Salary and Tax Planning FY 2025-26

Salary and Tax Planning for FY 2025-26

Choosing how to handle your salary is all about picking the right tax track. India now operates on two distinct tracks: the New Tax Regime and the Old Tax Regime.

The New Tax Regime is the standard choice, offering lower rates but fewer exemptions. The Old Tax Regime keeps higher rates but rewards those who save, invest, or pay rent.

📊 Quick Tax Rate Comparison

Check how your total income matches these tables to see which starting point looks best for you.

⚡ New Tax Regime Slabs

The Simplified Choice (Default)
Income Slabs Tax Rate
Up to ₹4 Lakh0% (No Tax)
₹4 Lakh to ₹8 Lakh5%
₹8 Lakh to ₹12 Lakh10%
₹12 Lakh to ₹16 Lakh15%
₹16 Lakh to ₹20 Lakh20%
₹20 Lakh to ₹24 Lakh25%
Above ₹24 Lakh30%

Note: If total income is ≤ ₹12 Lakh, tax is 0 due to rebates.

🏛️ Old Tax Regime Slabs

The Investment Choice
Income Slabs Tax Rate
Up to ₹2.5 Lakh0% (No Tax)
₹2.5 Lakh to ₹5 Lakh5%
₹5 Lakh to ₹10 Lakh20%
Above ₹10 Lakh30%

🛠️ Which Allowances Work for You?

Your choice determines which parts of your monthly salary package can stay tax-free.

NEW REGIME
  • Standard Deduction: Flat ₹75,000 discount automatically.
  • Total Tax-Free Income: Earnings up to ₹12.75 Lakh pay zero tax (Rebate + Deduction).
  • Company NPS: Employer contributions tax-free up to 14% of basic salary.
  • What You Lose: No HRA, LTA, or deductions for PPF, ELSS, or Life Insurance.
OLD REGIME
  • Standard Deduction: Flat ₹50,000 discount automatically.
  • HRA: Large tax exemptions for house rent paid.
  • Home Loan Relief: Deduct up to ₹2 Lakh for interest paid per year.
  • Tax Saving Accounts: Up to ₹1.5 Lakh under Sec 80C and ₹50,000 for health insurance (Sec 80D).

🚀 Simple Checklist for Employees

Do the Math: If your total annual deductions (Rent + Home Loan + 80C) exceed ₹3.5 Lakh to ₹4 Lakh, the Old Regime is likely better. Otherwise, choose the New Regime.
Tell Your HR Early: Inform your finance department at the start of the financial year to ensure correct TDS.
Clean Up Your Package: For the New Regime, ask HR to convert HRA/LTA into "Special Allowance" for more cash in hand.
Save Your Receipts: For the Old Regime, keep rent receipts, landlord's PAN, and investment proofs ready for winter deadlines.

❓ Frequently Asked Questions (FAQs)

1. Which tax regime is automatically selected if I do not choose one?

The New Tax Regime is the default. If you don't tell your HR, they will calculate tax using New Regime rates.

2. Can I switch between the Old and New Tax Regimes later?

Salaried: Yes. You can choose one for TDS and change it when filing your ITR.
Business Owners: No. Generally, you can only switch once in a lifetime.

3. I earn ₹12 Lakh a year. Do I need to pay any tax under the New Regime?

No. A special government rebate brings your final tax bill down to zero for taxable income up to ₹12 Lakh.

4. Is the ₹75,000 Standard Deduction available to everyone?

It is available to all salaried employees and pensioners. It is ₹75,000 in the New Regime and ₹50,000 in the Old Regime. It does not apply to freelancers.

5. Can I claim House Rent Allowance (HRA) in the New Tax Regime?

No. HRA, LTA, and children's education allowances are blocked. You must opt for the Old Regime to use these.

6. Can I still save tax using my Provident Fund (EPF) or PPF?

Only under the Old Regime (up to ₹1.5 Lakh). Under the New Regime, these do not provide tax relief, though employer NPS contributions remain tax-free.

7. What happens if I live in my own house and pay a home loan?

Under the Old Regime, you can deduct up to ₹2 Lakh interest. Under the New Regime, no deduction is allowed for self-occupied property.