Top Income Tax Deductions for Salaried AY 2026-27

If you are planning your taxes for FY 2025-26 (AY 2026-27), choosing the right deductions can reduce your tax liability by lakhs of rupees over time. Salaried employees in India can still claim several valuable exemptions and deductions, especially under the old tax regime. At the same time, the new tax regime offers lower slab rates and a higher rebate under Section 87A, making regime selection more important than ever.

This guide covers the best tax saving options for salaried employees FY 2025-26, including Section 80C, HRA exemption, Section 80D, home loan deductions, standard deduction, and old vs new tax regime deductions AY 2026-27.

Income Tax Deductions a Salaried Employee Can Claim in AY 2026-27

Here are the most important income tax deductions for salaried employees AY 2026-27:

Deduction/Exemption	Section	Maximum Limit	Available in New Regime?
Standard Deduction	Section 16	₹75,000	Yes
EPF, ELSS, PPF, LIC	Section 80C	₹1,50,000	No
NPS Additional Deduction	Section 80CCD(1B)	₹50,000	No
Employer NPS Contribution	Section 80CCD(2)	Up to 14% of salary	Yes
Health Insurance	Section 80D	₹1,00,000	No
Home Loan Interest	Section 24(b)	₹2,00,000	Limited
HRA Exemption	Section 10(13A)	Based on salary/rent	No
Education Loan Interest	Section 80E	No limit	No
Donations	Section 80G	Variable	No
Savings Interest	Section 80TTA	₹10,000	No

The Income Tax Department provides detailed deduction rules on the official portal: Income Tax India.

Standard Deduction for Salaried Employees AY 2026-27

The standard deduction remains one of the easiest tax benefits available to salaried taxpayers.

How much standard deduction can you claim?

For AY 2026-27:

• Salaried employees can claim a standard deduction of ₹75,000
• Pensioners receiving taxable pension also qualify

This deduction applies automatically and does not require investment proof.

Available under both tax regimes

Unlike many deductions, the standard deduction for salaried employees AY 2026-27 is available under:

• Old tax regime
• New tax regime

For many middle-income taxpayers, this alone reduces taxable income significantly.

Reference: Union Budget Tax Proposals

Section 80C Deduction Limit for Salaried Employees 2025

Section 80C continues to be the most popular tax-saving provision under the old tax regime.

Maximum deduction allowed

You can claim up to:

• ₹1,50,000 under Section 80C

Eligible investments and expenses

Popular tax saving investments for salaried employees in India 2025 include:

• Employee Provident Fund (EPF)
• Public Provident Fund (PPF)
• Equity Linked Savings Scheme (ELSS)
• Life insurance premiums
• Sukanya Samriddhi Yojana
• National Savings Certificate (NSC)
• 5-year tax-saving fixed deposits
• Principal repayment of home loan
• Tuition fees for children

Example

Suppose your annual investments are:

• EPF contribution: ₹70,000
• ELSS investment: ₹50,000
• LIC premium: ₹30,000

Total eligible deduction = ₹1,50,000

Which regime allows 80C?

• Old regime: Allowed
• New regime: Not allowed

Many salaried employees continue using the old regime mainly because of the Section 80C deduction limit for salaried employees 2025.

Reference: Section 80C details by Income Tax Department

Section 80D Health Insurance Tax Deduction FY 2025-26

Medical inflation in India has increased sharply, making health insurance essential. Fortunately, premiums qualify for tax deductions under Section 80D.

Deduction limits under Section 80D

Insured Person	Maximum Deduction
Self + family	₹25,000
Parents below 60 years	₹25,000
Senior citizen parents	₹50,000
Self if senior citizen	₹50,000

Maximum possible deduction:

• ₹1,00,000 in some cases

Preventive health check-up

Within the above limits, you can also claim:

• ₹5,000 for preventive health check-ups

Important points

• Premium must be paid through non-cash modes
• Parents need not be financially dependent

Example

A salaried employee pays:

• ₹24,000 for family health insurance
• ₹48,000 for senior citizen parents

Total deduction = ₹72,000

Section 80D health insurance tax deduction FY 2025-26 remains one of the best tax-saving tools under the old regime.

Reference: IRDAI Health Insurance Information

HRA Exemption Rules for Salaried Employees in India

House Rent Allowance (HRA) can substantially reduce taxable salary for employees living in rented accommodation.

Conditions to claim HRA exemption

You must:

• Receive HRA as part of salary
• Live in rented accommodation
• Pay rent exceeding 10% of salary

Least of the following is exempt

HRA exemption equals the lowest of:

1. Actual HRA received
2. Rent paid minus 10% of salary
3. 50% of salary for metro cities
4. 40% of salary for non-metro cities

Metro cities include

• Mumbai
• Delhi
• Chennai
• Kolkata

Example

Rahul lives in Bengaluru:

• Basic salary: ₹8,00,000
• HRA received: ₹3,00,000
• Rent paid: ₹2,40,000

Eligible exemption calculation:

• Actual HRA = ₹3,00,000
• Rent minus 10% salary = ₹1,60,000
• 40% salary = ₹3,20,000

Lowest amount = ₹1,60,000 exempt

Important note

HRA exemption rules for salaried employees in India apply only under:

• Old tax regime

The new regime does not allow HRA exemption.

Home Loan Interest Deduction Under Section 24 for Salaried Employees

Home loans offer two major tax benefits:

• Principal repayment under Section 80C
• Interest deduction under Section 24(b)

Section 24 deduction limit

For self-occupied property:

• Maximum deduction = ₹2,00,000

Conditions

• Construction must complete within 5 years
• Interest certificate from lender required

Additional deductions

First-time buyers may also qualify under:

• Section 80EE
• Section 80EEA

subject to conditions.

What about the new regime?

Under the new tax regime:

• Self-occupied property interest deduction is generally not available
• Let-out property interest may still be adjusted subject to restrictions

Example

A salaried employee pays:

• Home loan interest = ₹2,40,000
• Principal repayment = ₹1,20,000

Possible deductions under old regime:

• Section 24 = ₹2,00,000
• Section 80C = ₹1,20,000

Total tax benefit = ₹3,20,000

Home loan interest deduction under Section 24 for salaried employees remains one of the strongest reasons to choose the old tax regime.

Old vs New Tax Regime Deductions AY 2026-27

Choosing between regimes is now a critical tax-planning decision.

Key differences

Feature	Old Regime	New Regime
Tax rates	Higher	Lower
Most deductions	Allowed	Not allowed
Standard deduction	Yes	Yes
HRA exemption	Yes	No
80C and 80D	Yes	No
Simplicity	Moderate	High

Who should choose old regime?

The old regime may work better if you claim:

• HRA exemption
• Home loan deductions
• Full Section 80C investments
• Section 80D deductions
• NPS deductions

Who should choose new regime?

The new regime may suit:

• Young professionals
• Employees without major investments
• Individuals preferring simplified taxes
• Taxpayers with lower deduction eligibility

Income tax rebate under Section 87A AY 2026-27

Under the new tax regime:

• Resident individuals with taxable income up to ₹12,00,000 may qualify for rebate under Section 87A, subject to applicable conditions notified in Budget provisions.

Under the old regime:

• Rebate remains available for taxable income up to ₹5,00,000.

This rebate can reduce tax liability to zero for eligible taxpayers.

Reference: CBDT Notifications

Best Tax Saving Options for Salaried Employees FY 2025-26

Here are some practical strategies salaried employees can use.

1. Maximise Section 80C early

Avoid last-minute investments. Use:

• SIPs in ELSS
• PPF contributions
• EPF optimisation

2. Buy adequate health insurance

Section 80D gives tax savings while protecting finances.

3. Consider NPS for extra deduction

Under Section 80CCD(1B):

• Additional deduction up to ₹50,000

This is over and above the ₹1,50,000 limit under Section 80C.

4. Structure salary smartly

Employees should review:

• HRA
• LTA
• Meal allowances
• Employer NPS contributions

5. Compare regimes every year

The tax regime can be changed annually by salaried taxpayers while filing returns.

Frequently Asked Questions About Income Tax Deductions for Salaried Employees AY 2026-27

Can salaried employees claim both 80C and standard deduction?

Yes. Under the old regime, employees can claim:

• Standard deduction
• Section 80C
• Section 80D
• HRA
• Other eligible deductions together

Is HRA available in the new tax regime?

No. HRA exemption is not available under the new tax regime.

Can I claim both HRA and home loan benefits?

Yes, if:

• You live in rented accommodation, and
• Own a house in another city or meet genuine conditions

Which investments are best under Section 80C?

Popular choices include:

• ELSS for higher growth potential
• PPF for guaranteed returns
• EPF for salaried employees
• Tax-saving FDs for conservative investors

Is employer NPS contribution tax-free?

Employer contributions to NPS qualify under Section 80CCD(2), even in the new regime, subject to limits.

Reference: PFRDA NPS Information

Smart Tax Planning Tips for Salaried Employees

Before the financial year ends:

• Collect Form 16 and investment proofs
• Review AIS and Form 26AS
• Verify TDS deductions
• Use online tax calculators
• Avoid investing only for tax saving

The Income Tax Department e-filing portal helps taxpayers access forms and tax records: Income Tax e-Filing Portal

Final Thoughts on Income Tax Deductions for Salaried Employees AY 2026-27

The right combination of deductions can significantly reduce your taxable income in FY 2025-26. Salaried employees who actively use Section 80C, Section 80D, HRA exemption, and home loan deductions often save substantial tax under the old regime. At the same time, the new regime may offer better outcomes for taxpayers with fewer deductions because of lower slab rates and the income tax rebate under Section 87A AY 2026-27.

Review your salary structure, compare old vs new tax regime deductions AY 2026-27 carefully, and choose tax saving investments for salaried employees in India 2025 that align with both your financial goals and tax planning strategy.