How to Save Tax on Salary Income of 12 Lakhs in India

As we have been taught throughout our lives, savings are the backbone of financial independence. In April 2025, India’s Finance Minister introduced several changes to the existing income tax slabs. Under the 2025-26 Union Budget, the changes follow the general progressive taxation. This means that the percentage of tax keeps increasing as the income rises. For the FY 2025-26, the rebate limit has been increased to ₹60,000, which means that if your taxable income is below 12 lakhs, then you will have no tax liability. This new change would mean that your income under 12 lakhs will effectively be tax-free.

While this is a welcome change, with some smart planning and detailed understanding of the system, you can learn how to save tax on salary income of 12 lakhs. In this article, we have researched some smart ways that will help you reduce the tax on your salary income legally.

Tax Slabs Under The Old Tax Regime

The earlier tax regime was flexible and followed traditional tax rates. Similar to the new regime, it followed a progressive taxation policy. Plus, there were a few options for deductions and exemptions that one can claim to reduce their tax.

Tax Slabs Under The New Tax Regime

The new tax regime brings in a simpler and progressive taxation policy. Under the Budget 2025, the slab limits were set at 4 lakhs and a new tax rate of 25% was introduced. Plus, it featured fewer exemptions and deductions to streamline the process:

How to Save Income Tax for 12 Lakhs Salary in India?

While the new tax regime offers a simplified approach, it features fewer opportunities for deductions than the old tax regime.

Tax Saving Options Under the Old Tax Regime

Here are some options you can choose to save tax on your 12 lakh income.

1. Tax-Free Investments (Section 80C)

One of the most popular tax-saving options for Indians earning under 12 lakhs per annum. Under Section 80C of the Income Tax Act, you can avail up to 1.5 lakh in deductions by investing in:

• Employees’ Provident Fund (EPF)
• Public Provident Fund (PPF)
• Equity Linked Saving Scheme funds (ELSS)
• Home loan repayment and Stamp duty
• Sukanya Smriddhi Yojana (SSY)
• National Savings Certificate (NSC)

2. Medical Insurance (Section 80D)

Under this section, you can claim deductions for health insurance premiums.

• You can avail ₹25,000 for self, spouse or children’s health insurance.
• Plus, an additional ₹25,000 claim on health insurance premiums for senior citizens or parents (above 60 years).

3. Education Loan (Section 80E)

Section 80E of the ITA can help you save tax by borrowing an education loan. The repayment of the interest every month can reduce the tax rate by a significant margin. Plus, there is no cap or upper limit on this claim. So, if you are searching for how to save tax on salary, applying for an education loan through My Mudra is a great option.

4. HRA Exemption

If you reside in a rented house, you can claim House Rent Allowance on your taxes. This will reduce your overall tax rate and help you reduce the liability burden. The amount or rate of HRA depends on several factors:

• The rent amount
• The city you live in
• Your Salary

5. LTA

What if we say that you can claim exemptions on your travel expenses in India? Yes, under the LTA or Leave Travel Allowance, your employer covers your travel expenses.

• You need proof of travel expenses and LTA only works under the old tax regime.
• Plus, you can not claim your commute and international travel expenses.
• The LTA component of your salary can only be claimed for two years in a four-year cycle under Section 10(5).

Tax Saving Options Under the New Tax Regime

The new regime brings in lower slabs but limited tax deductions. In this, you can avail tax deductions by Section 80C, 80D, HRA and LTA. Here are some major ways you can save taxes under the new tax regime for your salary of 12 lakhs in India:

1. Standard Deduction

A fixed amount of ₹75,000 is offered for all salaried individuals and pensioners. In the old regime, the amount was ₹50,000.

2. Section 80CCD(2)

The new tax regime offers a deduction for the contribution of the employer in the National Pension Scheme (NPS). The deduction is available up to 14% of the salary, plus the Dearness Allowance.

3. EPF and Gratuity

EPF and Gratuity are allowed to be tax-free deductions within authorised limits.

• Section 10 (10C) Voluntary Retirement
• Section 10 (10) Gratuity

Tax Computation for FY 2025-26

Here is a quick and simple example to help you understand the differences between the two tax regimes and their effects on the final tax deductions.

Conclusion

If you are someone who falls under the bracket of a ₹12 lakh salary in India, knowing the key deductions and tax-saving ways is life-changing. You can enjoy lower tax rates and financial freedom in the long term.

Financial platforms like My Mudra allow you to get deductions through Section 80C and 80E by offering you quick and secure loans. The faster application process and quick funds disbursement make it easy to calculate your finances at the year's end. Plus, My Mudra offers access to over 90+ reputed banks and NBFCs for reliable loans and flexible repayment terms.

Apply for a home loan or education loan from My Mudra and learn how to save tax on 12 lakhs salary.

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