Income Tax on Salary in India (FY 2025–26): Components, Exemptions, Slabs & Smart Planning Guide

Every salaried employee receives a salary breakup filled with terms like basic pay, HRA, allowances, PF, professional tax, and more. Understanding these components is essential for proper tax planning and choosing between the old and new tax regimes.

This guide simplifies salary taxation for FY 2025–26 — with updated slabs, exemptions, allowances, rebates, and smart tax-saving strategies.

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1. Salary Components Explained

Your salary includes:

1. Basic Salary

• Fully taxable

• Basis for PF, HRA, gratuity, etc.

2. House Rent Allowance (HRA)

• Partially exempt under Section 10(13A)

• Based on rent paid, salary & city of residence

3. Leave Travel Allowance (LTA)

• Exempt for 2 journeys in a block of 4 years

• Only domestic travel allowed

4. Special Allowance / Flexi Basket

Mostly fully taxable unless claimed with proofs.

5. Conveyance/Travel, Food Coupons, Uniform Allowances

Some allow partial exemption depending on employer policy.

6. Employer PF Contribution

• Employer PF up to 12% of basic → tax-free

• If combined (PF + NPS + Superannuation) > ₹7.5 lakh annually → excess taxable

7. Standard Deduction — ₹75,000 (FY 2025–26)

Available in both regimes.

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2. Tax Slabs for FY 2025–26

✔ New Default Regime (FY 2025–26):

✔ Standard Deduction: ₹75,000 (unchanged)
✔ Rebate under 87A: No tax up to ₹7,00,000 (after rebate)

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✔ Old Regime (Optional)

✔ Allows 80C, 80D, HRA, LTA, Interest on Housing Loan, etc.

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3. Exemptions & Deductions for Salaried Employees

A. Available ONLY in Old Regime

(These do not apply in New Regime)

✔ 1. Section 80C – ₹1,50,000

Includes:

• PF

• PPF

• ELSS

• Life insurance premiums

• Tuition fees

• Principal repayment of home loan

✔ 2. HRA Exemption

Based on rent & salary structure.

✔ 3. LTA Exemption

For travel within India.

✔ 4. Section 24(b) – Home Loan Interest (Self-Occupied Property)

Deduction up to ₹2,00,000.

✔ 5. Section 80D – Medical Insurance

• ₹25,000 (self & family)

• ₹50,000 (senior citizens)

✔ 6. 80EEA (First Home Buyers)

Additional ₹1,50,000 interest exemption (if eligible).

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B. Available in BOTH Regimes

✔ Standard Deduction — ₹75,000

✔ 80CCD(2) – Employer NPS Contribution

• Up to 10% of Basic + DA (14% for Govt employees)

• Huge tax saver at higher salaries

✔ 80CCH – Agniveer Corpus Fund (If applicable)

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4. Salary Structure Example & Tax Calculation

Example

Salary: ₹12,00,000
HRA: ₹3,00,000
Rent Paid: ₹25,000/month
City: Mumbai

Old Regime:

• Standard deduction: ₹75,000

• 80C: ₹1,50,000

• HRA Exemption: ~₹1,80,000

• 80D: ₹25,000

Taxable Income ≈ ₹7,70,000
Tax ≈ ₹65,000

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New Regime:

• Only Standard Deduction = ₹75,000

Taxable Income ≈ ₹11,25,000
Tax ≈ ₹1,12,500

👉 In this case, Old Regime is better.

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5. Old vs New Regime — Which Should You Choose?

Choose New Regime if:

• You don’t have home loan

• No tax-saving investments

• Employer NPS contribution is high

Choose Old Regime if:

• You live on rent (HRA benefit)

• You invest in PPF/ELSS/NPS

• You have home loan interest

• You claim 80C + 80D + 24(b) etc.

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6. Key Tax Saving Tips for Salaried Employees (FY 2025–26)

1. Use full 80C limit via ELSS/NPS/PPF

ELSS can be completed in just 3 years.

2. Opt for employer contribution to NPS (80CCD(2))

One of the most powerful deductions in India.

3. Claim HRA optimally

Keep rent receipts, rent agreement.

4. Health insurance for family & parents

Protects and saves tax.

5. Check Form 16 vs AIS vs 26AS before filing ITR

Mismatch = delayed refund.

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❓ FAQ (Schema Ready)

Q1: Is standard deduction available in both regimes?
Yes — ₹75,000 for FY 2025–26.

Q2: Which regime is better for salaried employees?
If you have deductions (80C, HRA, home loan), choose Old Regime.
If not, New Regime may give lower tax.

Q3: Is HRA allowed in New Regime?
No — HRA is allowed only under the Old Regime.

Q4: Do I need to inform my employer about the tax regime?
Yes — employers deduct TDS based on your declared choice.

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📣 Call to Action

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