How to save tax for salary above ₹10 lakh for FY 2025-26?

Earning above ₹10 lakh annually places you in one of the highest income tax brackets in India. At this level, tax efficiency becomes essential, not just compliance. The good news is that your actual tax outgo can be significantly reduced with the right decisions. What matters most is how you structure your income, which tax regime you choose, and whether you utilise the deductions and exemptions available to you.

Like what you're reading?

Get our latest, straight to your inbox.

Subscribe to our newsletter

Even though a ₹10 lakh salary doesn’t attract a surcharge, income above ₹50 lakh does. In both cases, a 4% health and education cess applies on the total tax amount. Choosing between the old and new tax regimes plays a crucial role in managing your liability. The old regime allows for a wide range of deductions, while the new one offers lower slab rates but fewer deductions.

To facilitate a clear understanding of how tax regime selection can impact your tax liability, we present a detailed computation across three scenarios. These simulations highlight the effects of:

1. An increase in income, and
2. The option between the old and new tax regime.

Assumptions:

Let’s break this down through a few examples. Suppose your gross annual salary is ₹10 lakhs and you have standard deductions like home loan interest of ₹2 lakh and Section 80C deductions of ₹1.5 lakh. You’re also paying medical insurance premiums that qualify you for ₹75,000 under Section 80D (₹25,000 for self and ₹50,000 for parents who are senior citizens), and you have some interest income. With all these, your taxable income under the old regime reduces substantially.

This analysis also looks at the effective tax rate, which simply means the average tax paid on the total taxable income. It helps show how tax liability increases with higher income, highlighting the progressive nature of our tax system. To keep things focused on the basics, contributions to the National Pension Scheme (NPS) have not been included in the calculation. That said, it’s worth mentioning that Section 80CCD(2) allows an extra deduction for employer contributions—up to 10% of basic salary under the old regime and 14% under the new one. Additionally, under Section 80CCD(1B), taxpayers can claim an extra ₹50,000 deduction for their own NPS contributions, over and above the ₹1.5 lakh allowed under Section 80C.

Tax Simulation Scenarios:

Scenario 1: This scenario illustrates the tax implications for an individual with a gross annual salary of ₹10 lakhs, helping establish a baseline comparison under both the old and new tax regime.

As can be seen from the above table, although the gross salary is ₹10,00,000, the taxable income is only ₹5,15,000, as a result of deductions forming a major part which leads to the effective tax rate being 1.61% under the old tax regime. Any income up to ₹12,00,000 under new tax regime, ends up to zero tax liability due to tax relief (rebate) under section 87A. No deductions can be claimed except for section 80CCD(2) and standard deduction on salary.

Scenario 2: This scenario demonstrates how an individual with a gross salary of ₹12 lakhs can have no tax liability under the new regime, owing to the enhanced Section 87A rebate introduced in Budget 2025.

Despite a higher taxable income under the new regime, the effective tax rate is zero, owing to the full rebate up to ₹12 lakhs. In contrast, the old regime results in an effective tax rate of 4.81%, highlighting a clear advantage of opting for the new regime at this income level, especially when deductions are not significantly high beyond the standard deduction. Another difference is because of the individual attracting 20% tax slab under the old regime, whereas he/she attracting 10% tax slab under the new regime.

Scenario 3: This scenario demonstrates the change in tax liability when the gross income crosses ₹12 lakhs, thereby moving beyond the threshold eligible for rebate under Section 87A (available only in the new regime for income up to ₹12,00,000).

The effective tax rate of 7.09% under the old regime, indicates the average tax burden on the taxable income after deductions. Under the new regime, the effective tax rate is 5.85%, significantly lower than under the old regime, despite the higher taxable base. The increase in tax as a percentage of income rise is substantially higher in the new regime (41.0%) than in the old (20.8%), reflecting the loss of rebate benefit under section 87A and rise in marginal tax. Compared to Scenario 2, the total taxable income has increased by ₹2,00,000, resulting in a higher tax outgo of ₹41,600 under the old regime and ₹81,900 under the new regime. Under these conditions, the individual’s taxable income is subject to the 15% slab in the new regime and the 30% slab in the old regime.

As evident from the three scenarios discussed above, the new tax regime is more favourable for taxpayers whose total deductions are less than ₹3–4 lakhs. However, where the deductions exceed ₹3–4 lakhs, the old tax regime generally results in a lower overall tax liability.

Need help deciding the right tax regime? Use our Old vs New Tax Regime Calculator (Old vs. New Tax Regime Calculator) to compare your tax liability under both regimes. For latest income tax slabs, refer Income Tax Slabs.