Guides / How to Save Income Tax in FY 2026-27: Every Legal Way for Salaried People

How to Save Income Tax in FY 2026-27: Every Legal Way for Salaried People

You can save income tax legally in two ways: pick the right tax regime, and use the deductions that regime allows. Most salaried people save the most money by getting the first step right, because the new regime is now so generous that many people no longer need to chase deductions at all.

This guide explains both regimes for FY 2026-27, lists every major deduction with its limit, and shows real tax numbers for four salary levels. All figures use the rules in force in early October 2026 and include 4% cess.

The short answer

• Income up to ₹12.75 lakh (salaried): under the new regime you pay no tax, because of the ₹75,000 standard deduction and the rebate that makes tax nil up to ₹12 lakh of taxable income. You do not need to buy any tax-saving product.
• Income above that: compare both regimes using the Income Tax Calculator. The old regime wins only if your deductions are large.
• Old regime, rough rule: at ₹15 lakh you need about ₹5.45 lakh of deductions (beyond the standard deduction) before the old regime beats the new one. At ₹20 lakh it is about ₹7.1 lakh, and at ₹30 lakh about ₹8 lakh.

A note on section numbers

The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026, and the section numbers changed. For example, the section most people call 80C is now Section 123, 80CCD is Section 124 and 80D is Section 126. The limits have stayed the same, so this guide uses the familiar names (80C, 80D) and tells you when the number has changed.

Step 1: Choose your regime

The new regime is the default. You need to opt in if you want the old regime.

New regime slabs for FY 2026-27

Salaried people and pensioners get a ₹75,000 standard deduction. The tax rebate makes tax nil if taxable income is ₹12 lakh or less, with marginal relief just above that limit.

What still works in the new regime

Only a few deductions survive:

1. Standard deduction of ₹75,000 (salaried and pensioners).
2. Employer's NPS contribution, up to 14% of basic salary plus DA (80CCD(2), now Section 124(2)). This one is available in both regimes.
3. Family pension deduction of ₹25,000 for family pension income.

Everything else, including 80C, 80D, HRA, home loan interest on a self-occupied house and the extra ₹50,000 for your own NPS contribution, is not available in the new regime.

The employer NPS trick

Ask your employer whether you can route part of your CTC into employer NPS. Suppose you earn ₹15 lakh and your basic salary is ₹6 lakh. A 14% employer contribution is ₹84,000. Under the new regime your tax falls from ₹97,500 to about ₹84,400, a saving of roughly ₹13,100. The money is not lost: it goes into your retirement account. See how NPS works.

Step 2: If you choose the old regime, use every deduction

Here are the main deductions and their limits for FY 2026-27.

How much does each deduction save?

A deduction reduces your taxable income, so the saving depends on your slab. Each ₹1 lakh of deduction saves:

• ₹31,200 if your top slab is 30% (including cess)
• ₹20,800 if your top slab is 20%

So the full ₹1.5 lakh under 80C saves ₹46,800 at the 30% slab.

Step 3: See the numbers

Here is the tax for a salaried person under 60. The old-regime columns add deductions step by step. "Package A" is ₹1.5 lakh of 80C, ₹50,000 of NPS and ₹25,000 of health insurance. "Package B" adds ₹2 lakh of home loan interest. "Package C" also adds ₹1.56 lakh of HRA exemption.

What this table tells you:

• At ₹10 lakh, the new regime is the clear winner, because you pay nothing.
• At ₹15 lakh, the old regime wins only when you claim everything, about ₹5.8 lakh of deductions in Package C, and then only by about ₹7,700.
• At ₹20 lakh and ₹25 lakh, the new regime wins even with a large deduction package.

Run your own numbers in the Income Tax Calculator. The calculator excludes surcharge, so use it for incomes up to ₹50 lakh.

Step 4: Do not buy products just for tax

A tax saving of ₹46,800 is not worth locking money into something unsuitable. Before buying a product for tax, ask:

1. Do I need this product anyway? Health insurance, a PPF account for the long term and your EPF are good examples.
2. What is the lock-in? ELSS has a 3-year lock-in, a 5-year tax-saver FD has 5 years, and PPF has 15 years.
3. Is the return good after tax? Compare options in NSC vs PPF vs FD.
4. Is the insurance cover adequate? A cheap term plan gives far more protection than an endowment plan. See how much term cover you need.

Step 5: Taxes on investments

Deductions do not reduce capital gains tax. For FY 2026-27, listed shares and equity mutual funds are taxed at 20% on short-term gains (12 months or less) and 12.5% on long-term gains above ₹1.25 lakh a year. See capital gains tax on shares and mutual funds.

Interest on FDs and RDs is added to your income. At the 30% slab, a 7% FD returns only about 4.9% after tax. See FD returns after tax.

A simple action plan

1. April: Tell your employer which regime you choose, and share your planned deductions if you choose the old regime.
2. Through the year: Pay insurance premiums, make eligible investments and keep every receipt.
3. January to March: Submit proofs to your employer so TDS is not over-deducted.
4. After March: Check Form 16 and Form 26AS or the annual tax statement against your records.
5. Filing: Salaried individuals can usually pick a regime again while filing the return. The deadline is usually 31 July for most individuals, so check the current date.

Common mistakes

• Choosing a regime without calculating. Compare both every year, because your deductions and income change.
• Last-minute tax-saving purchases in March, which often lead to unsuitable products.
• Counting EPF twice. Your EPF contribution already uses part of the ₹1.5 lakh 80C limit.
• Ignoring TDS. Over-deduction is refundable, but waiting for a refund is not the same as saving tax.
• Forgetting the rebate. Tax is nil up to ₹12 lakh of taxable income in the new regime, so some people do not need to invest for tax at all.

Frequently asked questions

Can I switch between regimes every year?

Salaried individuals can usually choose each year. People with business income face stricter rules, so check before switching.

Is HRA available in the new regime?

No. HRA exemption is available only under the old regime.

Do ELSS funds save tax in the new regime?

No. 80C deductions are not available in the new regime. ELSS still works as an equity fund, but not as a tax-saver.

What is the tax on ₹12 lakh salary?

Under the new regime it is nil for a salaried person. Under the old regime it is about ₹1,01,400 with Package A deductions, ₹59,800 with Package B and ₹27,352 with Package C, all still higher than nil.

Is the surcharge included here?

No. Surcharge applies to incomes above ₹50 lakh, and this guide does not include it.

This guide is general information and not tax advice. Tax rules change often, so confirm the latest rules or consult a qualified tax professional before you file.