How to Save Income Tax on Rs. 12 Lakh Salary?

When you begin earning, one of the first things you learn is the importance of saving money. A major way to do this is by reducing the amount of tax you pay each year. If your annual salary is Rs. 12 lakh or more, you may often worry about how much of it goes in taxes. The good news is that it is not as complicated as it seems. With a basic understanding of the tax rules, along with some careful financial planning, you can manage your liability better by using exemptions and deductions effectively.

What has changed in FY 2025-26?

The financial year 2025–26 has brought meaningful updates for salaried taxpayers, especially those earning around Rs. 12 lakh annually. The Union Budget for this year further strengthened the new tax regime, which has been the default option since FY 2023–24. These changes are aimed at increasing take-home salary while reducing the need for compulsory tax-saving investments.

One of the most notable improvements is the increase in the standard deduction under the new tax regime. Earlier capped at Rs. 50,000, it has now been raised to Rs. 75,000. This deduction is applied before calculating tax and directly lowers taxable income. It is available to all salaried individuals and pensioners who opt for the new regime. For example, if your annual salary is Rs. 12 lakh, your taxable income automatically reduces to Rs. 11.25 lakh after this deduction.

Another major relief comes through Section 87A. The rebate limit has been increased substantially, from Rs. 25,000 to Rs. 60,000. As a result, resident individuals with taxable income of up to Rs. 12.75 lakh can effectively pay no income tax under the new regime, subject to conditions. This rebate is allowed once per financial year and significantly reduces tax outgo for middle-income earners.

Overall, these changes make tax planning simpler and more flexible. Salaried employees no longer need to rely heavily on traditional investment products just to save tax. Before moving into detailed calculations for a Rs. 12 lakh salary, it is important to understand how tax savings work under both the old and new tax regimes.

Income tax slabs under the new tax regime for FY 2025-26 (AY 2026-27)

In the 2025 Budget, the government introduced updated income tax slabs under the new tax regime. The revised structure increases slab ranges to Rs. 4 lakh intervals, and a 25% tax rate was added. These changes aim to simplify taxation while maintaining clarity across different income brackets for FY 2025–26 (AY 2026–27).

Annual income	Income tax rate
Up to Rs. 2.5 lakh	Nil
Rs. 2.5 lakh – Rs. 4 lakh	Nil
Rs. 4 lakh – Rs. 5 lakh	5%
Rs. 5 lakh – Rs. 8 lakh	5%
Rs. 8 lakh – Rs. 10 lakh	10%
Rs. 10 lakh – Rs. 12 lakh	10%
Rs. 12 lakh – Rs. 16 lakh	15%
Rs. 16 lakh - Rs. 20 lakh	20%
Rs. 20 lakh - Rs. 24 lakh	25%
More than Rs. 24 lakh	30%

Comparison of old vs. new income tax slabs as per Union Budget 2025

Before looking into tax-saving strategies for a salary above Rs. 12 lakh, it is necessary to know which tax slab applies to you. In India, income tax is calculated differently depending on whether you opt for the old or the new regime. The old regime allows various exemptions and deductions, giving taxpayers flexibility but requiring detailed planning. In contrast, the new regime has lower and simpler rates, though fewer deductions can be claimed. Choosing the right regime depends on your income structure and how much you usually claim through exemptions and deductions in a financial year.

Income tax slabs: Old vs. new regime for FY 2024-25 (AY 2025-26)

Income slab (Rs.)	Old regime tax rate	New regime tax rate (2025)
Up to Rs.2.5 lakh	Nil	Nil
Rs.2.5 lakh – Rs.4 lakh	5%	Nil
Rs.4 lakh – Rs.8 lakh	5%	5%
Rs.8 lakh – Rs.12 lakh	20%	10%
Rs.2 lakh – Rs.16 lakh	30%	15%
Rs.16 lakh – Rs.20 lakh	30%	20%
Rs.20 lakh – Rs.24 lakh	30%	25%
Above Rs.24 lakh	30%	30%

How to save taxes for a Rs. 12 lakh salary?

When your annual income is Rs. 12 lakh, proper tax planning can help you reduce your tax burden significantly. The actual savings depend on whether you choose the old tax regime, which allows several deductions and exemptions, or the new tax regime, which offers lower tax rates but fewer deductions. Let us look at both options in detail.

Old tax regime (available deductions)

The old tax regime allows multiple deductions that can substantially reduce taxable income if used wisely.

Common deductions available include:

• Section 80C, 80CCC and 80CCD(1) (up to Rs. 1.5 lakh): Investments such as Public Provident Fund (PPF), ELSS mutual funds, EPF contributions, life insurance premiums, repayment of home loan principal, annuity plans, and pension schemes of the Central Government qualify under this limit.
• Section 80D (health insurance): Premiums paid for medical insurance are deductible. You can claim up to Rs. 25,000 for self, spouse, and dependent children, or Rs. 50,000 if you or your spouse is a senior citizen. An additional Rs. 25,000 (or Rs. 50,000 for senior citizen parents) can be claimed for parents.
• House rent allowance (HRA): If you live in a rented home, HRA exemption can be claimed based on the lowest of actual HRA received, 50% of salary for metro cities (40% for non-metros), or rent paid minus 10% of salary.
• Interest on home loan (Section 24b): Up to Rs. 2 lakh can be claimed as a deduction on interest paid for a self-occupied house.
• National Pension Scheme (Section 80CCD): An extra deduction of Rs. 50,000 is available under Section 80CCD(1B) if you invest in NPS.
• Minor’s income exemption (Section 10(32)): Limited exemption is available for income earned by a minor child.

With careful planning, these deductions can bring down taxable income considerably and reduce overall tax payable.

New tax regime (limited deductions)

The new tax regime is designed to be simpler, with lower slab rates but fewer deductions.

Key tax-saving options under the new regime include:

• Standard deduction: A flat deduction of Rs. 75,000 is allowed for salaried individuals.
• Employer’s contribution to NPS (Section 80CCD(2)): Contributions made by the employer to NPS are deductible up to 10% of basic salary plus dearness allowance (14% for government employees). This benefit is over and above the Section 80C limit.
• EPF and gratuity benefits: EPF contributions remain tax-free within prescribed limits. Employer contribution is exempt up to 12% of basic salary plus DA, and interest is tax-free subject to annual limits. Gratuity remains exempt up to Rs. 20 lakh under Section 10(10).

While the new regime reduces paperwork and complexity, it may not offer maximum savings for individuals who already make several tax-saving investments.

Example of tax saving for Rs. 12 lakh salary

Case study 1: Without deductions (new regime)

Income Slab	Taxable Amount (Rs.)	Rate	Tax (Rs.)
0 – 3,00,000	3,00,000	NIL	0
3,00,001 – 7,00,000	4,00,000	5%	20,000
7,00,001 – 10,00,000	3,00,000	10%	30,000
10,00,001 – 11,25,000	1,25,000	15%	18,750
Total Tax Before Rebate			68,750
Less: Section 87A Rebate			60,000
Health & Education Cess (4%)			350
Total Tax Payable			9,100

Case study 2: With full deductions (old regime)

Particulars	Amount (Rs.)
Gross Salary	12,00,000
Total Deductions	3,95,000
Taxable Income	8,05,000

 

Income Slab	Tax Rate	Tax (Rs.)
0 – 3,00,000	NIL	0
3,00,001 – 7,00,000	5%	20,000
7,00,001 – 8,05,000	10%	10,500
Total Tax Before Cess		30,500
Health & Education Cess (4%)		1,220
Total Tax Payable		31,720

Tax difference

• New regime: Rs. 9,100

• Old regime: Rs. 31,720

• Difference: Rs. 22,620

Key changes in Budget 2025

The Budget 2025 brought several taxpayer-friendly updates. Firstly, no tax is payable on incomes up to Rs. 12 lakh, thanks to an enhanced rebate under Section 87A. Secondly, tax rates have been reduced for incomes between Rs. 12 lakh and Rs. 24 lakh. Thirdly, while the old regime remains unchanged, it still allows deductions such as 80C and HRA. Note that the new regime restricts many of these traditional exemptions.

Tax saving options under new and old tax regime

Below is a comparative overview of tax-saving opportunities available under the old and new tax regimes:

New tax regime – Allowed deductions

Although limited, certain deductions are still available under the new system:

Deduction type	Details
Standard deduction	Rs. 75,000
Employer’s NPS contribution	Allowed under Section 80CCD(2)
Agniveer Corpus Fund	Deduction under Section 80CCH
Family pension	Deduction as per Section 57(iia)
Conveyance and transport allowance	Applicable, especially for specially-abled individuals
Gratuity and leave encashment	Exempt under Sections 10(10), 10(10AA), 10(10C)
Interest on home loan (Let-out Property)	Deduction allowed under Section 24

Old tax regime – Exemptions and deductions

The old regime offers a wider variety of tax-saving tools, grouped into two categories:

Part A: Benefits under 'Salary'

Component	Tax treatment
Basic and DA	Fully taxable
HRA	Partially exempt (subject to limits)
LTA	Exempt twice in a four-year block
Internet/Mobile reimbursement	Exempt with valid bills
Children's education allowance	Rs. 4,800 annually (up to 2 children)
Food coupons	Up to Rs. 26,400 yearly
Professional tax	Usually Rs. 2,400
Standard deduction	Rs. 50,000

 

Part B: Deductions under Chapter VI-A

Section	Deduction
80C	Up to Rs. 1.5 lakh (EPF, PPF, ELSS, SSY, NSC, etc.)
80D	Rs. 25,000–50,000 (health insurance)
80E	Interest on education loans (up to 8 years)
80G	Donations to approved charities (50% or 100%)
80DD	Rs. 75,000–1.25 lakh (for disabled dependents)
Section 24(b)	Up to Rs. 2 lakh (home loan interest)

Example on calculation of tax under new and old tax regime

Old regime

Particulars	Amount (Rs.)
Gross Income	12,00,000
Less: HRA Exemption	(1,20,000)
Less: Standard Deduction	(50,000)
Less: Section 80C	(1,50,000)
Less: Section 80D	(30,000)
Taxable Income	8,50,000
Tax Liability (incl. cess)	85,800

Under the old regime, your taxable income reduces significantly because of deductions and exemptions. After accounting for all eligible benefits, the tax liability comes to Rs. 85,800. This system is suitable for those who actively invest in eligible instruments or have expenses like health insurance and HRA.

New Regime

Particulars	Amount (Rs.)
Gross Income	12,00,000
Less: Exemptions	Not applicable
Less: Standard Deduction	(75,000)
Taxable Income	11,25,000
Tax Liability (incl. cess)	71,500

In the new regime, exemptions such as HRA or Section 80C investments cannot be claimed. However, a higher standard deduction of Rs. 75,000 is available. This results in a taxable income of Rs. 11,25,000, and the total tax payable works out to Rs. 71,500. For salaried individuals who do not wish to plan investments for deductions, the new regime often proves more convenient.

Rs. 12 lakh income tax calculation in old and new tax regime

Let’s understand how taxes are calculated for a gross salary of Rs. 12 lakh in FY 2025–26 under both tax regimes. Suppose Mr A receives an HRA exemption of Rs. 60,000, LTA exemption of Rs. 20,000, and pays Rs. 2,400 as professional tax. He also invests Rs. 1.5 lakh in PPF, pays Rs. 50,000 for his senior citizen parents’ health insurance, and pays Rs. 25,000 towards education loan interest.

Particulars	Old tax regime	New tax regime
Gross Salary	Rs. 12,00,000	Rs. 12,00,000
HRA Exemption	Rs. 60,000	NA
LTA Exemption	Rs. 20,000	NA
Standard Deduction	Rs. 50,000	Rs. 75,000
Professional Tax	Rs. 2,400	NA
Income after Deductions	Rs. 10,67,600	Rs. 11,25,000
Section 80C Deduction	Rs. 1,50,000	NA
Section 80D Deduction	Rs. 50,000	NA
Section 80E Deduction	Rs. 25,000	NA
Net Taxable Income	Rs. 8,42,600	Rs. 11,25,000
Tax Before Rebate	Rs. 84,261	Rs. 52,500
Rebate under 87A	NA	Rs. 52,500
Final Tax Payable	Rs. 84,261	Rs. 0

Conclusion: Choosing the new tax regime in this case results in zero tax liability, saving Rs. 84,261.

Tax computation for FY 2024-25 under the old and new tax regime

Here’s a similar calculation using income figures for the previous financial year (FY 2024–25), keeping exemptions and deductions the same as in the previous example.

Particulars	Old tax regime	New tax regime
Gross Salary	Rs. 12,00,000	Rs. 12,00,000
HRA Exemption	Rs. 60,000	NA
LTA Exemption	Rs. 20,000	NA
Standard Deduction	Rs. 50,000	Rs. 75,000
Professional Tax	Rs. 2,400	NA
Income after Deductions	Rs. 10,67,600	Rs. 11,25,000
Section 80C Deduction	Rs. 1,50,000	NA
Section 80D Deduction	Rs. 50,000	NA
Section 80E Deduction	Rs. 25,000	NA
Net Taxable Income	Rs. 8,42,600	Rs. 11,25,000
Tax Before Rebate	Rs. 84,261	Rs. 71,500
Rebate under 87A	NA	NA
Final Tax Payable	Rs. 84,261	Rs. 71,500

Conclusion: In this case, the new tax regime still results in a lower tax payable, even without any deductions.

Income tax slabs for FY 2023-24 (old tax regime)

Income range (Rs.)	Tax rate
Up to Rs. 2.5 lakh	Nil
Rs. 2,50,001 - Rs. 5,00,000	5%
Rs. 5,00,001 - Rs. 10,00,000	20%
Rs. 10,00,001 and above	30%

For individuals earning Rs. 12 lakh or more, the old tax regime may still be beneficial due to higher deduction options.

Deductions and exemptions under the new tax regime

Unlike the old regime, the new tax regime has limited deductions. Below are the key tax-saving options available under the new tax regime:

1. Standard Deduction: A flat deduction of ₹50,000 for salaried and pensioned individuals under Standard deduction.
2. Deductions under Section 80CCD (2): Employer’s contribution to National Pension Scheme (NPS) can be claimed under Section 80CCD (2).
3. No Exemptions for Allowances: Perks like House Rent Allowance (HRA), Leave Travel Allowance (LTA), and deductions under Section 80C (like PF contributions, life insurance, etc.) are not available.
4. No exemptions for transport and medical allowances: Unlike the old regime, these deductions are removed.

Minimum deductions required if income exceeds Rs. 12 lakh

For taxpayers with an income above Rs. 12 lakh, maximizing deductions is crucial. Here are some key deduction options under the old tax regime:

1. Section 80C Deductions: Investments in EPF, PPF, ELSS, NSC, Life Insurance Premiums, etc.
2. Home Loan Interest (Section 24(b)): Deduction on home loan interest paid. You might already be eligible for favourable terms on a home loan – check your loan offers from Bajaj Finserv by entering your mobile number and OTP.
3. Health Insurance Premiums (Section 80D): Tax benefit on health insurance for self, spouse, children, and parents.
4. National Pension Scheme (Section 80CCD): Additional deduction for individual contributions.
5. Education Loan Interest (Section 80E): Deduction for education loan interest.
6. Standard Deduction: Rs. 50,000 deduction for salaried individuals.

Comparison of Tax Liability: Old vs. New Regime

Description	Amount (Rs.)	Old regime (Rs.)	New regime (Rs.)
Income	12,50,000	12,50,000	12,50,000
Standard deduction	50,000	50,000	50,000
Professional tax	2,400	2,400	–
Gross total income	11,97,600	11,97,600	12,00,000
Less: Deduction u/s 80C	1,50,000	1,50,000	–
Total Taxable Income	10,47,600	10,47,600	12,00,000
Income Tax Payable	–	1,26,780	90,000
Education Cess (4%)	–	5,071	3,600
Total Tax	–	1,31,851	93,600

Which tax regime is better?

• If you have significant deductions and exemptions, the old tax regime could be more beneficial.
• If you do not claim many deductions, the new tax regime provides a lower tax rate and simpler filings

How to calculate income tax on different salary slabs

For better understanding, taxpayers can calculate tax liability based on different salary slabs:

• Rs. 7 lakh: Tax calculation for Rs. 7 lakh salary

• Rs. 12 lakh: Tax calculation for Rs. 12 lakh salary

• Rs. 15 lakh: Tax calculation for Rs. 15 lakh salary

It is essential to assess individual tax-saving options before choosing between the old vs. new tax regime. Make an informed decision based on your financial goals and tax-saving potential.

Other topics you might find interesting
Income Tax Notice Section 142 1​	Section 80CCD 2 of Income Tax Act	Section 194H of Income Tax Act	Section 80CCD 1 of Income Tax Act
Section 148 of Income Tax Act	Section 80GGC of Income Tax Act	Section 80DD of Income Tax Act	Section 80E of Income Tax Act
Home Loan Interest Deduction	Section 80CCD 1B of Income Tax Act	Section 80DDB of Income Tax Act	Section 80G of Income Tax Act
56 2 X of Income Tax Act	Section 194IA of Income Tax Act	Section 80EEA of Income Tax Act	Section 80GG Deduction of Income Tax Act

Old vs new tax regime – Which is better for a Rs. 12 lakh salary?

Choosing between the old and new tax regimes depends largely on your financial commitments and investment habits. Both options have their advantages, and the better choice varies from one individual to another.

Under the old tax regime, taxpayers can reduce taxable income significantly by claiming deductions under Sections 80C, 80D, 24(b), HRA, and NPS. This regime is suitable for individuals who actively invest in tax-saving instruments, pay rent, or have a home loan. With maximum deductions, the taxable income drops sharply, resulting in lower effective tax rates.

The new tax regime, on the other hand, is ideal for those who prefer simplicity. With fewer deductions but lower slab rates and a higher standard deduction, it suits individuals who do not wish to lock money into long-term investments. The increased Section 87A rebate further ensures that tax liability remains minimal for incomes close to Rs. 12 lakh.

Comparison at a glance

Particulars	New regime	Old regime
Gross Salary	Rs. 12,00,000	Rs. 12,00,000
Taxable Income	Rs. 11,25,000	Rs. 7,25,000
Approx. Tax Payable	Rs. 96,200	Rs. 52,650
Effective Tax Rate	~8%	~4.4%

Which regime should you choose?

• Choose the old regime if you invest regularly, pay rent, or have a home loan.

• Choose the new regime if you have minimal deductions and prefer a hassle-free tax filing process.

In short, for a Rs. 12 lakh salary, the old regime benefits those who maximise deductions, while the new regime works better for individuals with limited investments and simpler finances.

Conclusion

Understanding how income tax works allows you to make informed decisions about which regime to choose. If you wish to follow the old tax regime, you can lower your tax burden by investing in schemes like PPF, ELSS, NSC, or Sukanya Samriddhi Yojana. On the other hand, the new regime provides simpler slab rates, and you can still claim a few useful deductions like the standard deduction and employer’s NPS contribution. Planning to buy a house? You can also claim home loan benefits through Bajaj Finserv, which can support your financial planning while potentially reducing your taxable income. You might already be eligible – check your loan offers now by entering your mobile number and verifying with an OTP.

Know how to calculate income tax on different salary slabs

Salary amount	Calculate income tax for different salary slab:
Rs. 7 lakh	Income tax on Rs. 7 lakh
Rs. 15 lakh	Income tax on Rs. 15 lakh

 

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