Tax Saving Guide 2026 for Salaried Employees (New vs Old)

Every tax season starts the same way.

A colleague mentions they paid “almost nothing” in tax.
Your payslip tells a different story.
And suddenly, you’re Googling deductions at 11 PM—hoping you missed something.

In 2026, tax-saving confusion is not because rules are unclear.
It’s because the system now gives you two choices—and picking the wrong one can quietly cost you money.

This is a practical Tax Saving Guide 2026 for salaried individuals. No theory. No loopholes. Just clear decisions based on how the new and old tax regimes actually work for FY 2025–26 (AY 2026–27).

What Changed in 2026 (And Why It Matters)

From FY 2025–26 onward, the New Tax Regime is the default.

That doesn’t mean it’s mandatory.
It means if you don’t actively choose, you’re automatically placed in it.

The government’s intent is clear:

Fewer deductions
Lower tax rates
Simpler compliance

This shift was formalised through amendments to Section 115BAC
👉 https://www.incometax.gov.in/iec/foportal/help/individual/return-applicable-tax-regime

But “simple” doesn’t always mean “cheaper.”

For salaried taxpayers, tax saving in 2026 is about choosing the right regime, not chasing deductions blindly.

The Big Picture: New vs Old Tax Regime (Quick Overview)

Before diving into deductions, you need context.

New Tax Regime (Default in 2026)

Fewer deductions allowed
Lower slab rates
Best for people with minimal investments or claims

Old Tax Regime

Higher slab rates
Allows traditional tax deductions
Best if you actively plan and invest

Your goal isn’t to “save tax.”
Your goal is to pay the least legally possible.

What You Get Under the New Tax Regime in 2026

Let’s start with what most salaried people will see by default.

1. Standard Deduction (₹75,000)

Yes, the Standard Deduction still exists under the new regime.

This is automatic:

No investment proof
No paperwork
No conditions

Every salaried employee gets it.

The standard deduction was officially enhanced to ₹75,000 in Budget announcements
👉 https://www.incometaxindia.gov.in/Pages/FAQs/standard-deduction.aspx

For many middle-income earners, this alone makes the new regime attractive.

2. Rebate u/s 87A (Up to ₹12.75 Lakh Income)

Here’s where many people get confused.

Under the new regime:

Rebate u/s 87A applies if taxable income is within the threshold
Effectively, income up to ₹12.75 lakh (including standard deduction) can be tax-free

This rebate structure is explained clearly by the Income Tax Department
👉 https://www.incometax.gov.in/iec/foportal/help/individual/rebate-us-87a

If your salary is near this level and you don’t claim large deductions, the new regime can eliminate your tax entirely.

3. Employer’s NPS Contribution (80CCD(2))

This is the most underrated tax-saving tool in 2026.

Even under the new regime, Employer’s NPS Contribution is allowed as a deduction.

Key points:

Covered under Section 80CCD(2)
Over and above standard deduction
No ₹1.5 lakh cap like 80C
Depends on employer policy

Official NPS tax benefit rules are detailed here
👉 https://www.pfrda.org.in/index1.cshtml?lsid=124

For mid- to high-income salaried professionals, this can create meaningful tax savings.

What You Give Up in the New Regime

This is where the trade-off comes in.

Under the new regime, you cannot claim:

Section 80C investments (PF, ELSS, LIC, etc.)
Section 80D (health insurance)
HRA
Home loan interest for self-occupied property
Most other traditional tax deductions

If your tax-saving strategy relies heavily on these, the new regime may not work for you.

Why the Old Tax Regime Still Makes Sense for Many

The old regime is no longer default—but it’s far from dead.

It still works well if you actively plan.

Key Deductions Under the Old Regime

1. Section 80C

PF, PPF, ELSS, LIC, tuition fees
Up to ₹1.5 lakh
👉 https://www.investopedia.com/terms/s/section-80c.asp

2. Section 80D

Health insurance premiums for self, family, parents
👉 https://www.investopedia.com/terms/s/section-80d.asp

3. HRA

Major tax saver for salaried employees living on rent
👉 https://www.investopedia.com/terms/h/hra.asp

4. House Property Loss

Interest on home loan (self-occupied or let-out)
House Property Loss adjustment rules explained here
👉 https://www.investopedia.com/terms/l/losshouseproperty.asp

When combined, these deductions can reduce taxable income more than the lower slab rates of the new regime.