If your salary is above about ₹12.75 lakh, you can still cut your tax in FY 2026-27 in three main ways: ask your employer to route part of your CTC into NPS under Section 80CCD(2), which is deductible even in the new regime; compare the new and old regimes using your real deductions; and, if the old regime wins, fully use 80C, 80CCD(1B), 80D, HRA and home-loan interest. For most people in this band the new regime is still cheaper unless total deductions cross roughly ₹5.5–6.5 lakh.
Why ₹12 lakh is the turning point
Under the new regime, taxable income up to ₹12 lakh attracts zero tax because of the Section 87A rebate. With the ₹75,000 standard deduction, that means a gross salary of up to ₹12.75 lakh pays nothing. Cross that line and the rebate disappears (marginal relief softens the jump just above the limit), and your income is taxed slab by slab: nil up to ₹4 lakh, 5% from ₹4–8 lakh, 10% from ₹8–12 lakh, 15% from ₹12–16 lakh, 20% from ₹16–20 lakh, 25% from ₹20–24 lakh and 30% above ₹24 lakh, plus 4% cess.
For example, an ₹18 lakh salary in the new regime has taxable income of ₹17.25 lakh and tax of about ₹1,50,800 including cess.
Option 1: Employer NPS under Section 80CCD(2)
This is the single most useful lever in the new regime. Employer contributions to your NPS account are deductible up to 14% of basic salary (plus DA), within the overall ₹7.5 lakh annual cap on employer retirement contributions. Many employers allow you to restructure part of your CTC into NPS.
Worked example: ₹18 lakh salary
Assume basic salary is 40% of ₹18 lakh, or ₹7.2 lakh. Employer NPS at 14% of basic is ₹1,00,800.
- Without NPS: taxable income ₹17.25 lakh, tax about ₹1,50,800
- With ₹1,00,800 routed to employer NPS: taxable income about ₹16.24 lakh, tax about ₹1,29,800
- Tax saved: roughly ₹21,000 a year
The trade-off is liquidity: NPS money is largely locked until 60, and at exit part of the corpus must buy an annuity. Treat it as retirement savings, not a pure tax trick. Our NPS calculator projects what the contributions could grow to.
Option 2: Check whether the old regime wins for you
The old regime has higher slab rates but allows many deductions. Whether it wins depends on how much you can genuinely claim. Using the same ₹18 lakh salary:
- Old regime with ₹4.25 lakh of deductions (₹1.5 lakh 80C, ₹50,000 80CCD(1B), ₹25,000 80D, ₹2 lakh home-loan interest) plus the ₹50,000 standard deduction: tax about ₹2,18,400 — far more than the new regime's ₹1,50,800.
- The old regime only breaks even at around ₹6.45 lakh of deductions beyond the standard deduction.
By the same method, the break-even is roughly ₹5.45 lakh of deductions at a ₹15 lakh salary and about ₹8 lakh at ₹25 lakh. These are reached mainly by people who pay high rent in a metro (large HRA exemption) and also have a home loan, or who have a home loan plus large health-insurance premiums for parents. Plug your actual numbers into the old vs new regime comparison before deciding.
Option 3: If you choose the old regime, use every deduction
- Section 80C — up to ₹1.5 lakh: EPF, PPF, ELSS, life insurance premium, tax-saving FD, home-loan principal, children's tuition fees. Your employee PF often uses up a large part of this already.
- Section 80CCD(1B) — extra ₹50,000: your own NPS contribution, over and above 80C.
- Section 80D — health insurance: up to ₹25,000 for self and family, plus up to ₹50,000 for senior-citizen parents (₹50,000 for self too if you are a senior citizen).
- HRA exemption: the least of actual HRA, rent minus 10% of basic, and 50% (metro) or 40% (non-metro) of basic. Estimate it with the HRA Exemption calculator.
- Section 24(b): up to ₹2 lakh of interest on a self-occupied home loan.
- Section 80E: full interest on an education loan, for up to 8 years.
Employer NPS under 80CCD(2) is available in the old regime too, at up to 10% of basic for private-sector employees.
Things that save tax in both regimes
- Employer NPS, as above.
- Tax-efficient investing: equity long-term capital gains up to ₹1.25 lakh a year are tax-free, and gains above that are taxed at 12.5%. Harvesting gains within this limit each year can help — mutual fund investments are subject to market risk.
- Exempt allowances and reimbursements that your employer's policy allows under the rules, such as certain official travel or conveyance reimbursements for actual expenses.
- Gratuity and leave encashment at retirement or exit, which have their own exemption limits.
A simple checklist for FY 2026-27
- Ask HR whether employer NPS is available and how to restructure CTC into it.
- List every deduction you genuinely qualify for — not ones you would buy just for tax.
- Compare both regimes with real numbers; salaried employees can usually choose afresh each year when filing.
- Declare your regime to your employer early so monthly TDS matches your final liability.
Get your exact tax under both regimes in the Income Tax calculator, or let the tax saver tool suggest which deductions move the needle most.