|
| Slab rates | Higher | Lower |
| Standard deduction | Available | Available |
| HRA (Section 10(13A)) | ✅ | ❌ |
| 80C, up to ₹1.5 lakh | ✅ | ❌ |
| 80D health insurance | ✅ | ❌ |
| Home loan interest, self-occupied | ✅ | ❌ |
| 80TTA savings interest | ✅ | ❌ |
| 80CCD(2) employer NPS | ✅ at 10% | ✅ at 14% |
The rule of thumb: the more you genuinely claim, the more likely the old regime wins. Someone paying substantial rent in a metro with a full 80C, health cover for parents and a home loan can easily be better off there. Someone with no rent, no loan and a half-used 80C almost always does better in the new regime.
Compute both. Any filing software does it in one click, and for a mid-income salaried person the gap is frequently tens of thousands of rupees a year.
The one deduction that survives in the new regime
If you are on the new regime, Section 80CCD(2) is the only meaningful lever you have left, and it is a good one.
Your employer can contribute up to 14% of your basic plus DA to your NPS account, and that amount comes out of your taxable income entirely. It sits outside the ₹1.5 lakh ceiling. The limit was unified at 14% for private sector employees from FY 2025-26, up from 10%.
The catch is that it requires your employer to contribute. You cannot pay into your own NPS and claim it here. If your company does not offer corporate NPS, ask them to register: it costs them nothing material and the contribution is a deductible business expense for them.
Watch the ceiling: employer contributions to EPF, NPS and superannuation combined are tax-free only up to ₹7.5 lakh a year. Above that, the excess is a taxable perquisite.
Old regime: where the money actually is
Ordered by how much they typically save, not by how often they are discussed.
1. HRA, if you pay rent
Usually the largest single exemption for a salaried renter. It is the least of three figures: HRA received, 50% of salary in Mumbai, Delhi, Kolkata or Chennai (40% elsewhere), and rent paid minus 10% of salary.
Only those four cities are metro. Bengaluru, Hyderabad and Pune are not, whatever the rents look like.
2. Home loan interest
Interest on a self-occupied property is deductible under Section 24(b) within the applicable limit, and the principal repayment counts inside your 80C. For a let-out property the treatment differs, with its own restrictions on set-off.
3. Section 80C, up to ₹1.5 lakh
The best-known and the most misunderstood, because most people are already partly using it without realising:
- Your own EPF contribution
- Home loan principal repayment
- Children’s school tuition fees
- Life insurance premiums
- ELSS, PPF, NSC, tax-saving fixed deposits, Sukanya Samriddhi
Add up what you already pay before buying anything new. A salaried person with EPF, a home loan and two children in school is frequently at the ₹1.5 lakh ceiling already, and every rupee of additional “tax-saving investment” they are sold saves them nothing.
4. Section 80D, health insurance
₹25,000 for your own family and a separate ₹25,000 for parents, each rising to ₹50,000 where the insured person is 60 or above. Dependency is not a condition for the parents’ bucket; paying the premium is.
5. Smaller ones worth collecting
- 80CCD(1B): an additional ₹50,000 for your own NPS contribution, over and above 80C
- 80TTA: ₹10,000 of savings account interest, or ₹50,000 under 80TTB if you are 60 or above
- 80E: interest on an education loan, with no upper limit, for eight years
- 80G: eligible donations, at the applicable percentage
Salary structure: the lever nobody uses
Two people on identical CTC can pay materially different tax depending on how the package is built. Where your employer offers flexibility, these are worth asking about:
- A higher basic raises your HRA ceiling, your EPF and your gratuity. It reduces take-home slightly and increases long-term benefits.
- Employer NPS under 80CCD(2), which is deductible in both regimes and outside all other limits.
- Reimbursements against actual bills, where offered, are generally treated better than an equivalent cash allowance.
- Meal cards and similar benefits within prescribed limits.
Restructuring is a once-a-year conversation with HR, usually at appraisal. It is worth more than most of the products sold as tax savers in March.
What to do before 31 March, and before 31 July
Before 31 March, the financial year end:
- Confirm your 80C is genuinely full before adding to it
- Pay health insurance premiums due, by non-cash means
- Harvest capital losses to offset gains you have already booked
- Realise long-term equity gains up to the ₹1.25 lakh annual exemption if you have headroom
Before you file:
- Download Form 26AS and your Annual Information Statement and reconcile both
- Compute tax under both regimes and choose deliberately
- Declare interest, dividends and capital gains that your Form 16 does not mention
What does not work
- Buying insurance in March for the deduction. A policy you did not need is a 100% cost to save 30% of tax. Buy cover you need, then claim it.
- Inflating rent receipts. Landlord PAN is required above ₹1 lakh of annual rent and the department cross-checks it against declared rental income.
- Ignoring the AIS. It already lists your savings interest, dividends and fund redemptions. Filing only from Form 16 creates a visible gap.
- Choosing a regime once and never revisiting. A salaried person can generally choose each year, and your circumstances change.
Common questions
Which tax regime is better for salaried employees?
It depends entirely on what you claim. Heavy HRA, full 80C and a home loan usually favour the old regime; few deductions favour the new one. Compute both.
Can I switch regimes every year?
A salaried person without business income can generally choose each year at filing. With business income the rules are more restrictive.
What is the maximum I can save under 80C?
₹1.5 lakh of deduction, old regime only. The tax saved depends on your slab.
Is HRA available in the new regime?
No. It is an old-regime exemption.
What is the best tax saving option?
For most salaried people on the new regime, employer NPS under 80CCD(2). On the old regime, whichever of HRA or home loan interest is largest, since both usually dwarf 80C.
The short version
Choose the regime with a calculation, not a habit. On the new regime, employer NPS at 14% of basic is effectively your only lever, and it is worth asking HR for. On the old regime, HRA and home loan interest usually save more than 80C, and most people are already near their 80C ceiling through EPF, tuition fees and loan principal without buying anything. Add up what you already pay before anyone sells you a tax-saving product in March.
