Top Tax Deductions for Salaried Employees AY 2026-27

If you are a salaried employee planning your taxes for FY 2025-26 (AY 2026-27), choosing the right deductions can reduce your taxable income significantly under the old tax regime. With changes introduced in recent budgets and continued tax benefits for investments, insurance, home loans, and retirement savings, understanding the deductions a salaried employee can avail in AY 26-27 is essential for smarter tax planning.

Many taxpayers now compare the old vs new tax regime before filing their returns. The new regime offers lower slab rates with fewer deductions, while the old regime still provides substantial tax-saving opportunities through Sections 80C, 80D, HRA, NPS, and home loan benefits. This guide covers the latest old tax regime deductions list AY 2026-27, practical examples, eligibility rules, and the best tax saving investments for salaried employees FY 2025-26.

Income Tax Deductions Available Under Old vs New Tax Regime AY 2026-27

The first step is understanding which deductions remain available under each regime.

Deductions available under the old tax regime

Under the old regime, salaried employees can claim:

• Standard deduction
• House Rent Allowance (HRA)
• Leave Travel Allowance (LTA)
• Section 80C investments
• Section 80D medical insurance
• Home loan interest under Section 24
• NPS deductions under Section 80CCD(1B)
• Education loan interest under Section 80E
• Donations under Section 80G

Deductions available under the new tax regime

As per the updated provisions under Section 115BAC, the new tax regime allows limited deductions such as:

• Standard deduction
• Employer contribution to NPS under Section 80CCD(2)
• Certain allowances for disabled employees
• Family pension deduction

The Income Tax Department has clarified the updated regime structure on the official portal: Income Tax India.

Which regime is better for salaried employees?

The old regime usually works better if you claim:

• HRA exemption
• Large 80C investments
• Home loan benefits
• Health insurance deductions
• Additional NPS deductions

The new regime may suit employees with fewer investments and lower eligible deductions.

Standard Deduction for Salaried Employees in Budget 2025

The standard deduction remains one of the easiest tax benefits because no investment proof is required.

Current standard deduction limit

For AY 2026-27:

• Salaried employees can claim a standard deduction of ₹75,000 under the new tax regime.
• Pensioners receiving family pension can claim a separate deduction subject to prescribed limits.

The enhancement announced earlier continues to benefit middle-income taxpayers. Refer to the official budget documents at Union Budget.

Example

If your annual salary is ₹12,00,000:

• Gross salary: ₹12,00,000
• Less standard deduction: ₹75,000
• Taxable salary: ₹11,25,000

This deduction is available automatically through payroll and while filing ITR.

80C Deductions for Salaried Employees AY 2026-27

Section 80C remains the most popular tax-saving provision for salaried individuals.

Maximum deduction limit

You can claim up to ₹1,50,000 under Section 80C during FY 2025-26.

Eligible investments and expenses

The best tax saving investments for salaried employees FY 2025-26 under Section 80C include:

• Employee Provident Fund (EPF)
• Public Provident Fund (PPF)
• Equity Linked Savings Scheme (ELSS)
• Tax Saver Fixed Deposits
• National Savings Certificate (NSC)
• Life insurance premiums
• Sukanya Samriddhi Yojana
• Principal repayment of home loan
• Tuition fees for children

Detailed eligibility is available under Section 80C guidelines.

Which 80C option is best?

Different options suit different goals:

Investment	Lock-in	Risk Level	Suitable For
PPF	15 years	Low	Long-term safe savings
ELSS	3 years	Moderate to High	Wealth creation
EPF	Till retirement	Low	Salaried employees
Tax Saver FD	5 years	Low	Conservative investors

Example of 80C tax savings

Suppose you invest:

• EPF contribution: ₹70,000
• PPF: ₹50,000
• ELSS: ₹30,000

Total deduction claimed = ₹1,50,000

If you fall in the 30% slab, your tax saving can be around ₹46,800 including cess.

Section 80D Health Insurance Deduction for Salaried Employees

Medical inflation in India continues to rise sharply, making health insurance both a financial necessity and a tax-saving tool.

Deduction limits under Section 80D

The section 80D health insurance deduction for salaried employees allows:

Insured Person	Maximum Deduction
Self, spouse, children	₹25,000
Parents below 60 years	Additional ₹25,000
Senior citizen parents	Additional ₹50,000
Self or spouse senior citizen	₹50,000

Maximum possible deduction can reach ₹1,00,000 in some cases.

Preventive health check-up benefit

Within the above limit, you can claim up to ₹5,000 for preventive health check-ups.

Example

Rahul pays:

• Family floater premium: ₹22,000
• Senior citizen parents' policy: ₹48,000

Total deduction under Section 80D = ₹70,000.

The official provisions are explained on the CBDT portal.

HRA Exemption Calculation AY 2026-27

House Rent Allowance is a major salary component for employees living in rented accommodation.

Conditions to claim HRA

You must:

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

HRA exemption calculation formula

The exempt amount is the lowest of:

• Actual HRA received
• Rent paid minus 10% of salary
• 50% of salary for metro cities or 40% for non-metros

Salary here generally includes basic salary plus dearness allowance.

HRA exemption calculation AY 2026-27 example

Suppose:

• Basic salary: ₹60,000 per month
• HRA received: ₹25,000 per month
• Rent paid: ₹28,000 per month
• City: Bengaluru

Calculation:

1. Actual HRA = ₹3,00,000
2. Rent paid minus 10% salary:
   • Annual rent = ₹3,36,000
   • 10% salary = ₹72,000
   • Eligible = ₹2,64,000
3. 50% of salary = ₹3,60,000

Lowest value = ₹2,64,000

So, HRA exemption = ₹2,64,000.

Home Loan Tax Benefits for Salaried Employees Under Section 24

Buying a house continues to provide substantial tax benefits under the old regime.

Interest deduction under Section 24

Home loan tax benefits for salaried employees under Section 24 allow deduction up to:

• ₹2,00,000 for self-occupied property
• Full interest deduction for let-out property subject to set-off rules

Principal repayment under Section 80C

The principal component qualifies under Section 80C within the ₹1,50,000 limit.

Additional deductions

Some buyers may also qualify under special affordable housing provisions if applicable to earlier sanctioned loans.

Example

Priya pays annually:

• Home loan interest: ₹2,20,000
• Principal repayment: ₹90,000

Eligible deductions:

• Section 24: ₹2,00,000
• Section 80C: ₹90,000

Total benefit = ₹2,90,000.

NPS Tax Benefits Under Section 80CCD(1B) AY 2026-27

The National Pension System (NPS) offers one of the few deductions beyond Section 80C.

Additional deduction available

Under Section 80CCD(1B):

• Extra deduction up to ₹50,000
• Available over and above the ₹1,50,000 Section 80C limit

Employer contribution benefit

Employer contribution to NPS qualifies under Section 80CCD(2), subject to prescribed salary limits.

This deduction is available even under the new tax regime.

Example

Suppose:

• EPF + PPF under 80C = ₹1,50,000
• NPS contribution = ₹50,000

Total tax deduction = ₹2,00,000.

NPS details are available on the official PFRDA website.

LTA Exemption Rules for Salaried Employees FY 2025-26

Leave Travel Allowance helps employees save tax on domestic travel expenses.

Key LTA exemption rules

The exemption applies only to:

• Domestic travel within India
• Actual travel fare
• Employee and eligible family members

What is not covered?

You cannot claim:

• Hotel expenses
• Food bills
• Local sightseeing

Frequency allowed

LTA can generally be claimed for two journeys in a block of four calendar years as per Income Tax Rules.

Example

If your employer provides LTA of ₹40,000 and your eligible domestic airfare is ₹32,000:

• Exempt amount = ₹32,000
• Taxable amount = ₹8,000

Other Important Deductions for Salaried Employees AY 2026-27

Section 80E for education loans

You can claim full interest paid on education loans without any upper limit for up to 8 years.

Section 80G for donations

Donations to eligible funds and charities qualify for deductions ranging from 50% to 100%.

Section 80TTA and 80TTB

• Savings account interest deduction up to ₹10,000 under Section 80TTA
• Senior citizens can claim up to ₹50,000 under Section 80TTB

Best Tax Saving Investments for Salaried Employees FY 2025-26

Choosing investments only for tax saving may not align with financial goals. A balanced approach works better.

For conservative investors

Suitable options:

• PPF
• EPF
• Tax Saver FD
• Sukanya Samriddhi Yojana

For long-term wealth creation

Consider:

• ELSS mutual funds
• NPS
• Equity-oriented retirement planning

For insurance and protection

Focus on:

• Term insurance
• Health insurance
• Family floater plans

Common Mistakes Salaried Employees Should Avoid

Many taxpayers lose deductions because of avoidable errors.

Missing investment proof deadlines

Submit proofs to your employer before payroll cut-off dates.

Choosing the wrong tax regime

Compare total deductions before selecting the regime.

Claiming ineligible HRA

You cannot claim HRA exemption if you live in your own house in the same city.

Ignoring Form 26AS and AIS

Always reconcile income and deductions with your Annual Information Statement and Form 26AS.

You can access these on the Income Tax e-filing portal.

Final Thoughts on Deductions a Salaried Employee Can Avail in AY 26-27

Understanding the deductions a salaried employee can avail in AY 26-27 can help you reduce tax liability legally while building long-term wealth. The old tax regime deductions list AY 2026-27 continues to provide strong benefits through 80C deductions for salaried employees AY 2026-27, section 80D health insurance deduction for salaried employees, HRA exemption calculation AY 2026-27, home loan tax benefits for salaried employees under section 24, LTA exemption rules for salaried employees FY 2025-26, and NPS tax benefits under section 80CCD(1B) AY 2026-27.

Before filing your return, compare income tax deductions available under old vs new tax regime AY 2026-27 carefully. The right mix of deductions, investments, and planning can save several lakhs in taxes over time while improving financial security.