Table of Contents
Income tax planning is a common concern for salaried employees every year. A salaried employee’s earnings tax liability is generally met twice a year. Once when the employee receives the Form 16 from his employer and again when the return of earnings is filed with the Income Tax Department. By the time these two events occur, it is too late to undertake any income tax planning.
This guide will answer all your questions about Income tax planning for salaried employees in AY 2026-27.
From Gross Salary to Taxable Income
Your gross salary is what the offer letter says. Your taxable income is what remains after the standard deduction and whatever else your chosen regime allows. For example, HRA is exempt only under the old regime.
Then there are the sources of income that aren’t disclosed by your payslip, like savings and FD interest, rental income from an asset, dividend income, and capital gains. Form 16 is for salary only. Therefore, it is important that you look into the AIS on the income tax portal before filing it.
AY 2026–27 vs Tax Year 2026–27
FY 2026-27 is when your income earned during FY 2025-26 (from 1 April 2025 till 31 March 2026) will be taxed according to the provisions of the Income Tax Act, 1961. From 1 April 2026, the Income Tax Act, 2025 starts being applicable, and one “Tax Year” takes the place of the old financial and assessment years. The salary that you are earning currently belongs to the Tax Year 2026-27. Since the slab rates remained unchanged for both years, you may see the rates below applicable for both.
There is only one date for you if you have not yet filed your return. 31st July 2026 is the date by which ITR-1/ITR-2 had to be filed. However, even a belated return may be filed until 31 December 2026 along with a late fee of up to ₹5,000 plus interest on outstanding tax. Additionally, the old regime cannot be opted for on the belated return.
Old vs New Tax Regime: The Real Differences
The table below highlights major differences between the New and Old Regimes:
| Parameter | New Regime (Default) | Old Regime | Key Takeaway |
| Basic exemption limit (nil tax up to) | ₹4,00,000 | ₹2,50,000 | The new tax regime has higher exemption limit |
| Tax slabs | ₹0–4L: Nil₹4–8L: 5%₹8–12L: 10%₹12–16L: 15%₹16–20L: 20%₹20–24L: 25%Above ₹24L: 30% | ₹0–2.5L: Nil₹2.5–5L: 5%₹5–10L: 20%Above ₹10L: 30% | The new regime has more gradual slabs than old regime |
| Section 87A rebate | Rebate up to ₹60,000, so no tax till ₹12 lakh taxable income. | Rebate up to ₹12,500, so no tax till ₹5 lakh taxable income. | Under the new regime, salaried earners owe nothing up to ₹12.75 lakh income. |
| Standard deduction (salaried / pensioners) | ₹75,000 | ₹50,000 | New regime gives ₹25,000 more. |
| Common deductions and exemptions | Mostly none; employer NPS contribution is the main one | 80C (₹1.5L), 80D, HRA, LTA, home-loan interest, NPS 80CCD(1B) and more | Old regime rewards documented investments and expenses. |
| Employer NPS contribution limit | Up to 14% of basic salary + DA | 10% of basic + DA (14% for government employees) | New regime allows a higher limit for private employees. |
| Maximum surcharge | 25% | 37% | Surcharge is capped lower in the new regime for very high incomes. |
| Health & Education Cess | 4% on tax plus surcharge | 4% on tax plus surcharge | Same in both regimes. |
| Status and switching | Default regime; no action needed | Must be opted for; salaried taxpayers can choose each year | Compare both before declaring to your employer or filing. |
| Best suited for | Few deductions, simpler compliance, incomes up to about ₹12–13 lakh | Large claims such as HRA, home loan and 80C together | Run both calculations; the lower tax wins. |
For the new Regime, a deduction under Section 87A will ensure that there will be zero tax on taxable income up to ₹12 lakh. With due consideration of the ₹75,000 deduction on salary income, it will mean that an individual earning a salary of ₹12.75 lakh will not be liable to any tax. No matter how much more than ₹12 lakh your taxable income is, your tax burden cannot exceed the extra amount beyond ₹12 lakh through the Marginal Relief Rule.
How to Calculate Income Tax Practically
Let your Annual salary be ₹15,00,000
NEW REGIME
Taxable income: 15,00,000 − 75,000 = 14,25,000
Tax:
- 4,00,000 × 0% = 0
- 4,00,000 × 5% = 20,000
- 4,00,000 × 10% = 40,000
- 2,25,000 × 15% = 33,750
Total = 0 + 20,000 + 40,000 + 33,750 = 93,750
Cess: 93,750 × 4% = 3,750
Final tax: 93,750 + 3,750 = ₹97,500
OLD REGIME
Deductions: 1,50,000 + 25,000 + 50,000 + 1,80,000 = 4,05,000
Taxable income: 15,00,000 − 50,000 − 4,05,000 = 10,45,000
Tax:
- 2,50,000 × 0% = 0
- 2,50,000 × 5% = 12,500
- 5,00,000 × 20% = 1,00,000
- 45,000 × 30% = 13,500
Total = 0 + 12,500 + 1,00,000 + 13,500 = 1,26,000
Cess:
1,26,000 × 4% = 5,040
Final tax:
1,26,000 + 5,040 = ₹1,31,040
DIFFERENCE (NEW VS OLD REGIME) = 1,31,040 − 97,500 = ₹33,540
The new regime saves ₹33,540.
Hence, the new regime saves about ₹33,540. Even with the home loan and full 80C deductions, the new regime is still better at this salary.
Using A Tax Calculator For Better Tax Calculation
You can also use Income Tax Calculator to calculate their tax under both regimes. Treat the result as an estimate and compare it against your Form 16 and the department’s own calculator for better understanding.
FAQs
1. Old regime or new regime: Which one to choose?
Honestly, it depends on what you actually invest in. If you don’t have much going into PPF, insurance, or a home loan, the new regime is simpler and usually cheaper. It’s also the default. Paying a home loan and claiming HRA plus 80C? Run the numbers both ways first. You can switch every year when you file.
2. Up to what salary do I pay no tax?
Roughly, if your salary is below ₹12.75 lakh. The new regime wipes out tax on taxable income up to ₹12 lakh through the 87A rebate, and your ₹75,000 standard deduction sits on top of that.
3. Do I need proof for the standard deduction?
No. It’s ₹75,000 under the new regime and ₹50,000 under the old one, and it gets applied on its own. Nothing to submit.
4. Which ITR form is mine?
If salary is your main income and you earn under ₹50 lakh, it’s ITR-1. Sold shares or own two houses? That’s ITR-2. Pick the wrong one and the department can call your return defective.
5. I missed July 31. Now what should I do?
Don’t panic, but not too late. You can file a belated return, generally allowed till 31 December. Expect a late fee under Section 234F (₹5,000, or ₹1,000 if your income is under ₹5 lakh), plus interest on any tax due. Check the exact last date on the portal.
Read more on KulFiy