How to Save Tax on a Salary Above ₹10 Lakh

Introduction

India follows a progressive income tax system, where tax rates increase with income levels. While many taxpayers focus only on deductions, they often overlook the impact of smart salary structuring and strategic tax planning.

If your annual salary exceeds ₹10 lakh and you’re looking to reduce your tax burden—or even bring it down to zero—this guide is for you. It explains how to optimise your income and make the most of the latest tax provisions.

For FY 2025–26, the government has significantly enhanced tax relief. The rebate limit under Section 87A has been increased to ₹60,000, effectively allowing individuals with taxable income up to ₹12 lakh (excluding income taxed at special rates) to pay no income tax. This means that someone earning ₹10 lakh in FY 2025–26 may end up with zero tax liability, subject to conditions.

Income Tax Slab Rates for FY 2025–26 (AY 2026–27)

In Budget 2025, the government introduced notable changes to the new tax regime to simplify taxation and provide relief to middle-income earners. Key highlights include wider slab intervals of ₹4 lakh and the introduction of a 25% tax slab.

Revised Income Tax Slabs – New Regime

Income Range	Tax Rate
Up to ₹4,00,000	Nil
₹4,00,001 – ₹8,00,000	5%
₹8,00,001 – ₹12,00,000	10%
₹12,00,001 – ₹16,00,000	15%
₹16,00,001 – ₹20,00,000	20%
₹20,00,001 – ₹24,00,000	25%
Above ₹24,00,000	30%

These changes aim to reduce tax outgo, simplify compliance, and encourage taxpayers to adopt the new regime.

Old Regime vs New Regime: Income Tax Slabs (FY 2024–25)

With the introduction of the new tax regime as the default option from FY 2024–25, taxpayers can still choose the old regime if it results in lower tax liability.

Slab Comparison

Income Range	Old Regime	Income Range	New Regime
Up to ₹2.5 lakh	Nil	Up to ₹3 lakh	Nil
₹2.5 – ₹5 lakh	5%	₹3 – ₹7 lakh	5%
₹5 – ₹10 lakh	20%	₹7 – ₹10 lakh	10%
Above ₹10 lakh	30%	₹10 – ₹12 lakh	15%
—	—	₹12 – ₹15 lakh	20%
—	—	Above ₹15 lakh	30%

Key Differences

Old Regime: Allows multiple exemptions and deductions (HRA, 80C, 80D, etc.).
New Regime: Offers lower slab rates but restricts most deductions.
Taxpayers can choose the regime that results in lower tax liability each year.

How to Save Tax on a Salary Above ₹10 Lakh (FY 2025–26)

Effective tax saving starts with a clear understanding of your salary structure, along with the exemptions and deductions available under both the old and new tax regimes. With the right planning, even a high salary can be structured in a tax-efficient manner. Let’s simplify the process.

Understanding Your Salary Structure

Your taxable salary is determined after deducting eligible exemptions and deductions from your gross income. A simplified salary computation may look like this:

Particulars	Amount (₹)
Gross Salary (Section 17(1))	XXXX
Less: Exemptions (Section 10)
House Rent Allowance (HRA)	XXXX
Leave Travel Allowance (LTA)	XXXX
Reimbursements (Mobile, Internet, etc.)	XXXX
Children’s Education & Hostel Allowance	XXXX
Less: Deductions (Section 16)
Standard Deduction	XXXX
Income under the Head “Salary”	XXXX
Less: Chapter VI-A Deductions
Section 80C	XXXX
Net Taxable Income	XXXX

By effectively using salary components, exemptions, and deductions—particularly under the old tax regime—you can substantially reduce your taxable income.

Deductions and Exemptions Under the New Tax Regime (FY 2025–26)

While the new tax regime limits traditional deductions, it still allows certain key benefits:

Allowed Deductions

Standard Deduction: ₹75,000 (for salaried individuals)
Section 80CCD(2): Employer’s contribution to NPS (up to 10% of salary)
Section 80CCH: Investment in the Agniveer Corpus Fund
Section 57(iia): Family pension deduction (one-third of pension or ₹25,000, whichever is lower)

Permitted Exemptions

Voluntary Retirement compensation (Section 10(10C))
Gratuity (Section 10(10))
Leave encashment (Section 10(10AA))
Interest on home loan for let-out property (Section 24)
Transport allowance for specially-abled individuals
Conveyance and travel reimbursements for official purposes

Note: Most traditional deductions such as Sections 80C and 80D are not available under the new regime. Choosing the right regime depends on your investment and salary structure.

Exemptions Available Under the Old Tax Regime

The old tax regime allows several tax-exempt allowances that can make your salary more tax-efficient:

Salary Component	Tax Benefit
House Rent Allowance (HRA)	Exempt within prescribed limits
Leave Travel Allowance (LTA)	Exempt for two domestic journeys in four years
Mobile and Internet Reimbursements	Fully exempt with supporting bills
Children’s Education Allowance	₹100 per month per child (up to two children)
Hostel Allowance	₹300 per month per child (up to two children)
Food Coupons/Allowance	Up to ₹50 per meal (maximum two meals per day)
Professional Tax	Up to ₹2,400 per year (state-dependent)

Deductions Under the Old Tax Regime

In addition to exemptions, the old regime provides access to multiple deductions:

Deduction	Section	Limit / Condition
Standard Deduction	16(ia)	₹50,000
Investments (EPF, PPF, ELSS, etc.)	80C	Up to ₹1.5 lakh
Health Insurance Premium	80D	₹25,000 (₹50,000 for senior citizens)
Education Loan Interest	80E	Deduction available for up to 8 years
Donations to Charitable Institutions	80G	50% or 100%, subject to eligibility
Home Loan Interest (Self-occupied)	24(b)	Up to ₹2 lakh per year
Home Loan Principal Repayment	80C	Within ₹1.5 lakh limit
Disabled Dependent Expenses	80DD	₹75,000 to ₹1.25 lakh
Life Insurance Policy Maturity	Section 10	Fully exempt, subject to conditions

Final Tip: Choose the Right Tax Regime

Selecting the right tax regime can make a significant difference to your overall tax liability:

Old Tax Regime: More suitable if you regularly invest in tax-saving instruments and claim deductions such as Sections 80C, 80D, and home loan benefits.
New Tax Regime: Ideal if you prefer lower tax rates, minimal exemptions, and simpler compliance with fewer declarations.

Your choice should be based on a careful comparison of tax savings under both regimes each financial year.

Smart Tax-Saving Tips for a ₹10 Lakh Salary: Old vs New Regime

Regardless of the regime you choose, understanding and utilising the available deductions and exemptions can help substantially reduce your tax burden. Here are some effective strategies:

1. Claim the Standard Deduction

New Regime: ₹75,000
Old Regime: ₹50,000

This deduction is available automatically to all salaried individuals, without any conditions.

2. Use the Rebate Under Section 87A

Old Regime: Rebate available for taxable income up to ₹5,00,000
New Regime (FY 2024–25): Rebate available up to ₹7,00,000
New Regime (from FY 2025–26): Rebate extended to income up to ₹12,00,000

Note: The rebate does not apply to income taxed at special rates, such as capital gains or winnings.

3. Compare and Choose the Most Tax-Efficient Regime

Criteria	Old Regime	New Regime
Basic Exemption Limit	₹2.5 lakh (₹4 lakh from FY 2026)	₹3 lakh (₹4 lakh from FY 2026)
Deductions Allowed	Wide range (80C, 80D, etc.)	Limited
Rebate Limit	₹5 lakh	₹12 lakh (from FY 2026)
Tax Slab Rates	Higher	Lower

Conduct an annual comparison based on your actual investments and exemptions to determine the most beneficial option.

4. Employer’s NPS Contribution (Section 80CCD(2))

You can claim deductions on your employer’s contribution to the National Pension System:

Employer Type	Old Regime	New Regime
Central/State Government	14% of Basic + DA	14% of Basic + DA
Private Employer	10% of Basic + DA	14% of Basic + DA

This benefit is over and above the ₹1.5 lakh limit under Section 80C.

5. Tax-Free Gifts (Section 56)

Gifts (cash or kind) up to ₹50,000 per financial year are tax-free.
If the total value exceeds ₹50,000, the entire amount becomes taxable.
Applicable under both tax regimes.

6. Interest on Let-Out Property (Section 24)

Interest paid on a home loan for a rented property is fully deductible.
There is no upper limit on this deduction.
This helps reduce both rental income and overall taxable salary.

7. Gratuity and Leave Encashment Exemptions

Exemptions are available for gratuity and leave encashment received on retirement or resignation.
Subject to statutory limits.
Applicable under both regimes.

8. Deduction for Additional Employee Cost (Section 80JJA)

30% of the cost incurred on employing additional staff is deductible.
Available irrespective of the tax regime.
Particularly beneficial for businesses and startups.

9. Deduction for Agniveer Corpus Fund (Section 80CCH)

Applicable to individuals under the Agnipath Scheme.
100% of the Central Government’s contribution to the Agniveer Corpus Fund is deductible.
No maximum limit.
Available under both tax regimes.

Final Tips

Always evaluate both the old and new tax regimes before filing your return to ensure the lowest tax liability.
If opting for the old regime, plan your investments wisely under sections such as 80C, 80D, and other eligible deductions.
Make full use of employer-linked benefits, especially deductions on employer contributions to NPS.
Under the new tax regime (from FY 2025–26), aim to keep your taxable income within ₹12 lakh to avail the full rebate and eliminate tax liability.

Example: Tax Calculation Under Old vs New Tax Regime (FY 2025–26)

Meet Mr. Ramesh

Annual Salary: ₹10,00,000

Deductions Claimed Under the Old Tax Regime

Mr. Ramesh avails the following exemptions and deductions under the old regime:

House Rent Allowance (HRA): ₹1,80,000
Leave Travel Allowance (LTA): ₹35,000
Children’s Education & Hostel Allowance: ₹10,000
Standard Deduction: ₹50,000
Professional Tax: ₹2,400
Public Provident Fund (Section 80C): ₹1,50,000
Health Insurance Premium – Self & Parents (Section 80D): ₹60,000
Education Loan Interest (Section 80E): ₹40,000

Tax Computation Comparison

Particulars	Old Regime (₹)	New Regime (₹)
Gross Salary	10,00,000	10,00,000
Less: HRA Exemption	(1,80,000)	—
Less: LTA	(35,000)	—
Less: Children’s Education & Hostel Allowance	(10,000)	—
Less: Standard Deduction	(50,000)	(75,000)
Less: Professional Tax	(2,400)	—
Taxable Salary Income	7,22,600	9,25,000
Less: Section 80C (PPF)	(1,50,000)	—
Less: Section 80D (Health Insurance)	(60,000)	—
Less: Section 80E (Education Loan Interest)	(40,000)	—
Net Taxable Income	4,72,600	9,25,000
Income Tax (Before Rebate)	10,780	32,500
Rebate under Section 87A	(10,780)	(32,500)
Final Tax Payable (Excluding Cess)	₹0	₹0
Health & Education Cess @ 4%	₹0	₹0
Total Tax Payable	₹0	₹0

Key Insights for FY 2025–26

Rebate Limit Increased Under the New Regime:
Earlier, full tax rebate was available only up to ₹7 lakh. From FY 2025–26, individuals with taxable income up to ₹12 lakh under the new regime can enjoy zero tax liability.
Old Regime Advantage:
Mr. Ramesh eliminates his tax liability by actively investing and claiming eligible deductions.
New Regime Advantage:
Even without claiming any deductions, Mr. Ramesh pays no income tax due to the enhanced rebate.

Other Smart Tax Planning Strategies for Salaries Above ₹10 Lakh

Earning more than ₹10 lakh places you in a higher tax bracket, but with thoughtful planning, you can significantly reduce your effective tax liability. Beyond basic deductions, advanced tax strategies can help optimise both short-term savings and long-term wealth creation.

Salary Optimisation for Better Tax Efficiency

A well-designed salary structure can substantially lower your tax burden—particularly under the old tax regime. Employees should negotiate for tax-efficient components such as House Rent Allowance (HRA), Leave Travel Allowance (LTA), food coupons, mobile and internet reimbursements, and company-leased accommodation.

When aligned with actual expenses, these components reduce the taxable portion of salary. For example, HRA can lead to meaningful tax savings if rent is paid and supported by proper documentation. Many employers also offer flexi-benefit plans, allowing employees to customise compensation in a tax-efficient manner.

Strategic Use of Section 80D and Other Deductions

While Section 80C often receives the most attention, other valuable deductions are frequently overlooked:

Section 80D allows deductions of up to ₹25,000 for health insurance premiums paid for self and family, and an additional ₹50,000 for senior citizen parents—allowing a total deduction of up to ₹75,000.
Section 80E provides deductions on education loan interest for higher studies, with no upper limit, for up to eight years.
Section 80G enables deductions of 50% or 100% of donations made to eligible charitable institutions, depending on their approval status.

Using these sections strategically can lead to substantial tax savings.

Real Estate and Tax Optimisation Through Let-Out Properties

For self-occupied properties, home loan interest deduction is capped at ₹2 lakh per year under Section 24(b). However, for let-out properties, there is no upper limit on interest deduction.

If you own a second house that is rented out, the entire interest paid on the home loan can be deducted, helping reduce overall taxable income. While the set-off of house property loss against other income heads is limited to ₹2 lakh annually, any remaining loss can be carried forward for eight years.

Family-Based Income Splitting

Tax efficiency can also be improved by distributing income across family members in lower tax brackets. Investing or gifting funds to senior citizen parents or adult children (who are taxed independently) can reduce the family’s overall tax burden.

While clubbing provisions apply in the case of a spouse or minor children, gifting to parents or major children avoids such restrictions. These funds can be invested in fixed deposits, mutual funds, or rental properties to generate taxable income in lower slabs.

Tax Planning Through Employer’s NPS Contribution

One of the most powerful tax-saving tools—available even under the new tax regime—is the employer’s contribution to the National Pension System (NPS) under Section 80CCD(2).

Employers can contribute up to 10% of basic salary (14% for government employees).
This contribution is fully deductible and does not fall under the ₹1.5 lakh limit of Section 80C.
The amount is not treated as taxable income, making it highly efficient for retirement planning.

Choosing the Right Tax Regime Each Year

Salaried individuals can switch between the old and new tax regimes every financial year, making annual review essential.

The new regime is attractive for those with minimal deductions, especially with the enhanced rebate of up to ₹12 lakh from FY 2025–26.
The old regime is generally more beneficial for individuals claiming HRA, home loan benefits, and deductions under Sections 80C and 80D.

Comparing both regimes using a tax calculator or consulting a tax expert before filing can ensure optimal savings.

Leveraging Leave Travel Allowance (LTA)

LTA is a valuable but often underutilised exemption under the old tax regime. It can be claimed twice in a block of four calendar years for domestic travel expenses incurred by you and your family.

Only travel costs (air, rail, or bus fare) qualify for exemption—hotel and food expenses are excluded. Proper documentation is mandatory. LTA is not available under the new regime.

Using Donations as a Tax-Saving Tool

Under Section 80G, donations to approved charities, temples, and relief funds can reduce taxable income. Certain contributions—such as those to the PM CARES Fund—qualify for 100% deduction without any upper limit.

Always ensure the recipient organisation is registered under Section 80G and retain donation receipts for record-keeping. Donation-related deductions are available only under the old tax regime.

Long-Term Capital Gains (LTCG) Planning

For equity investors, long-term capital gains above ₹1 lakh are taxed at 10% without indexation. Smart planning techniques include:

Booking gains annually within the ₹1 lakh exemption limit
Staggering redemptions across multiple financial years
Using ELSS funds (eligible under Section 80C in the old regime)

While ELSS no longer provides tax benefits under the new regime, it remains tax-efficient compared to short-term equity gains.

Last-Minute Tax-Saving Checklist

As the financial year-end approaches, ensure you’ve covered all bases:

Fully utilised the ₹1.5 lakh limit under Section 80C
Paid health insurance premiums for self and parents
Made eligible donations and collected 80G receipts
Submitted rent receipts and verified HRA claims
Compared both tax regimes before filing

Proactive planning helps avoid last-minute errors and maximises tax savings.

Need Expert Help With Tax Planning?

Confused about choosing the right tax regime or maximising deductions?
Auriga Accounting pvt. ltd. ’ tax experts provide personalised tax planning and seamless return filing support. Whether you’re a salaried professional or have multiple income sources, we tailor strategies to align with your financial goals.

About the Author

Dakesh

Dakesh translates complex legal regulations into clear, practical guidance, helping entrepreneurs stay compliant and build sustainable businesses with confidence.

February 1, 2026