Income Tax Planning for Salaried Individuals
As we enter the new fiscal year 2025-26, efficient income tax planning is essential for salaried people to save maximum and pay the least tax. Through proper planning and awareness of tax-saving investments, deductions, and exemptions, you can save considerably on taxes. In this handbook, we shall discuss different plans to enable you to save most on taxes during the assessment year 2026-27.
1. Choose Between the Old and New Tax Regime
The Government of India offers two tax regimes: the old tax regime and the new tax regime. Understanding which one benefits you the most is the first step in tax planning.
- Old Tax Regime: Allows various deductions such as 80C, 80D, HRA (House Rent Allowance), LTA (Leave Travel Allowance), and standard deduction.
- New Tax Regime: Offers lower tax rates but eliminates most deductions and exemptions.
Before filing your income tax return (ITR), calculate your tax liability under both regimes and opt for the one that provides the maximum savings.
2. Maximize Section 80C Deductions
Under Section 80C of the Income Tax Act, you can claim deductions up to ₹1.5 lakh through various tax-saving investments such as:
- Employee Provident Fund (EPF)
- Public Provident Fund (PPF)
- National Savings Certificate (NSC)
- Life Insurance Premiums
- 5-Year Fixed Deposits (Tax-Saving FDs)
- Equity-Linked Savings Scheme (ELSS)
3. Claim Tax Benefits on Home Loan Interest (Section 24b & 80EEA)
If you have a home loan, you can claim:
- Up to ₹2 lakh deduction on interest repayment under Section 24(b)
- Additional ₹1.5 lakh deduction under Section 80EEA (for first-time home buyers)
4. Utilize HRA and LTA Benefits
If you live in a rented house, you can claim House Rent Allowance (HRA) as a deduction. Ensure you keep rent receipts and agreement copies for proof.
Similarly, salaried individuals can claim Leave Travel Allowance (LTA) for travel expenses incurred within India.
5. Save More with Health Insurance (Section 80D)
Health insurance is not just essential for medical security but also provides tax benefits:
- Up to ₹25,000 deduction for self, spouse, and children
- Additional ₹50,000 deduction for senior citizen parents
6. Invest in NPS for Extra Deductions (Section 80CCD)
The National Pension System (NPS) provides additional tax benefits:
- Up to ₹50,000 under Section 80CCD(1B) (beyond the ₹1.5 lakh limit of Section 80C)
- Employer contributions are also tax-free up to 10% of salary
7. Save Taxes on Education Loan (Section 80E)
Interest paid on education loans qualifies for deductions under Section 80E for up to 8 years.
8. Donate and Claim Deductions (Section 80G)
Donations to charitable organizations are eligible for deductions under Section 80G. Ensure you donate to government-approved institutions to avail of tax benefits.
9. Standard Deduction and Professional Tax Benefits
All salaried individuals automatically get a standard deduction of ₹50,000 while filing their ITR. Additionally, professional tax paid is deductible from salary income.
10. Tax-Free Allowances & Perquisites
Certain allowances and perquisites are tax-exempt, such as:
- Food coupons (up to ₹50 per meal)
- Telephone bill reimbursements
- Employer contributions to EPF, NPS, and Gratuity
Effective tax planning for salaried employees in FY 2025-26 can save a considerable amount. By opting for the proper tax regime, availing deductions, and investing wisely to save tax, you can save the maximum and lower tax outgo. Plan in advance and make the most of available tax reliefs before the assessment year 2026-27!
Frequently Asked Questions (FAQs)
Which is a better tax regime for salaried persons in FY 2025-26?
It varies based on your income and deductions. If you have major tax-saving investments and expenses, the older tax regime might be suitable. Otherwise, the new tax regime with reduced tax rates can be more suitable.
What are the best tax-saving investments under Section 80C?
Common investments are PPF, EPF, NSC, ELSS, life insurance, and tax-saving fixed deposits. You can get deductions of up to ₹1.5 lakh under this section.
Can I claim HRA as well as home loan benefits?
Yes, if you reside in a rented property but have taken a home loan for another house, you can claim HRA benefits and home loan deductions both at the same time.
How can I save extra tax over Section 80C?
You can save more taxes under NPS (Section 80CCD), health insurance (Section 80D), education loan (Section 80E), and home loan interest (Section 24b & 80EEA).
Do I have to take the new tax regime?
No, you have a choice between the old and new tax regimes depending on which provides greater tax savings.
What is the salaried employee’s standard deduction for FY 2025-26?
The standard deduction for all salaried people is ₹50,000.
What are the deductions available under Section 80D?
You are eligible to claim deductions on premiums of health insurance: ₹25,000 for yourself/family and ₹50,000 for elderly parents.
When is the ITR last date for FY 2025-26?
The regular deadline to file ITR for salaried people is July 31, 2026. Nevertheless, always check for official news from the Income Tax Department.
Can I change tax regimes annually?
Yes, it is possible for salaried employees to change between the old and new tax regimes annually while submitting their income tax return.
Is donation to NGOs tax exempted?
Yes, donations to approved charitable trusts are tax exempted under Section 80G. Make sure you have proper receipts to claim the exemption.
