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

Updated: July 2026

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 regimes, but the cap differs. It's up to 14% of basic salary plus DA in the new regime (and for government employees under either regime), but capped at 10% of basic salary plus DA for private-sector employees who stay on the old regime.
• Bonus and Variable Pay: Fully taxable in the year of receipt regardless of regime.

Old Regime vs New Regime: Which Is Better for Salaried Employees?

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

See It in Numbers: Same Salary, Two Outcomes

Both illustrations below use the same ₹15,00,000 gross salary. The only difference is how much the employee can genuinely claim under the old regime, which is exactly why "which regime is better" doesn't have one universal answer.

Quick Decision: Old Regime or New Regime?

The most reliable approach is to run the numbers for both regimes using your own salary slip and proof set before making the final call, the same way the two illustrations above were built. This matters most once income crosses ₹15 lakh or when multiple deductions are active simultaneously.

Which Deductions Can Salaried Employees Claim Under the Old Regime?

If you are in the old regime, these are the deductions that directly reduce your taxable income. For most salaried employees, the key 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)
• 50% of salary for metro cities, or 40% for non-metro cities

Under Rule 279 of the Income-tax Rules, 2026 (read with Schedule III, replacing the erstwhile Rule 2A), the metro city list changes from FY 2026-27 onwards:

• FY 2025-26 (the year covered by this article): Delhi, Mumbai, Chennai, and Kolkata at 50%. All other cities, including Bengaluru, Hyderabad, Pune, and Ahmedabad, at 40%.
• FY 2026-27 onwards: Delhi, Mumbai, Chennai, Kolkata, Bengaluru, Hyderabad, Pune, and Ahmedabad all qualify for 50%.

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 Should Salaried Employees Choose the New Tax Regime?

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 (reduced to ₹1,000 if total income is below ₹5,00,000) 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?

For most salaried employees, the key deductions available in the new regime are 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. A few narrow exceptions exist, such as the family pension deduction under Section 57(iia) and the Agniveer Corpus Fund deduction under Section 80CCH.

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.

7. Can salaried employees pay zero tax even above ₹12.75 lakh under the new regime?

For most salaried employees, ₹12,75,000 gross salary is the zero-tax point under the new regime: the ₹75,000 standard deduction plus the ₹12,00,000 rebate threshold. Some employees can push this higher by restructuring a larger share of their CTC into employer NPS contributions under Section 80CCD(2), which remains deductible in the new regime up to 14% of basic salary. This isn't automatic: it depends on your employer's corporate NPS plan supporting a higher contribution, and it converts cash-in-hand into a retirement corpus you can't access until age 60.

8. Is Section 80CCD(2) capped at 10% or 14% for private-sector employees?

It depends on the regime. Under the new tax regime, employer NPS contributions up to 14% of basic salary plus DA are deductible for all employees, private-sector included. Under the old regime, private-sector employees remain capped at 10% of basic salary plus DA. Only government employees get 14% under the old regime as well. This distinction matters if you're comparing regimes using your NPS contribution as part of the calculation.

9. What happens if I declare one regime to my employer but choose another while filing my ITR?

For salaried employees without business income, the employer's declaration only affects how TDS is deducted from your salary during the year. The final regime is chosen when you file your income tax return, regardless of what was declared to the employer. If the two differ, you may see a refund or an additional tax payment depending on which way the mismatch runs.

10. How much deduction is needed for the old regime to beat the new regime?

There is no single number that works at every income level. As the two illustrations above show, the same ₹15,00,000 salary needs roughly ₹6 lakh in genuine old-regime deductions to come out ahead, while at lower or higher incomes that threshold shifts. The most reliable way to check is to run your own salary and deduction set through the income tax calculator rather than rely on a general rule of thumb.

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.