Tax Planning Masterclass for Salaried Individuals

Old Regime vs New Regime: A Decision Framework

From FY 2023-24, the new tax regime is the default. The new regime offers lower slab rates but eliminates most deductions. The old regime allows all deductions but at higher base rates.

As a rule of thumb: if your total deductions under the old regime (80C + 80D + HRA + home loan interest + others) exceed ~₹3.5–4 lakh, the old regime usually wins. At lower deductions, the new regime gives more take-home.

Income Slab | Old Regime Rate | New Regime Rate

Up to ₹2.5 lakh | Nil | Nil

₹2.5–5 lakh | 5% | 5%

₹5–7.5 lakh | 20% | 10%

₹7.5–10 lakh | 20% | 15%

₹10–12 lakh | 30% | 20%

₹12–15 lakh | 30% | 25%

Above ₹15 lakh | 30% | 30%

Maximising Section 80C (₹1.5 Lakh Limit)

80C is your most powerful deduction. Most salaried employees already have partial 80C utilisation through EPF. Top it up strategically:

• ELSS mutual funds: Best for long-term wealth creation (3-year lock-in, equity returns)

• PPF: Safe and tax-free, but 15-year lock-in — best for retirement savings

• Life insurance premiums (pure term only): Qualifies, but don't over-pay on traditional plans

• Home loan principal repayment: Included automatically if you have a home loan

• Children's tuition fees: Up to 2 children

TIP: Check your EPF contribution deducted via salary slip before investing elsewhere. Most employees have ₹30,000–80,000 already covered.

Section 80D: Health Insurance Premium Deductions

Health insurance premiums are deductible under 80D — one of the most underused deductions by young professionals:

A family with self (below 60) + senior parents can claim up to ₹75,000 under 80D alone — saving ₹22,500 in taxes at the 30% slab.

Cover For | Below 60 | Senior Citizen (60+)

Self + Spouse + Children | ₹25,000 | ₹50,000

Parents | ₹25,000 additional | ₹50,000 additional

Preventive health check-up | ₹5,000 (within above limits) |

NPS: The ₹50,000 Bonus Deduction

Section 80CCD(1B) allows an additional ₹50,000 in NPS Tier 1 contributions — completely outside the ₹1.5 lakh 80C limit. This is the single best mechanism to increase your total deductions beyond 80C. At 30% slab, ₹50,000 NPS saves you ₹15,600 (including 4% cess).

HRA: Calculating Your Exemption

House Rent Allowance (HRA) is exempt from tax to the extent of the least of:

1. Actual HRA received 2. 50% of (Basic + DA) for metro cities; 40% for non-metro 3. Actual rent paid minus 10% of (Basic + DA)

To claim HRA, you must be paying rent and not own a house in the city where you work. Rent receipts and landlord PAN (mandatory if annual rent > ₹1 lakh) are required.

Home Loan Deductions

If you have a home loan:

• Section 80C: Principal repayment up to ₹1.5 lakh (within overall 80C limit)

• Section 24(b): Interest payment up to ₹2 lakh per year (self-occupied property)

• Section 80EEA: Additional ₹1.5 lakh interest for first-time buyers of affordable housing (property value ≤ ₹45 lakh) — check if your property qualifies

NOTE: Home loan interest deduction under 24(b) is only available under the old regime. Under the new regime, it is not deductible for self-occupied property.

Worked Example: Optimising Tax for ₹20L Income

Assume a salaried individual with ₹20 lakh annual CTC in a metro:

Gross Taxable Income: ₹20 lakh Less: Standard Deduction: -₹75,000 Less: 80C (EPF + ELSS): -₹1,50,000 Less: 80D (family + parents): -₹50,000 Less: 80CCD(1B) NPS: -₹50,000 Less: HRA Exemption (est.): -₹1,50,000

Net Taxable Income: ~₹15.25 lakh (old regime)

Tax on ₹15.25 lakh (old regime): approx. ₹2.44 lakh Tax without any deductions (new regime on ₹20L): approx. ₹3.12 lakh

Saving via old regime: ~₹68,000