Smart Tax Planning for Salaried Employees in 2025 (India)

Save More, File Smoothly, Avoid Mistakes

For most salaried individuals in India, tax planning begins with two questions:
“Which tax regime should I choose?” and “How do I reduce my tax legally?”

In FY 2024–25, with updated slabs, limited deductions, and an extended ITR deadline, there’s still time to make smart tax decisions. But doing it right means understanding your salary structure, choosing the right regime, and avoiding last-minute investment traps.

Understand Your Salary Structure First

Before you compare tax regimes, look at your salary components. Most people don’t.

Typical structure:

• Basic Salary (used to calculate EPF, gratuity, HRA)
• House Rent Allowance (HRA) - tax-exempt under certain conditions
• Special Allowance - fully taxable
• Provident Fund (EPF) - 12% of basic salary
• Bonus/Performance Pay - fully taxable

Your structure determines:

• Eligibility for HRA deduction
• Whether employer contributions to NPS or EPF can help reduce tax
• How much flexibility you have under each tax regime

Old vs. New Tax Regime: Which One Works for You?

Since FY 2020–21, taxpayers can choose between two regimes.

New Tax Regime (Section 115BAC) – FY 2025–26

Note: A tax rebate of up to ₹25,000 is available if your income is up to ₹7,00,000 (for resident individuals only; not applicable to NRIs).

Old Tax Regime - FY 2025–26

Note: A tax rebate of up to ₹60,000 is applicable if total income does not exceed ₹12,00,000 (only for resident individuals).

Most salaried taxpayers are automatically placed under the new regime unless opted out while filing.

Deductions That Still Matter (Old Regime Only)

If you have eligible deductions, the old regime may save more tax.

Summary Table

Brief Explanation of Key Deductions

1. Section 80C - Investment-Based Deduction (Limit: ₹1.5L)

Includes EPF, PPF, NSC, life insurance, ELSS, home loan principal repayment, and tuition fees (up to 2 children).

Note: Combined limit of ₹1.5 lakh.

2. Section 80D - Health Insurance Premiums

3. HRA - Section 10(13A)

Least of the following:

• Actual HRA received
• 50% of salary (metro) / 40% (non-metro)
• Rent paid - 10% of salary

Only for those staying in rented accommodation.

4. Section 24(b) - Home Loan Interest

Up to ₹2L deduction for self-occupied property. Full interest allowed on rented homes, but capped for set-off.

5. Section 80E - Education Loan Interest

Full interest is deductible for up to 8 years (or until paid off), for higher education of self/spouse/children/legal ward.
Loan must be from a bank or financial institution.

Principal repayment is not eligible.

6. Section 80CCD(1B) - Voluntary NPS (Self)

Additional ₹50,000 over 80C for self-invested NPS.

7. Section 80CCD(2) - Employer NPS Contribution

When the New Regime Is Actually Better

The new tax regime may be a smarter choice for many - especially for those with minimal deductions or a preference for simplicity. Here’s why it can be more beneficial in 2025:

Key Advantages

• Zero Tax on Income up to ₹12.75 Lakh
  With the ₹75,000 standard deduction + ₹12 L exemption, salaried individuals can now earn up to ₹12.75 lakh annually without paying any income tax.
• Simplified Compliance & Lower Tax Slabs
  No complex proofs or documentation. You file based on income slabs, saving time and errors.
• Employer NPS Contribution Still Deductible
  Employer’s contribution to NPS (up to 14% of Basic + DA) remains deductible under the new regime via Section 80CCD(2).
  (Allowed under both regimes)
• Saves You from “Investment for Deduction” Trap
  You’re not forced to lock money into ELSS, PPF, or insurance just to save tax.
• More Disposable Income
  Many employees with no loans or deductions simply take home more money, avoiding unnecessary paperwork or compliance burden.

When It Makes Sense to Choose the New Regime

Tip: Always compare regimes after including NPS employer contribution using a trusted tax calculator before filing.

Common Tax Planning Mistakes (Especially in June-Sept)

• Waiting till August to make tax-saving investments
• Not comparing regimes with actual numbers
• Not coordinating with HR to adjust salary components (e.g. HRA)
• Filing without checking Form 26AS or Annual Information Statement (AIS)

Pro Tip: Form 26AS updates after 15 June - check TDS entries before filing.

Expert View: Tax Planning Isn’t Just Tax Saving

Tax planning is not just about deductions. It’s about:

• Choosing a regime that aligns with your income and goals
• Structuring your salary to improve post-tax income
• Planning ELSS/NPS/PPF investments with long-term discipline

“You can save ₹20k–₹1L per year with smart planning, without chasing last-minute products.”

If unsure, consult a financial expert - especially if your income crosses ₹15L or if you receive allowances, bonuses, or ESOPs.

What You Should Do Now

• Decide between old and new regime today.
• Review deductions already available (80C, 80D, HRA).
• Start any investment gaps (NPS, ELSS, health insurance).
• File your ITR before 15 September 2025 to avoid late fees and stress.

Final Thoughts

Tax planning is no longer just about saving ₹1.5 lakh under 80C. With two regimes to choose from, salaried individuals must look at the bigger picture - salary structure, deduction eligibility, long-term goals, and filing simplicity.

If you:

• Have consistent deductions like housing loan, insurance, and investments → the old regime may still work better.
• Prefer ease, don’t claim deductions, or earn under ₹12.75L → the new regime is likely more efficient.

The key is not to rush just before the due date, but to decide early, adjust your structure if needed, and file smartly before the 15 September 2025 deadline.

Frequently Asked Questions (FAQs)

1. What is the last date to file income tax return for FY 2024–25?

15 September 2025 for non-audit taxpayers (including salaried).

2. How do I choose between the old and new tax regime?

Compare total deductions vs. benefit of lower rates. Use tax calculators or speak to an advisor.

3. Can I switch tax regimes every year?

Yes, if you are salaried (no business income), you can choose every year while filing.

4. Is HRA deduction allowed in the new regime?

No, only allowed in the old regime.

5. What deductions are allowed in the new regime?

Only ₹75,000 standard deduction and employer NPS contributions under Section 80CCD(2).

6. Can I claim both 80C and NPS?

Yes, under old regime:
– ₹1.5L under 80C
– ₹50k under 80CCD(1B)
– Employer NPS (extra) under 80CCD(2)

7. Should I still invest in ELSS under new regime?

Only if it aligns with your investment goals - not for tax benefits.

8. What happens if I file ITR late?

You may pay up to ₹5,000 late fee under Section 234F + interest + no loss carry-forward.

9. How to check if TDS is credited correctly?

Log into the income tax portal, and download Form 26AS and AIS.