If your annual salary is ₹13 lakh or more, you might be feeling like you have to will have to pay too much tax. As this union budget has created a lots of buzz in market about tax facts.But don’t worry—there are legal ways by which you can reduce your tax bill!
Here’s summary how you can save lakhs in tax using smart deductions and exemptions:
- Standard Deduction: ₹75,000 (Automatically applied)
- NPS Employer Contribution: ₹70,000+ (100% tax-free)
- HRA Benefits: Tax-free rent if you pay rent
- Section 80C Investments: ₹1.5 Lakh (ELSS, PPF, EPF, FD)
- Health Insurance Deduction: ₹25,000–₹75,000
- Home Loan Interest Deduction: ₹2 Lakh
- Salary Restructuring: Reduce tax without investing
- Donations: Get tax benefits under Section 80G
Final Result? You can bring your taxable income below 13 lakh and pay almost zero tax! Keep reading for step-by-step guidance.
How Can Someone with a ₹12 Lakh Salary Pay Zero Tax?
In India , Many people believe that if they earn ₹12 lakh, they must pay tax. This is not true. People has less knowledge about tax savings schemes or your HR/CA dont reveal legal ways to reduce taxes. However, Literacy and proper planning will definitely help you to reduce tax income below taxable limit. Here’s how:
Example: Salaried Individual with ₹12 Lakh Salary (Old Regime)
Tax Component |
Amount (₹) |
|---|---|
Gross Salary |
12,00,000 |
Standard Deduction |
(-50,000) |
80C Investments (ELSS, PPF, EPF) |
(-1,50,000) |
80D (Health Insurance Premium) |
(-25,000) |
NPS (80CCD(1B)) |
(-50,000) |
HRA (House Rent Allowance, if eligible) |
(-2,00,000) |
Final Taxable Income |
Below Taxable Limit |
Outcome: Taxable income becomes non-taxable, leading to zero tax liability!
✅ Why it works? Proper use of tax deductions & exemptions.
1. The Easiest ₹75,000 Tax Deduction (No Investment Needed!)
This is the first and easiest way to save tax. The government automatically gives ₹75,000 as a standard deduction to all salaried employees in lastest union budget.
If your salary is ₹13,00,000, after this deduction, your taxable income becomes:
👉 ₹13,00,000 – ₹75,000 = ₹12,25,000 (New Taxable Income)
No paperwork, no proof required!
2. The Hidden ₹70,000+ Tax-Free Benefit (Most People Ignore This!)
Your employer can contribute to your NPS account, and this amount is 100% tax-free under Section 80CCD(2).
Example:
- If your basic salary is ₹7,00,000, your employer can contribute 10% (₹70,000) to NPS.
- This reduces your taxable income further:
Bonus Tip:
If your employer doesn’t offer NPS contributions, ask them—many companies allow employees to opt for it.
3. House Rent Allowance (HRA) – Use It If You Pay Rent!
HRA can reduce your taxable income by ₹50,000+ if you stay in a rented house.
Example Calculation:
- If you receive ₹2,40,000 per year as HRA and pay ₹20,000/month as rent, a big part of this can be tax-free under Section 10(13A).
- Exact exemption depends on your salary & city.
Bonus Tip:
If you pay rent to your parents, you can claim HRA legally—just make sure to:
✔ Pay via bank transfer
✔ Get a rent receipt
4. The ₹1.5 Lakh Investment Trick (80C Deductions)
To reduce your taxable income further, invest in these government-approved options:
- ELSS Mutual Funds (Best returns, 3-year lock-in)
- PPF (Public Provident Fund)
- EPF (Employee Provident Fund)
- 5-Year Fixed Deposits (Safe but low return)
Example:
If you invest ₹1,50,000 in PPF, your taxable income becomes:
👉 ₹11,55,000 – ₹1,50,000 = ₹10,05,000 (New Taxable Income)
💡 This saves ₹45,000 in tax!
5. Health Insurance Tax Savings – ₹75,000 Deduction!
Health insurance doesn’t just protect you financially, but also reduces tax.
- Self + Family Insurance: ₹25,000 tax-free
- Parents’ Insurance (if parents are above 60 years): ₹50,000 tax-free
Total Savings?
If you pay for your family + senior citizen parents, you can save up to ₹22,500 in tax!
💡 Even if your parents don’t live with you, you can still claim this deduction if you pay for their insurance.
6. Home Loan Tax Benefits – Save ₹2 Lakh Easily
If you have a home loan, you can claim:
- ₹2,00,000 deduction on interest payments (Section 24b)
- Additional benefits for first-time homebuyers
Bonus Tip:
If your spouse also works, take a joint home loan—both of you can claim ₹2 lakh each, doubling tax savings!
7. Salary Restructuring – Reduce Tax Without Investing
Instead of taking a higher salary, ask your employer to include these tax-free perks:
- Meal Coupons (₹2,200 per month tax-free)
- Mobile & Internet Reimbursement
- Education Allowance for Children
💡 This alone can save ₹10,000 – ₹50,000 in tax!
8. Leave Travel Allowance (LTA) – Get Tax-Free Vacations!
- If your company offers LTA, you can claim tax-free travel expenses twice in 4 years.
- Covers flight, train, and bus tickets for you and your family.
💡 If you spend ₹50,000 on travel, this amount is completely tax-free!
9. Donations – Get Tax Benefits & Do Good! (Section 80G)
You can save tax while donating to:
- PM CARES Fund → 100% tax-free
- NGOs like CRY, Save the Children → 50% tax-free
💡 Tip: Always donate via bank transfer to get a receipt for tax claims.
Old Tax Regime vs. New Tax Regime – Which One Saves More Tax?
| Feature | Old Tax Regime | New Tax Regime |
|---|
| Feature | Old Tax Regime | New Tax Regime |
|---|---|---|
| Tax Rates | Higher | Lower |
| Deductions & Exemptions | Yes | No |
| Best For | People with tax-saving investments | Those who don’t invest in 80C, NPS, etc. |
💡 Rule of Thumb:
- If your deductions are more than ₹3 lakh, choose the Old Regime.
- If you don’t have deductions, go for the New Regime (simpler tax rates).
Smart Investment Options
To maximize more tax savings, you should choose investments based on your risk appetite. Let’s break it down with relatable examples:
Low-Risk Investments (Guaranteed Returns & Tax-Free)
PPF (Public Provident Fund) – This is a Safe, long-term (15 years), tax-free growth Invesment option. Example: Investing ₹1.5L yearly can grow to ₹45L+ tax-free in 15 years!
Tax-Saving Fixed Deposits – 5-year lock-in, fixed interest, safer than stocks.
EPF (Employee Provident Fund) – Employer adds contributions, doubling your savings. If you dont invest your money , if you have to pay tax. You have to rotate your money which will come back to you.
Moderate-Risk Investments (Balanced Growth & Tax Benefits)
National Pension System (NPS) – You can put your some money here. You get an extra ₹50,000 tax benefit. Example: If you invest ₹5,000/month, by retirement, you’ll have ₹1.5Cr+.
Sukanya Samriddhi Yojana – Best for securing your daughter’s future with high, tax-free interest. Invest for your doughter. Dont keep money in bank. If you keep you have to pay tax.
High-Risk, High-Return Investments (For Growth & Tax Savings)
ELSS (Equity Linked Savings Scheme) – Invest in top-performing mutual funds. Example: Investing 1.5L in ELSS can grow to 2.5L+ in 3 years (historical returns 12-15%).
ULIPs (Unit Linked Insurance Plans) – Hybrid of insurance & investment but has a longer lock-in period.
Tip: Combine low, moderate, and high-risk investments for the best results.
Common Mistakes People Make (Avoid These!)
Mistake #1: Waiting Until the Last Minute
Many start tax planning in March, leading to rushed investments & mistakes.
Fix: Start early in the financial year.
Mistake #2: Choosing the Wrong Tax Regime
Some opt for the new regime without checking if the old regime would be better for them.
Fix: Compare both regimes before filing.
Mistake #3: Ignoring Additional Deductions
Many forget about:
80D (Health Insurance)
80CCD(1B) (NPS extra deduction ₹50,000)
Mistake #4: Not Claiming Work-Related Benefits
LTA (Leave Travel Allowance)
Meal Coupons (Tax-free food benefit)
Phone & Internet Bills
Fix: Optimize salary components with HR.
Final Takeaway – How to Pay the Least Tax?
Use ₹75,000 Standard Deduction
Invest in NPS & 80C to reduce taxable income
Claim HRA, Home Loan, and Health Insurance
Optimize Salary Structure for tax-free benefits
Want to calculate your exact tax savings?
Use this Free Tax Calculator: Calculator