How to Save Tax on Salary from ₹7 Lakh to ₹1 Crore: Old vs New Regime (Tax Year 2026-27)

Last updated: 13 July 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

A salary of ₹7 lakh, ₹12 lakh, ₹20 lakh or ₹50 lakh calls for different advice. Below ₹12.75 lakh the question is whether any tax is payable at all. Above it, the question is whether your deductions are large enough to beat the new regime. This post gives the rules, the tax at each level and the break-even point, for tax year 2026-27 (income earned in FY 2026-27).

The figures are for a resident individual below 60 whose only income is salary, with 4% health and education cess, unless stated.

The two regimes in one table

Slabs and the surcharge are from the Finance Act, 2026; the standard deduction, rebate and what is barred in the new regime are from sections 19, 156 and 202 of the Income-tax Act, 2025.

Salary up to ₹12.75 lakh: no tax in the new regime

A salary of ₹12,75,000 less the ₹75,000 standard deduction is ₹12,00,000. The slab tax on that is ₹60,000, and the section 156(2) rebate of ₹60,000 cancels it. No investment is needed to save tax on these salaries.

Marginal relief covers the next slice. The tax on income above ₹12,00,000 cannot exceed the excess over ₹12,00,000. On a salary of ₹12,85,000 the income is ₹12,10,000; slab tax is ₹61,500 but tax is limited to ₹10,000, plus 4% cess, so ₹10,400.

The rebate applies against slab-rate tax only; it does not reduce tax on special-rate income such as capital gains.

What the tax is at each level

Tax with cess. “Old regime” columns assume total deductions as shown, including the ₹50,000 standard deduction.

Reading the table: at ₹20 lakh you need roughly ₹7.6 lakh of total deductions and exemptions in the old regime before it beats the new regime. A typical set (standard deduction ₹50,000, ₹1,50,000 under section 123, ₹50,000 own NPS, ₹25,000 health insurance, some HRA and home loan interest) can reach it only if rent or loan interest is high. Above ₹30 lakh the break-even settles at about ₹8.5 lakh because both regimes reach the top 30% slab.

What works in the new regime

1. Employer’s NPS contribution. The employer’s contribution to the notified pension scheme is deductible up to 14% of salary (basic plus dearness allowance) in the new regime (section 124(1) and (2)). It also counts toward the ₹7.5 lakh combined limit for employer contributions to PF, NPS and superannuation. This is the single most useful structuring lever, and it has to be set up with the employer before the contribution is made.
2. Exempt items that are not barred. Gratuity and leave encashment on retirement, and many perquisites within the Rule 15 limits, stay tax free in both regimes.
3. Do not restructure pay into HRA or LTA for tax. In the new regime the HRA exemption and similar allowance exemptions are not available, so these allowances are taxed like the rest of salary. Look at the employer-side components (NPS, tax-free perquisites) instead.
4. Plan for the rebate edge. Between ₹12,75,000 and about ₹13.45 lakh of salary, each extra ₹1 of salary costs ₹1 of tax at the margin because of the marginal relief. An NPS contribution that brings income back under ₹12 lakh removes the tax entirely.

What works in the old regime

If you choose the old regime, build up these in this order:

• Section 123 (earlier 80C), up to ₹1,50,000 in total: employee PF, tuition fees for two children, home loan principal, five-year bank or post office deposits, life insurance premiums and others listed in Schedule XV.
• HRA exemption if you pay rent and receive HRA, or the rent deduction if you receive none.
• Interest on a home loan on a self-occupied house.
• Own NPS contribution up to ₹50,000 (section 124(3)), above the section 123 limit.
• Health insurance premium, education loan interest and donations to eligible funds.

See our posts on these deductions for the limits. Do not invest only to save tax: a lock-in product bought for a deduction is only worth it if you need the product.

High salaries: ₹50 lakh to ₹1 crore

• Surcharge starts when income is above ₹50 lakh, at 10% of the tax. Marginal relief means the tax and surcharge together cannot exceed the tax at ₹50 lakh plus the income above it.
• At ₹1 crore of salary the new regime has taxable income of ₹99,25,000, so the 10% surcharge applies; from ₹1 crore the rate rises to 15%.
• The old regime’s top surcharge is 37% above ₹5 crore, but for most salaried people the gap is the ₹8.5 lakh break-even above, not the surcharge.
• Income other than salary (capital gains, interest, business) adds to total income and can push you across a surcharge line.

A quick way to decide

1. List your actual deductions: employee PF, section 123 investments, rent paid and HRA received, home loan interest, own NPS, health insurance.
2. Add ₹50,000 standard deduction. If the total is below the break-even for your salary in the table, choose the new regime.
3. If above, compute both exactly. The break-even is a guide; the surcharge, other income and the age of the taxpayer change it.
4. Read the option rules in section 202 before you file, and tell your employer early which regime to use for TDS so that the tax deducted during the year is close to your final tax.

Frequently asked questions

Official sources

• Income Tax Department: Income-tax Act, 2025 (sections 19, 123, 124, 156, 202; Schedule XV)
• Finance Act, 2026 (rates of income-tax and surcharge for tax year 2026-27)

Related reading

• Gratuity: Rules, Formula and Income Tax Exemption (Tax Year 2026-27)
• Section 80C of Income Tax Act: 80C Deduction List, Limit and Examples
• How to Save Tax Other Than 80C: Deductions and Exemptions for 2026-27

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

New Tax Regime, Old vs new regime, Rebate, Salaried, Section 156, Section 202, Surcharge, Tax Saving

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