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.

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%

 

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.