How to save tax on a salary above ₹12 lakh

On a salary just above ₹12 lakh, the new tax regime, the default one, leaves little to save. A salary of up to ₹12.75 lakh with no other income pays no tax, and a rule called marginal relief softens the step just above it. The old regime, the one you opt into, costs less only once its deductions, beyond the ₹50,000 standard deduction, pass about ₹5.44 lakh at a ₹15 lakh salary. The figures below are for tax year 2026-27 and for a salaried, resident person below 60 with salary as the only income.

Is a ₹12 lakh salary tax-free?

Under the new regime, a salary of up to ₹12.75 lakh with no other income pays no tax. Under the old regime, it does not.

Two things make this work. First, the standard deduction is a flat amount taken off your salary before tax is worked out. In the new regime it is ₹75,000, so a ₹12,75,000 salary becomes ₹12,00,000 of total income, the figure your tax is actually charged on. Second, the rebate under section 156 (the old 87A) takes up to ₹60,000 off the tax itself, and on ₹12,00,000 the whole tax is ₹60,000. The rebate is for resident individuals only.

So the ₹12 lakh limit is about taxable income, not salary. The old regime has a rebate too, but it stops at ₹5,00,000 of total income and is worth at most ₹12,500.

You are in the new regime unless you opt out of it, which is why it is called the default. To use the old regime, with deductions such as section 123 (the old Section 80C), you pick it in your return for the year. Our guide to the features of the new tax regime shows both slab tables.

What if you earn about ₹10 lakh?

A ₹10 lakh salary pays no income tax under the new regime. The standard deduction brings it to ₹9,25,000 of total income, which is under the ₹12 lakh line.

The old regime treats the same salary very differently. With only its ₹50,000 standard deduction, the tax comes to ₹1,06,600 including cess, which is an extra 4% charged on the tax. Even with ₹2,25,000 of further deductions, it is still ₹59,800.

For a salary near ₹10 lakh in the new regime, then, there is no tax to cut.

What happens just above ₹12 lakh?

Earn a little above ₹12 lakh of total income and marginal relief keeps your tax from being more than the income above ₹12 lakh. Section 156(2) sets this out: when your total income is over ₹12 lakh, the rebate is the amount by which the tax exceeds the income above ₹12 lakh.

Without it, a total income of ₹12,10,000 would pay the full ₹61,500 slab tax. With it, the step up is gentle. Here is the tax at a few points, using slab tax, which means the tax from the rate bands before any rebate. Cess is added at the end.

Take the ₹12,10,000 row. The tax before relief is ₹61,500, but the income above ₹12 lakh is only ₹10,000, so the tax stops there. Cess then makes it ₹10,400.

Marginal relief stops mattering at a total income of about ₹12,70,588. After that point the ordinary slab tax is already lower than the income above ₹12 lakh, so nothing is left to cap.

These cases assume slab-rate income only, with no surcharge. Surcharge is an extra charge on the tax once total income passes ₹50 lakh, so it does not arise here. If you also have capital gains, the rebate works differently — see tax on mutual fund redemption.

How much tax do you pay on ₹13 lakh, ₹15 lakh or ₹20 lakh?

Under the new regime, a ₹15 lakh salary pays ₹97,500 including cess. The table below uses tax year 2026-27, a resident below 60, salary as the only income, no surcharge and 4% cess. "TI" is total income. The last column assumes ₹2,25,000 of old-regime deductions: ₹1,50,000 under section 123 (the old Section 80C), ₹50,000 under section 124(3), which replaced 80CCD(1B), and ₹25,000 under section 126, which replaced 80D.

Notice the jump from ₹12,75,000 to ₹13,00,000 in the new regime. An extra ₹25,000 of salary adds ₹26,000 of tax, as marginal relief takes over from the full rebate. The old regime's standard deduction is ₹50,000, so its total income runs ₹25,000 higher in every row.

When does the old regime cost less?

The old regime costs less only when its deductions, beyond the ₹50,000 standard deduction, pass about ₹5.44 lakh at a ₹15 lakh salary or about ₹7.08 lakh at a ₹20 lakh salary. Below those amounts, the new regime charges less on these salaries.

The common old-regime deductions are these, each available in the old regime only:

• Section 123: up to ₹1,50,000 a year across the items Schedule XV of the Act lists, ELSS among them.
• Section 124(3): up to ₹50,000 more for your own NPS contribution, over and above section 123.
• Section 126: health insurance premiums of ₹25,000 for self, spouse and dependent children; ₹25,000 for parents; ₹50,000 where the person insured is 60 or older.
• House rent allowance (HRA), the part of salary meant for rent. The exempt amount is the least of the HRA you receive, your rent minus 10% of salary, and 50% of salary in Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Pune, Ahmedabad and Bengaluru, or 40% of salary elsewhere, under rule 279. Our rent and HRA guide goes through it.
• Home-loan interest on a home you live in, up to ₹2,00,000 under section 22(2), on conditions the home loan tax guide explains.

The first three together make the ₹2,25,000 column above. Look at it again. At ₹15 lakh the old regime still charges ₹1,87,200 against ₹97,500, and at ₹20 lakh it charges ₹3,43,200 against ₹1,92,400. Those three deductions alone fall far short of the breakeven.

HRA and home-loan interest come on top of these. Whether they close the gap is arithmetic on your own numbers.

What can you still claim in the new regime?

You can still claim the ₹75,000 standard deduction and your employer's NPS contribution of up to 14% of your salary under section 124(1). The new regime does not allow the HRA exemption, leave travel concession, professional tax, interest on a home you live in, or deductions such as section 123 and section 126.

NPS is the pension scheme covered in our PPF, ELSS and NPS comparison. Here is how the employer part works, if your employer contributes. Say the salary counted for NPS is ₹6,00,000 and your employer pays 14% of it, which is ₹84,000. That whole amount is deductible. If your total income after the deduction is between about ₹12,70,588, where marginal relief stops mattering, and ₹15,16,000, the whole ₹84,000 is taxed at 15%. The deduction then cuts your tax by ₹12,600, or ₹13,104 with cess.

One limit applies. Your employer's contributions to provident fund, NPS and superannuation above ₹7,50,000 a year are a taxable perquisite.

For the full list of ways to cut tax across both regimes, read the tax saving guide.

Does ELSS still make sense on this salary?

ELSS saves tax only if you end up in the old regime, because the deduction sits under section 123 (the old Section 80C). ELSS is a mutual fund that qualifies for that deduction. It has a lock-in, a period when you cannot sell, of three years from each purchase.

In the old regime, ₹1,50,000 invested saves ₹31,200 of tax, including cess, for someone in the 20% slab and ₹46,800 for someone in the 30% slab. Those figures hold when the whole amount falls in one slab, with no surcharge.

In the new regime, an ELSS is still an equity fund but carries no deduction. Whether it suits you then depends on what you want from the money, not on tax.

Koshex helps with the ELSS and section 123 decision each financial year, and an ELSS bought through Koshex is a regular plan, the version of a fund bought through a distributor such as Koshex. You can read about the ELSS category or browse mutual funds.