How to Save Tax on Rs. 18 Lakh Salary in FY26: Old vs New Tax Regime Comparison
As the income tax filing season for the year 2024-25 kicks in, taxpayers are getting ready with their documents to file ITR. The government has extended the last date to file tax returns from July 31 to September 15 to help more people file ITR on time. Taxpayers can opt for the old tax regime or the new tax regime according to their salary and deductions.
For the financial year 2025-26, the new tax regime is a bit different. People having an income of Rs 12.75 lakh will not have to pay tax on their income. However, in the old tax regime, the tax-free limit is only Rs 5.5 lakh. There is a difference of Rs 7.25 lakh.
Because of this, many might believe the old system is not good. However, one can save taxes in many ways using the old regime, especially someone earning Rs. 18 lakh a year.
Tax Slabs and Deductions Under Old Tax Regime
| Income Slabs | Below 60 Years | 60 to 80 Years (Senior Citizens) |
| Up to Rs. 2,50,000 | NIL | NIL |
| Rs. 2,50,001 – Rs. 3,00,000 | 5% | NIL |
| Rs. 3,00,001 – Rs. 5,00,000 | 5% | 5% |
| Rs. 5,00,001 – Rs. 10,00,000 | 20% | 20% |
| Rs. 10,00,001 and above | 30% | 30% |
Salaried Class individuals can get a standard deduction of Rs. 75,000 under the new tax regime. Additionally, they can also get a rebate of up to Rs. 60,000 under Section 87A. Other deductions include the Employer’s NPS contribution of up to 14% of the employee’s basic pay and DA, and
Employer’s EPF contribution is up to 12% of the employee’s basic pay and DA. Some of the other deductions are as follows:
- Deduction on contributions made to the Agniveer Scheme
- Tax benefit on interest paid for a home loan for a let-out property
- Deduction of up to Rs 25,000 on family pension
- Unlimited deductions on interest earned from PPF and Sukanya Samriddhi
- Deduction of up to Rs 3,500 on interest earned from other PPF schemes.
Tax Slabs and Deductions Under the Old New Regime
| Income Tax Slabs | Tax Rate |
| Up to Rs. 4,00,000 | NIL |
| Rs. 4,00,001 – Rs. 8,00,000 | 5% |
| Rs. 8,00,001 – Rs. 12,00,000 | 10% |
| Rs. 12,00,001 – Rs. 16,00,000 | 15% |
| Rs. 16,00,001 – Rs. 20,00,000 | 20% |
| Rs. 20,00,001 – Rs. 24,00,000 | 25% |
| Above Rs. 24,00,000 | 30% |
The deductions available under the old tax regime are as follows:
- Standard deduction of Rs 50,000 for salaried individuals.
- Deduction under Section 80C for contributions in schemes such as PPF, EPF, NPS, ELSS, home loan principal paid, etc.
- Section 80CCD(1B) offers an extra Rs 50,000 tax benefit if you invest in an NPS Tier-I account for a limit of Rs 2 lakh.
- Deduction under Section 80D for a medical insurance premium of up to Rs. 1,00,000 for self and parents.
- Deduction under section 80E for interest on education loans.
- Deduction for a contribution made to any charity under section 80G
- Deduction for contribution to any political party.
Comparing New Tax Regime vs Old Tax Regime for Rs. 18 Lakh Salary
| New Tax Regime | Old Tax Regime | ||||||
| Particulars | Tax Rate | Income (Rs) | Tax amount (Rs) | Particulars | Tax Rate | Income (Rs) | Tax amount (Rs) |
| Net Income | 18,00,000 | Net Income | 1800000 | ||||
| Less: Standard Deduction | 75,000 | Less: Standard Deduction | 50000 | ||||
| Deduction U/s 80 CCD (2) | 1,10,000 | Deduction U/s 80 C | 150000 | ||||
| Deduction U/s 80 CCD(1) | 50000 | ||||||
| Post Office Scheme Interest 10(15(i) | 3,500 | Deduction U/s 80 D | 25000 | ||||
| Interest on PPF/ Sukanya Yojna | 17,500 | Interest from Home loan | 200000 | ||||
| Net taxable income | 15,94,000 | Net taxable income | 1325000 | ||||
| Income exempt up to Rs 4 lakh | Nil | 4,00,000 | Income exempt up to Rs 2.5 lakh | Nil | 250000 | ||
| Income tax slab of Rs 4 lakh and up to Rs 8 lakh | 5 | 4,00,000 | 20,000 | Income tax slab of Rs 2.5 lakh and up to Rs 5 lakh | 5 | 250000 | 12500 |
| Income tax slab of Rs 8 lakh up to Rs 12 lakh | 10 | 4,00,000 | 40,000 | Income tax slab of Rs 5 lakh up to Rs 10 lakh | 20 | 500000 | 100000 |
| Income tax slab of Rs 12 lakh up to Rs 16 lakh | 15 | 3,94,000 | 59,100 | Income tax slab of Rs 10 lakh up to Rs 18 lakh | 30 | 325000 | 97500 |
| Total income tax liability | – | 1,19,100 | Total income tax liability | 210000 | |||
| Cess at 4% on total income tax payable | – | 4,764 | Cess at 4% on total income tax payable | 8400 | |||
| Final income tax liability (inclusive of cess) | – | 1,23,864 | Final income tax liability (inclusive of cess) | 218400 | |||
How to Save Tax in Old Tax Regime
The old tax regime offers various deductions that can bring down your tax liability less than the liability in the new tax regime. Here are these deductions:
Deduction under section 80D
Section 80D offers deductions for the health insurance premium and medical expenses of self, spouse, children, and parents.
| Category of eligible persons for tax deduction under section 80D | Premium paid for self, family, and children | Premium paid for parents | Eligible deduction under section 80D |
| Taxpayer and parents below the age of 60 years | Rs. 25,000 | Rs.25,000 | Rs 50,000 |
| Taxpayer and family below the age of 60 years but parents above 60 years | Rs.25,000 | Rs 50,000 | Rs.75,000 |
| Taxpayer, family, and parents above the age of 60 years | Rs 50,000 | Rs. 50,000 | Rs.1,00,000 |
| Members of HUF and Non-resident individuals | Rs.25,000 | Rs.25,000 | Rs.25,000 |
Deduction under section 80E
Under section 80E, taxpayers can get a deduction for the interest paid towards the education loan for further studies of self, spouse, or children.
Deduction Under Section 80G
Under Section 80G, if taxpayers make donations to a charitable trust, they can get a deduction between 30% and 100% on the donation amount, based on the nature of the charity.
Deduction Under Sections 80GGB and 80GGC
A donation made to any political party is eligible for tax deductions under Section 80GGB (for companies) and Section 80GGC (for individuals). This means 100% of the donation amount can be claimed as a deduction.
