How to Maximize Tax Savings When Earning Over ₹12 Lakh in FY25-26?

If you’re earning a salary of ₹12 lakh or more in FY 2025-26, there’s good news for you. With the Union Budget 2025-26 introducing major changes in income tax rules, salaried individuals now have an opportunity to pay zero tax on income up to ₹12.75 lakh—without needing to invest in tax-saving instruments.

Whether you want to simplify your tax filing or optimize your take-home income, this guide walks you through everything you need to know about saving tax under the new tax regime in FY 2025-26.

What Has Changed in FY 2025-26?

The new tax regime, which became the default from FY 2023-24, has been significantly revised in the Union Budget 2025-26 to benefit the salaried class.

Key Highlights:

• from ₹50,000 to ₹75,000 under section 16. The standard deduction is applied before calculating the tax and thus effectively reduces the taxable income. It is applied to all salaried individuals including pensioners. For instance, if your income is ₹12 lakh, a standard deduction of ₹75,000 will apply, reducing your taxable income to ₹11.25 lakh. It’s only applicable to the new regime

• Section 87A rebate has been increased to ₹60,000 from ₹25,000. This means that if you have a taxable income of up to ₹12.75 lakh, you won’t have to pay any taxes under the new regime. This benefit is available to all individual Indian residents and can be availed only once a year.  We will explain this in detail a bit later.  

This move simplifies tax planning for many and encourages higher take-home pay without mandatory investments in traditional tax-saving instruments. Before we go into the details of calculating tax for a ₹12 lakh income, let’s look at the tax rates under the new and old tax regimes.  

New Tax Slabs Under New Regime for FY 2025-26

Here’s how your income will be taxed under the new regime in FY 2024-26:

Tax Slabs Under Old Regime for FY 2025-26

There is no change in the old regime tax slabs for FY 2025-26

Tax Calculation if your Income is ₹12.75 lakh under the new regime for FY 2025-26

Now let’s assume that you are a salaried individual and your income is ₹12.75 lakh. Under the new regime this year, your tax liability will be zero. Let’s see how:

Step 1: Calculate Taxable Income

Gross Salary = ₹12,75,000

Standard Deduction = ₹75,000

Net taxable Income = ₹12,75,000 – ₹75,000 = ₹12,00,000

Step 2: Apply New Tax Regime Slabs

Step 3: Apply Section 87A rebate once you have calculated the tax

• Since taxable income = ₹12 lakh, you're still eligible for the Section 87A rebate of ₹60,000 on your tax.
• Maximum rebate allowed: ₹60,000
• Your tax liability: ₹60,000 – ₹60,000 = ₹0
• Cess: Not applicable since tax payable is zero.

Total Tax Payable Under New Regime: ₹0

Tax Calculation if your Income is ₹12.75 lakh under the Old Regime for FY 2025-26

 Let’s assume you are claiming the following deductions through different financial instruments:

Step 1: Add up all your tax deductions**

Step 2: Calculate your Net Taxable Income Under Old Regime

Gross Income = ₹12,75,000

Total Deductions = ₹5,25,000

Net Taxable Income = Gross income – Total Deductions

=₹12,75,000 – ₹5,25,000 = ₹7,50,000

Step 3: Calculate the tax as per the old regime tax slab  

Final Comparison: ₹12.75 Lakh Salary (FY 2025-26)

Bottomline: New regime wins in this scenario!

Under the new tax regime, income up to ₹12.75 lakh is completely tax-free. After applying the ₹75,000 standard deduction and Section 87A rebate of ₹60,000, individuals with a salary up to ₹12.75 lakh will have zero effective tax liability under the new regime. If your income were to go above ₹12.75 lakh, the rebate wouldn’t apply, and then the old regime could become more favourable depending on deductions.

Who Should Choose the New Tax Regime in FY 2025-26?

The new tax regime is ideal for you if:

• You don’t claim multiple deductions (e.g., 80C, 80D, HRA, home loan interest)
• You prefer a simpler tax structure with fewer compliance requirements
• Your annual income is ₹12.75 lakh or less and you want to legally avoid paying income tax
• You want to maximize your monthly take-home salary

The new regime is for salaried professionals who do not heavily invest in tax-saving instruments or who want to skip the documentation burden, the new regime offers clarity and savings upfront.

Who Should Choose the Old Tax Regime in FY 2025-26?

Despite the appeal of the new regime, the old tax regime can still be more beneficial for those who claim higher deductions through different financial instruments. Consider opting for the old regime if:

• You invest significantly in tax-saving instruments under Section 80C such as:
  • Public Provident Fund (PPF)
  • Equity Linked Savings Schemes (ELSS)
  • Life insurance premiums
  • 5-year fixed deposits or EPF
• You are paying a home loan and want to claim:
  • ₹2 lakh deduction on interest under Section 24B
  • Additional ₹1.5 lakh under Section 80EEA (for first-time homebuyers)
• You pay rent and receive HRA, and want to claim House Rent Allowance exemption
• You pay for health insurance for self and parents and want to claim deductions under Section 80D (₹25,000 to ₹75,000)

The old regime rewards disciplined savers who invest regularly in tax-deductible financial products.

Tax Saving with Life Insurance – Still Relevant Under Any Regime

Even though deductions like Section 80C are not applicable under the new regime, life insurance still plays a critical role in financial planning and long-term tax efficiency.

Here’s how life insurance still supports your tax goals^%:

Even under the new regime, the maturity benefits of compliant life insurance policies remain tax-free, making life insurance a powerful tool for building tax-efficient wealth and securing your family’s future.

Final Thoughts: Your Tax Strategy for FY 2025-26

If you're a salaried individual earning ₹12 lakh or more, FY 2025-26 brings welcome relief. With zero tax on income up to ₹12.75 lakh, the new tax regime becomes the smarter choice for many—especially those who prefer flexibility over locked-in savings.

Need help choosing the right life insurance plan for your goals?

At Bandhan Life, we’re here to help you build security while maximizing your financial freedom. Whether your goal is wealth creation, family protection, or long-term savings—we have a plan for you.

Let’s plan your future, together.

FAQs: Tax Saving for ₹12 Lakh Salary in FY 2025-26

1. Is ₹12 lakh income tax-free under the new regime in FY 2025-26?

Yes. With the ₹75,000 standard deduction and enhanced Section 87A rebate, income up to ₹12.75 lakh is tax-free.

2. Do I need to invest in 80C instruments to save tax in the new regime?

No. The new regime does not allow most deductions like 80C, 80D, or HRA. Your income is tax-free purely based on slab rates and standard deduction.

3. Can I still buy life insurance even if it doesn't give a tax deduction?

Yes. While 80C deductions aren’t available in the new regime, life insurance offers tax-free maturity under Section 10(10D)* and helps protect your family’s future.

4. Can I switch tax regimes every year?

Yes, salaried taxpayers can choose between the old and new regimes each financial year when filing their tax return.