Paying income tax is a national responsibility. There are several legal and effective ways to reduce your income tax liability in India. Whether you’re a salaried employee, a freelancer, or a landlord, use deductions, exemptions, and smart investments. These can significantly lower your taxable income.
In recent years, India’s income tax acts have shifted focus. They are concentrating more on higher tax-free income. They are allowing fewer tax-saving deductions.
This detailed guide answers key questions. These include “How to save income tax in India” and “How can I reduce my income tax?” It even covers “Is ₹12 lakh salary zero tax?” Let’s explore the best strategies.
India’s Income Tax Act offers deductions, rebates, and exemptions to reduce taxable income. Understanding these benefits is crucial for saving income tax legally. However, all the deductions have now been relevant in the old tax regime.
As all these deductions are now on the verge of abolition under the New Tax regime. Almost all deductions are now disallowed except for a few.
In the last few years, Indian taxpayers have witnessed reduced income tax deductions under the new tax regime. This regime offers higher tax-free income slabs. The old tax regime is losing popularity because of its limitations, even though it provides full income tax deductions.
Before choosing any tax-saving strategies, it’s essential to select the right tax regime:
| Criteria | Old Tax Regime | New Tax Regime (Post-2025 updates) |
|---|---|---|
| Basic Exemption Limit | ₹2.5L | ₹4L |
| Deductions (80C, 80D, HRA, etc.) | Available | Not available (except a few) |
| Tax Slabs | Progressive | Reduced slab rates |
Let’s understand the income tax slabs under both regimes for FY 2025-26.
Tax Slabs under the new tax regime for FY 2025-26 & AY 2026-27 are as follows.
| Income Slab (₹) | Tax Rate (%) |
|---|---|
| 0 – 4,00,000 | 0% |
| 400,001 – 8,00,000 | 5% |
| 8,00,001 – 12,00,000 | 10% |
| 12,00,001 – 16,00,000 | 15% |
| 16,00,001 – 20,00,000 | 20% |
| 20,00,001 – 24,00,000 | 25% |
| Above 24,00,000 | 30% |
Tax Slabs under the Old Tax Regime for FY 2025-26 & AY 2026-27 are as follows.
| Tax Rate | Individual Tax Payer (Below 60 Years) | Senior Citizen (61-80 Years) | Super Senior Citizen (Above 80 Years) |
| NIL | Up to 2,50,000 | Up to 3,00,000 | Up to 5,00,000 |
| 5% | 2,50,001- 300,000 | 3,00,001- 5,00,000 | NIL |
| 20% | 5,00,001-10,00,000 | 5,00,001-10,00,000 | 5,00,001-10,00,000 |
| 30% | >10,00,000 | >10,00,000 | >10,00,000 |
Tax deductions available under the New Tax Regimes:
This is very unfortunate. The new tax regime emphasises reducing your tax liability, but it completely ignores the basic deductions. Indian taxpayers have been accustomed to these deductions from time immemorial.
One of the biggest changes in the new tax regime is the removal of most exemptions and deductions. But not all is lost—some benefits are still available.
The following deductions are allowed in the new tax regime:
Salaried individuals have several options to save income tax in India from salary, especially under the old tax regime:
These are the most popular tax-saving options available under the old tax regime. Eligible investments include:
If your annual salary is ₹12 lakhs, here’s a breakdown to achieve zero tax or minimize it under the old tax regime:
| Component | Amount |
|---|---|
| Standard Deduction | ₹50,000 |
| Tax on Employment | ₹2,400 |
| Section 80C Investments | ₹1,50,000 |
| NPS U/S 80CCD(1B) | ₹50,000 |
| Health Insurance (80D) | ₹75,000(25000+50000) |
| HRA Exemption | ₹1,80,000 (Non-metro) |
| Home Loan Interest (Section 24) | ₹2,00,000 |
| Total Deductions | ₹7,07,400 |
| Net Taxable Income after all deductions | ₹4,92,600 |
| Tax Liability | 0(Zero) |
After deductions, your taxable income may reduce to ~₹4.92 lakhs, which qualifies for the Section 87A rebate, effectively making your net tax zero.
Yes, you need to pay zero tax on ₹12 lakh salary with the old tax regime. You need the right mix of deductions and exemptions as shown in the above table.
Many a time we find people asking this question i.e. how to save tax from rental income. But the answer is that you can not avoid paying taxes on earning any legitimate income.
However, you should learn how to minimize the tax liability on your rental income. Here’s how to save tax from rental income:
Secondly, you can deduct up to ₹2 lakhs of interest on home loans as per Section 24(b) of the Income Tax Act, 1961. This deduction is from your rental income.
Thirdly, you can fully deduct the property tax or municipal tax paid during the financial year. This applies to the property on which you are earning rental income.
By following the above calculation strategies you can minimise your tax liability on rental income substantially.
Here’s a list of common and lesser-known (hidden) ways to save tax:
| Option | Section | Maximum Benefit |
|---|---|---|
| ELSS Mutual Funds | 80C | ₹1,50,000 |
| EPF/PPF | 80C | ₹1,50,000 |
| NPS | 80CCD(1B) | ₹50,000 |
| Health Insurance | 80D | ₹25,000 – ₹75,000 |
| HRA | Section 10(13A) | Variable |
| Education Loan Interest | 80E | No limit |
| Donations | 50%-100% of the donation | 50%-100% of donation |
| Home Loan Interest | Section 24 | ₹2,00,000 |
| Interest on Savings Account | 80TTA/80TTB | ₹10,000/₹1,00,000 |
To pay zero tax, your net taxable income must fall below:
Strategies to save 100% income tax:
| Income Range | Strategy |
|---|---|
| ₹5–10 Lakhs | Maximise home loan interest and ELSS, combine with HRA |
| ₹10–20 Lakhs | Maximise home loan interest and ELSS, combine with HRA |
| ₹20–30 Lakhs | Use advanced planning (HUF, trusts, NPS employer contribution) |
| ₹30L+ | Invest in tax-free instruments, explore business expenses, and alternate income streams |
If you’re salaried, explore all deductions under the old regime. If you’re earning from rent or interest, claim standard deductions and tax rebates. With proper planning, even a ₹12 lakh salary can attract zero tax liability.
There are multiple answers to “How to save income tax in India”. These answers depend on your income level, employment type, and willingness to invest smartly.
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