How to Legally Reduce Income Tax for Salaried Employees in India (2025-26)
Published 30 June 2026 · Tax & Salary
Anjali is a product manager in Delhi earning ₹15L CTC. Her Form 16 shows ₹1,87,500 in income tax paid. She assumes this is unavoidable — her salary is her salary, and the government takes what it takes. But she is using only two deductions. A proper review of all available provisions under the old tax regime would reduce her bill significantly. Here is what she is missing.
Anjali's Available Deductions vs What She Is Actually Using
| Deduction | Section | Max Amount | Anjali Using |
|---|---|---|---|
| Standard deduction | — | ₹75,000 | ✅ (auto) |
| 80C (ELSS + EPF) | Section 80C | ₹1,50,000 | ₹80,000 (EPF only) |
| Health insurance | Section 80D | ₹25,000 | ₹0 — not claimed |
| NPS additional | 80CCD(1B) | ₹50,000 | ₹0 — not claimed |
| HRA | Section 10(13A) | ₹1,44,000 (est.) | ₹1,44,000 ✅ |
| LTA | Section 10(5) | ₹40,000 (est.) | ₹0 — not claimed |
Tax Before vs After Full Optimisation
Before (what Anjali is doing now):
Taxable income after standard deduction (₹75K) and EPF 80C (₹80K) and HRA (₹1,44,000): ₹15,00,000 – ₹2,99,000 = ₹12,01,000.
Old regime tax on ₹12.01L: ₹0 + ₹12,500 + ₹1,00,000 + ₹60,300 = ₹1,72,800. Cess 4% = ₹6,912. Total: ~₹1,79,712.
After (fully utilising all available deductions):
Additional 80C: ₹70,000 more (top up to ₹1.5L). Section 80D: ₹25,000. NPS 80CCD(1B): ₹50,000. LTA: ₹40,000. Extra deductions: ₹1,85,000. New taxable income: ₹12,01,000 – ₹1,85,000 = ₹10,16,000.
Old regime tax on ₹10.16L: ₹0 + ₹12,500 + ₹1,00,000 + ₹4,800 = ₹1,17,300. Cess 4% = ₹4,692. Total: ~₹1,21,992.
Annual tax saving: approximately ₹57,720. That is the cost of not knowing which forms to fill in January.
Check Whether Old Regime Is Actually Better After Optimisation
Old regime fully optimised tax: ₹1,21,992. New regime tax at ₹15L (no deductions except standard deduction ₹75K): taxable ₹14.25L. Tax: ₹20,000 + ₹40,000 + ₹33,750 = ₹93,750 + cess = ₹97,500. In this case with ₹4.84L in total deductions, the old regime after optimisation (₹1.22L) is still higher than new regime (₹97,500). Anjali's deductions are substantial but not enough to beat the new regime. This is exactly why you run the actual comparison first.
Run this for your own numbers
Calculate Your Tax with All Deductions →What Most People Get Wrong
They fill out their 80C declaration in January and stop there. They miss Section 80D (health insurance premiums they are already paying), the NPS 80CCD(1B) deduction (separate from and in addition to the ₹1.5L 80C limit), and LTA (which must be claimed within the 4-year block period — the current block is 2022–2025 — or it lapses permanently). Three separate, distinct provisions that each require a separate declaration. Three things most people never declare.
Frequently Asked Questions
How can a salaried employee reduce income tax in India?
Key deductions available under old regime: Section 80C up to ₹1.5L (ELSS, PPF, EPF, NPS, insurance), Section 80D up to ₹25K (health insurance), HRA exemption (if renting), NPS 80CCD(1B) extra ₹50K, LTA (2 journeys in 4-year block), standard deduction ₹75K, home loan interest Section 24(b) up to ₹2L.
What is the maximum tax deduction for a salaried person in India?
Under old regime: Standard deduction ₹75,000 + Section 80C ₹1.5L + Section 80D ₹25K + NPS 80CCD(1B) ₹50K + HRA (variable) + home loan interest ₹2L. Total deductions excluding HRA: ₹5L. If HRA is ₹1.5L, total deductions can reach ₹6.5L+, saving ₹2L+ in tax at 30% bracket.
Is NPS worth it just for the extra ₹50,000 deduction?
Yes, for high-bracket taxpayers. At 30%: ₹50,000 NPS 80CCD(1B) deduction saves ₹50,000 × 31.2% = ₹15,600. NPS returns are ~10–12% for equity allocation. The tax saving alone makes it worthwhile. Downside: 40% of NPS corpus must be annuitized at retirement.
Can I claim LTA without showing travel bills?
No. LTA exemption requires actual travel bills — train/flight/bus tickets for domestic travel. You can claim LTA for 2 journeys in a block of 4 years (current block: 2022–2025). Travel must be to any place in India. Cash payments for travel are generally not accepted without ticketed evidence.
Which deductions are available under both old and new tax regime?
Standard deduction ₹75,000, NPS employer contribution Section 80CCD(2), and a few Section 10 exemptions (gratuity, VRS, etc.) are available in the new regime. Section 80C, 80D, HRA, LTA, and home loan interest (Section 24b) are NOT available under the new regime.
Have you declared Section 80D (health insurance premium) and NPS 80CCD(1B) on your investment declaration — or only 80C?