Published: April 2026 · Written by Somineni Sharath Chandra
Every year, millions of Indians search for how to save tax on salary, only to end up paying more than they legally need to.
Not because they are dishonest. Not because they are careless. Simply because the rules are complex, they change frequently, and nobody explains them clearly in one place.
2026 is a particularly important year to get this right. Following the Finance Act 2025 amendments, revised tax slabs and provisions take effect from FY 2025-26 onwards. Several deductions and exemption limits have been updated, and the slab structure under the new tax regime has been revised.
This guide explains everything clearly – for salaried employees, freelancers, self-employed professionals, and small business owners. Updated numbers, real examples, and practical tax-saving strategies.
| Situation | Best Strategy |
| Salary below Rs.12.75 lakh | Use the new tax regime and claim the Section 87A rebate |
| Salary Rs.12L to Rs.20L with investments | Compare both regimes before choosing |
| Salaried with home loan and HRA | Old tax regime often saves more tax |
| Freelancers earning up to Rs.24L | Section 44ADA can legally reduce tax to zero |
| Investors with capital gains | Use tax loss harvesting before March 31 |
Tax in India is not calculated on your gross salary or gross income. It is calculated on your net taxable income.
Net taxable income is the amount remaining after all eligible exemptions and deductions are subtracted.
The basic flow works like this:
Gross Income – Minus exemptions (HRA, LTA, standard deduction) – Minus deductions (80C, 80D, NPS etc.) – Net Taxable Income – Tax as per slab – Minus rebate if applicable – Final Tax Payable
Every legal step that reduces your net taxable income is what tax planning is about.
From FY 2025-26 onwards, the new tax regime is the default option. If you do not choose a regime while filing your return, the new regime automatically applies.
| Income Slab | Tax Rate |
| Up to Rs.4,00,000 | Nil |
| Rs.4,00,001 to Rs.8,00,000 | 5% |
| Rs.8,00,001 to Rs.12,00,000 | 10% |
| Rs.12,00,001 to Rs.16,00,000 | 15% |
| Rs.16,00,001 to Rs.20,00,000 | 20% |
| Rs.20,00,001 to Rs.24,00,000 | 25% |
| Above Rs.24,00,000 | 30% |
Standard deduction for salaried employees: Rs. 75,000. Most deductions like 80C and 80D are not available in this regime.
| Income Slab | Tax Rate |
| Up to Rs.2,50,000 | Nil |
| Rs.2,50,001 to Rs.5,00,000 | 5% |
| Rs.5,00,001 to Rs.10,00,000 | 20% |
| Above Rs.10,00,000 | 30% |
Standard deduction: Rs.50,000
Deductions available include Section 80C, Section 80D, HRA, LTA, NPS contributions, and home loan interest.
Choose the new regime if:
Choose the old regime if:
Under the new tax regime, if your net taxable income is Rs.12,00,000 or below, you receive a Rs.60,000 rebate under Section 87A. This makes your total tax liability zero.
| Category | Zero Tax Condition |
| Salaried employee | Gross salary up to Rs.12,75,000 after Rs.75,000 standard deduction |
| Freelancer or self-employed | Net taxable income must be Rs.12,00,000 or below |
| Freelancer using 44ADA | Gross receipts up to Rs.24,00,000 |
Marginal relief prevents a situation where earning slightly more income leads to a disproportionately large tax bill. If income slightly exceeds Rs.12,00,000, the tax payable cannot exceed the additional income earned beyond Rs.12,00,000.
| Income | Tax Payable |
| Rs.12,00,000 | Rs.0 |
| Rs.12,05,000 | Rs.5,000 |
| Rs.12,10,000 | Rs.10,000 |
| Rs.12,50,000 | Rs.50,000 |
| Rs.12,75,000 | Rs.75,000 – relief ends here |
Section 80C is the most commonly used deduction under the old tax regime.
Maximum deduction: Rs.1,50,000
| Investment | Lock-in |
| EPF | Until retirement |
| PPF | 15 years |
| ELSS mutual funds | 3 years |
| Tax saving fixed deposit | 5 years |
| NSC | 5 years |
| Life insurance premium | Policy term |
| Tuition fees (up to 2 children) | No lock-in |
| Home loan principal repayment | Minimum 5 years |
Important note on tax saving FD interest rates: Most nationalised banks offer 6.5% to 7.5% per annum on 5-year tax saving FDs. However, the interest earned is fully taxable and attracts TDS of 10% once total FD interest crosses Rs.40,000 per year.
| Coverage | Deduction |
| Self, spouse and children | Rs.25,000 |
| Parents below 60 | Additional Rs.25,000 |
| Senior citizen parents (60 and above) | Additional Rs.50,000 |
| Maximum possible | Rs.1,00,000 |
Elder care cash deduction: If senior citizen parents are uninsurable, the Rs.50,000 deduction can be claimed against actual out-of-pocket medical expenses including medicines and diagnostics. Maintain all bills digitally.
Section 80CCD(1B): Extra deduction of Rs.50,000 beyond the 80C limit. Available under the old regime only.
Section 80CCD(2): Employer contributions to NPS up to 14% of basic salary are completely tax-free. Available under both regimes. This is the single most effective restructuring tool for the new regime.
Interest on education loans is fully deductible for up to 8 years from the date of first repayment. No upper limit on the deduction amount.
Savings account interest up to Rs.10,000 per year is tax deductible (old regime). Senior citizens can claim up to Rs.50,000 under Section 80TTB on all deposit interest.
Home loan interest deduction up to Rs.2,00,000 per year on a self-occupied property (old regime).
Donations to approved charitable institutions qualify for 50% or 100% deduction depending on the organisation.
Many tax savings can be achieved through proper salary structuring. Most salaried employees never ask HR about these.
Employer NPS Contribution: Ask HR to route up to 14% of your basic salary directly into NPS as an employer contribution under Section 80CCD(2). This reduces your gross taxable income and works under both regimes.
Phone and Internet Reimbursement: Actual expenses reimbursed by the employer against bills are fully tax-exempt. Ask HR to include this as a reimbursement component rather than a taxable allowance.
Leave Travel Allowance: LTA covers actual domestic travel expenses for two journeys in a four-year block. Food and hotel costs do not qualify. Submit travel bills to your employer.
Books and Professional Subscriptions: Reimbursements for books, journals, and professional subscriptions are tax-exempt against actual bills.
HRA (Old Regime Only): If you pay rent, ensure your HRA component is properly declared and rent receipts are submitted to HR. If annual rent exceeds Rs.1,00,000, your landlord’s PAN is also required.
Section 44ADA allows eligible professionals to declare exactly 50% of gross receipts as taxable income. No books of accounts required. No statutory audit required.
Eligibility:
Who is NOT eligible:
Applying 44ADA to an ineligible activity will attract an income tax notice. Confirm eligibility with a CA before filing.
The zero tax opportunity:
If receipts are Rs.24,00,000, taxable income under 44ADA becomes Rs.12,00,000 – which qualifies for the full Section 87A rebate. Tax payable: Rs.0.
One-way door warning: Opting out of 44ADA after claiming it bars you from re-entering the scheme for five consecutive years.
| Type | Holding Period | Tax Rate |
| Equity STCG (Section 111A) | Under 12 months | 20% |
| Equity LTCG | Above 12 months | 12.5% (first Rs.1,25,000 exempt) |
| Debt Mutual Funds bought on or after April 1, 2023 | Any holding period | Taxed at your income slab rate |
| Physical gold or real estate LTCG | Above 24 or 36 months | 12.5% without indexation |
Important note on debt mutual funds: For units purchased on or after April 1, 2023, there is no long-term capital gains benefit regardless of how long you hold them. Whether held for 3 months or 10 years, gains are taxed entirely at your applicable income slab rate.
Buyback update: From April 2026, proceeds from share buybacks are classified as capital gains in shareholder hands, not dividends.
Investors can reduce tax by selling loss-making investments before March 31 to offset gains.
Holding period reset risk: If you sell an asset to harvest a loss and repurchase the same asset, the acquisition date resets. Selling within 12 months of repurchasing triggers STCG at 20% instead of LTCG at 12.5%.
| Amount | |
| Gross Salary | Rs.8,00,000 |
| Minus Standard Deduction | Rs.75,000 |
| Net Taxable Income | Rs.7,25,000 |
| Tax before rebate | Rs.16,250 |
| Section 87A Rebate | Full rebate |
| Tax Payable | Rs.0 |
| New Regime | Old Regime | |
| Gross Salary | Rs.15,00,000 | Rs.15,00,000 |
| Standard Deduction | Rs.75,000 | Rs.50,000 |
| HRA (metro, Rs.15,000 per month rent) | Not available | Rs.1,20,000 |
| Section 80C | Not available | Rs.1,50,000 |
| NPS 80CCD(1B) | Not available | Rs.50,000 |
| Section 80D | Not available | Rs.25,000 |
| Net Taxable Income | Rs.14,25,000 | Rs.11,05,000 |
| Tax and Cess (approx) | Rs.1,60,000 | Rs.1,17,000 |
| Saved vs New Regime | Not applicable | Rs.43,000 |
| Amount | |
| Gross professional receipts | Rs.18,00,000 |
| Declared profit (50% under 44ADA) | Rs.9,00,000 |
| Tax on Rs.9,00,000 (new regime) | Rs.25,000 |
| Section 87A Rebate | Full rebate |
| Tax Payable | Rs.0 |
No standard deduction is available to freelancers. The zero tax result comes entirely from 44ADA bringing net income below Rs.12,00,000, combined with the Section 87A rebate.
Regime Selection
Salaried Employees
Health and Insurance
NPS
Freelancers and Self-Employed
Capital Gains
What is the best way on how to save tax on salary in the new tax regime?
The Rs.75,000 standard deduction is automatic and requires no proof. Ask your employer to contribute 14% of your basic salary to NPS under Section 80CCD(2) – this removes that amount from taxable income without any lock-in investment from your side. If your gross salary is Rs.12,75,000 or below, the Section 87A rebate makes your total tax zero with no further action required.
Does the zero tax threshold of Rs.12,75,000 apply to freelancers?
No. The Rs.12,75,000 figure applies only to salaried employees because the Rs.75,000 standard deduction reduces their net income to Rs.12,00,000. Freelancers do not receive the standard deduction. Their net taxable income must itself be Rs.12,00,000 or below for zero tax. Freelancers using Section 44ADA can achieve this on gross receipts of up to Rs.24,00,000.
NPS deduction – under which section?
Three separate sections apply. Your own NPS contribution qualifies under Section 80CCD(1) within the Rs.1,50,000 Section 80C limit. An additional Rs.50,000 is available under Section 80CCD(1B) above this limit (old regime only). Your employer’s NPS contribution is deductible under Section 80CCD(2) up to 14% of basic salary and is available under both regimes.
How to avoid tax on savings account interest?
Under Section 80TTA (old regime), savings account interest up to Rs.10,000 per year is deductible. Keep total savings interest across all accounts below Rs.10,000, or claim the deduction while filing. Senior citizens can claim up to Rs.50,000 under Section 80TTB on all deposit interest including fixed deposits.
Can a freelancer earning Rs.24 lakh pay zero tax?
Yes – provided the profession is notified under Section 44ADA, at least 95% of receipts are digital, and gross receipts do not exceed Rs.75,00,000. Under 44ADA, 50% of Rs.24,00,000 equals Rs.12,00,000 net income. The Section 87A rebate under the new regime makes tax zero. Verify eligibility with a CA before applying.
What is dividend income tax in 2026?
Dividends are added to your total income and taxed at your applicable slab rate. If total dividend income from a company exceeds Rs.5,000 in a year, TDS of 10% is deducted at source. Declare the full amount in your ITR and claim the TDS credit.
What is Section 111A?
Section 111A applies to short-term capital gains from equity shares and equity mutual funds where Securities Transaction Tax has been paid. The STCG rate is a flat 20% regardless of your income slab.
How to pay zero tax on Rs.12 lakh salary?
Under the new tax regime, the Rs.75,000 standard deduction reduces gross salary of Rs.12,75,000 to a net taxable income of Rs.12,00,000. The Section 87A rebate of Rs.60,000 then covers the full tax liability. Net tax payable: zero. No investment required.
Is the old tax regime being discontinued?
No. The old tax regime remains available and must be actively chosen at the time of filing. For many salaried individuals with significant deductions, it continues to save more tax than the new regime.
Reducing your tax is step one. Keeping and growing that saved money is step two. Most people skip step two entirely.
Here is a specific financial point worth knowing before you automatically park tax-saved money into a bank fixed deposit.
A tax saving FD earns 6.5% to 7.5% per year. But the interest is fully taxable as income from other sources and attracts TDS of 10% at source the moment your total FD interest across all banks crosses Rs.40,000 in a year. For someone in the 30% tax bracket, the effective post-tax yield on a 7% FD works out to approximately 4.9% – and 10% is already deducted before the money reaches your account.
A registered chit fund works differently. Monthly dividends from chit auctions are not subject to TDS at source. The taxable event – net dividend minus foreman commission – is calculated at the end of the full chit cycle, not deducted monthly. For members in higher tax brackets who are actively trying to reduce upfront TDS drag on their savings, this distinction has real practical value.
myPaisaa is a government-registered digital chit fund platform, regulated under the Chit Funds Act 1982. Every auction is conducted transparently on a digital platform with full transaction records accessible from your phone. If you want to understand how it compares to FDs and recurring deposits as a savings instrument alongside your existing tax planning, explore myPaisaa’s chit fund plans here.
Want to read more before deciding?
How Chit Funds Work · Chit Funds vs Fixed Deposits · Are Chit Funds Safe?
This article is for general informational purposes only and does not constitute tax or legal advice. Tax laws are revised frequently. Consult a qualified Chartered Accountant for advice specific to your financial situation.
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