How to Save Tax on 18 Lakhs Salary? Regime & Tax-Saving Tips

Tax planning is a critical aspect of financial management for salaried professionals, especially for those earning an annual salary of Rs. 18 lakh or more. With higher earnings, the tax liability increases significantly, making it essential to utilise legitimate strategies to reduce taxable income. In this article, we will explore effective methods to save tax while adhering to Indian tax laws.

Tax-saving strategies play a pivotal role in ensuring financial stability for salaried individuals earning Rs. 18 lakh annually. As India progresses economically, with projections such as the World GDP Ranking 2025 List showcasing its growth, managing personal finances becomes increasingly important. By leveraging exemptions, deductions, and restructuring income, professionals can optimise their tax outflows and achieve financial goals.

Below are the income tax slab rates applicable for the financial year 2025-2026:

These rates highlight the progressive nature of India’s income tax system.

The income tax slab rates for FY 2024-2025 are as follows:

While the rates remain unchanged compared to FY 2025-2026, any amendments to exemptions or deductions can impact tax-saving strategies.

The old and new tax regimes offer different benefits. Here is a comparison:

The old regime allows deductions and exemptions, while the new regime simplifies tax filing but limits deductions.

Here is a breakdown of deductions available under both tax regimes:

Selecting the right regime depends on individual financial goals and the extent of deductions.

Salary restructuring

Restructuring your salary to include tax-exempt components like House Rent Allowance (HRA), transportation allowance, and meal coupons can significantly reduce taxable income.

Exempt perquisites

Employer-provided perks such as Leave Travel Allowance (LTA) and medical reimbursements are tax-free under certain conditions, helping lower tax liabilities.

Employer’s contribution to NPS u/s 80CCD(2)

Contributions made by your employer to the National Pension System (NPS) under Section 80CCD(2) are tax-deductible and can help save taxes.

Gift taxation

Gifts received from family members are exempt from taxation within prescribed limits, offering a legitimate way to reduce taxable income.

Deduction for interest on borrowing for let out property

You can claim deductions on interest paid for loans taken to purchase property that is rented out, under Section 24(b).

Gratuity and leave encashment

Gratuity and leave encashment received during retirement or job transitions are tax-free up to specific limits, reducing tax burdens.

Deduction to additional employee cost

Employing additional staff can qualify for tax incentives under applicable sections, reducing your overall tax liability.

Deduction to Agniveer Corpus Fund

Contributions made to the Agniveer Corpus Fund are eligible for tax benefits under specific provisions, helping reduce taxable income.

Illustration

For example, if an individual earning Rs. 18 lakh restructures their salary to include Rs. 3 lakh as HRA, Rs. 1 lakh as LTA, and utilises Section 80C deductions worth Rs. 1.5 lakh, their taxable income reduces to Rs. 12.5 lakh, significantly lowering tax liability.

Effective tax planning is essential for salaried professionals earning Rs. 18 lakh annually. By understanding income tax slabs, choosing the right tax regime, and leveraging deductions, individuals can optimise their tax savings. It is advisable to consult a financial expert to align tax-saving strategies with personal financial goals.

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