Tax Planning for Salaried Employees in India (FY 2025-26)

For most salaried individuals, the tax planning process comes down to two decisions: which regime to pick, and which claims are actually usable given that regime. Get those two right early in the year, and the rest follows with far less effort.

This article covers the full picture for salaried taxpayers: salary structure, regime comparison, deductions, common mistakes, and what to keep track of before filing. Where deeper rules apply, links are placed in context to avoid overloading this page.

Start Here: Understand Your Salary Structure

Your salary structure determines which deductions and exemptions are accessible to you. Most salaried employees do not review this until March. Starting in April gives time to flag any structural issues with HR before the first TDS deduction.

A typical salary structure includes:

• Basic Salary: The base figure used to calculate EPF contribution, gratuity, and HRA exemption. A higher basic generally helps with HRA claims but increases EPF deduction.
• House Rent Allowance (HRA): Partially exempt from tax if you live in rented accommodation and are in the old regime. The exempt portion depends on city category and rent paid.
• Special Allowance: Fully taxable under both regimes. No deduction available.
• EPF Contribution: Employee's share (12% of basic) is eligible for deduction under Section 80C in the old regime. Employer's share is not taxable up to prescribed limits.
• Employer NPS Contribution: Deductible under Section 80CCD(2) in both old and new regimes, up to 14% of basic salary.
• Bonus and Variable Pay: Fully taxable in the year of receipt regardless of regime.

The Decision That Drives Everything: Old Regime vs New Regime

Every deduction and investment decision flows from this one choice. Pick the regime first, then plan around it. Doing it the other way around is the most common tax planning mistake salaried employees make.

New Tax Regime Slabs (FY 2025-26)

Old Tax Regime Slabs (FY 2025-26)

When Each Regime Tends to Work Better

The most reliable approach is to run the numbers for both regimes using last year's salary slip and proof set before making the final call. A tax calculator or a qualified adviser can help with this comparison, particularly when income crosses ₹15 lakh or when multiple deductions are active simultaneously.

Deductions Available Under the Old Regime

If you are in the old regime, these are the deductions that directly reduce your taxable income. The only deductions available in the new regime are the ₹75,000 standard deduction and the employer's NPS contribution under Section 80CCD(2).

Section-Wise Deduction Reference (FY 2025-26)

HRA: The Most Documentation-Heavy Claim

HRA exemption is calculated as the least of three amounts: actual HRA received from employer, rent paid minus 10% of salary (basic plus DA), or 50% of salary for metro cities and 40% for non-metro cities.

From FY 2026-27 onwards, under the Income Tax Rules 2026, eight cities qualify for the 50% rate: Delhi, Mumbai, Chennai, Kolkata, Bengaluru, Hyderabad, Pune, and Ahmedabad. For FY 2025-26 (the year covered by this article), the original four-city list applies: Delhi, Mumbai, Chennai, and Kolkata at 50%. All other cities at 40%.

Section 80D: Health Insurance Deductions at a Glance

Preventive health check-up costs of up to ₹5,000 are included within the overall 80D limit, not in addition to it.

When the New Regime Makes Sense

The new regime is the default for salaried employees from FY 2023-24 onwards. It is not simply a fallback. For a large segment of salaried taxpayers, particularly those without home loans, active HRA claims, or substantial insurance cover, the new regime may result in a lower tax liability even at higher income levels.

Proof Submission and Filing: What to Track

For salaried employees in the old regime, the compliance cycle runs across the full year, not just at return filing time. Missing employer proof deadlines leads to excess TDS deducted throughout the year, with refunds only arriving after filing.

Key Milestones in the Salaried Tax Cycle

Common Mistakes Salaried Employees Make

• Deciding regime after making investments: ELSS and PPF contributions made before the regime is decided may not generate any deduction if the new regime is ultimately chosen.
• Missing employer proof deadlines: When proofs are not submitted on time, the employer deducts TDS at higher rates. The excess becomes a refund, but cashflow is impacted all year.
• Not comparing regimes with actual numbers: Generic guidance on which regime is better does not substitute for running the calculation with your own salary slip and deduction set.
• Filing without checking AIS and Form 26AS: Mismatches between employer TDS credits and the return are a leading cause of notices. Checking before filing takes under 30 minutes and avoids significant follow-up work.
• Filing the wrong ITR form: Salaried employees with capital gains, rental income, or foreign assets need ITR-2, not ITR-1. Filing the wrong form results in a defective return.
• Ignoring capital gains tax planning: For employees who also invest in equity, mutual funds, or digital assets, capital gains tax can exceed 80C-linked tax savings. This is often not accounted for separately.

Where to Go from Here

The next step depends on your income profile and which areas need deeper attention.

FAQs

1. What is the ITR filing deadline for salaried employees for FY 2025-26?

The deadline for salaried individuals filing ITR-1 or ITR-2 is July 31, 2026. Filing after this date attracts a late fee of up to ₹5,000 under Section 234F and interest on any unpaid tax under Section 234A. A belated return can be filed up to December 31, 2026.

2. Can I switch between old and new tax regime every year?

Salaried individuals with no business income can switch between regimes each year at the time of filing their ITR. Those with business or professional income can switch from new to old regime only once. The employer declaration at the start of the year does not lock in the final choice.

3. Which deductions are available in the new tax regime?

The new regime allows only two deductions for salaried employees: the ₹75,000 standard deduction and the employer's NPS contribution under Section 80CCD(2) up to 14% of basic salary. Deductions under 80C, 80D, HRA, and home loan interest are not available.

4. Is HRA deduction allowed in the new regime?

No. HRA exemption under Section 10(13A) is available only under the old regime. Employees who receive HRA but are in the new regime will have it taxed as part of gross salary. This is a meaningful factor when comparing regimes for those paying significant rent.

5. Can I claim both 80C and additional NPS deduction?

Yes, under the old regime. Section 80C allows up to ₹1,50,000 covering EPF, PPF, ELSS, and others. Section 80CCD(1B) allows an additional ₹50,000 for voluntary NPS contribution, over and above the 80C limit. Employer NPS under 80CCD(2) is separate from both and available in both regimes.

6. What happens if I miss the employer proof submission deadline?

Your employer will deduct TDS at a higher rate for the remaining months of the financial year, as they cannot factor in the unsubmitted claims. The excess TDS becomes a refund when you file your ITR, but your take-home pay is lower in the interim. Consult a SEBI-registered investment adviser or a qualified tax professional if your deduction set is complex and you are unsure what to submit.

Disclaimer: This article is for general information and educational purposes only. It does not constitute investment advice, a recommendation, or an offer to buy or sell any securities or financial instruments. Tax rules, slab rates, and deduction limits referenced here are based on publicly available sources and are applicable for FY 2025-26 (AY 2026-27). Rules may change in subsequent budgets. Past tax outcomes are not indicative of future liability. Please consult a SEBI-registered investment adviser or qualified tax professional before making any tax-related financial decision.