Tax planning is not a once-a-year scramble in March — it is a set of deliberate decisions made at the start of each financial year that determines how much of your income you keep. For FY 2026-27 (April 2026 to March 2027), several rules have consolidated since the last major budget cycle: the new tax regime is now the default, Section 80C limits remain at Rs 1.5 lakh, and the 87A rebate under the new regime effectively makes income up to Rs 12 lakh tax-free for salaried individuals. This guide walks through six steps — from picking the right regime to verifying your TDS — with precise numbers and links to calculators so you can act immediately.
Key Terms
- TDS — Tax Deducted at Source: Tax your employer withholds from your monthly salary and deposits with the government on your behalf.
- HRA — House Rent Allowance: A salary component that partially exempts rent paid from income tax under the old tax regime.
- Section 80C: An Income Tax Act provision allowing deductions of up to Rs 1.5 lakh per year for investments in specified instruments such as EPF, PPF, ELSS, and life insurance premiums.
- Form 26AS: A consolidated tax credit statement showing all TDS, TCS, and advance tax payments linked to your PAN.
- AIS — Annual Information Statement: A detailed statement of all financial transactions reported against your PAN by banks, brokers, registrars, and other third parties.
Step 1: Choose Your Tax Regime
The single most impactful decision you make this financial year is choosing between the old and new tax regime. Both apply to the same gross income, but the rates, slabs, and available deductions are entirely different. Use the Old vs New Tax Regime Calculator to model your exact situation before committing.
New Tax Regime — Rates for FY 2026-27
The new regime has been revised to offer lower rates but strips away most deductions. A standard deduction of Rs 75,000 is available for salaried individuals.
| Income Slab | Tax Rate |
|---|---|
| Up to Rs 4 lakh | 0% |
| Rs 4 lakh – Rs 8 lakh | 5% |
| Rs 8 lakh – Rs 12 lakh | 10% |
| Rs 12 lakh – Rs 16 lakh | 15% |
| Rs 16 lakh – Rs 20 lakh | 20% |
| Rs 20 lakh – Rs 24 lakh | 25% |
| Above Rs 24 lakh | 30% |
Crucially, the Section 87A rebate under the new regime covers tax liability up to Rs 60,000, which means a salaried individual with gross salary up to Rs 12.75 lakh pays zero tax after the Rs 75,000 standard deduction reduces taxable income to Rs 12 lakh and the rebate eliminates the residual tax. This is the regime's headline benefit.
What is not available in the new regime: Section 80C deductions, HRA exemption (except for actual HRA not received as salary), Section 24B home loan interest on self-occupied property, 80D health insurance premium, 80CCD(1B) NPS extra deduction, LTA exemption, and most other Chapter VIA deductions.
Old Tax Regime — Rates for FY 2026-27
| Income Slab | Tax Rate |
|---|---|
| Up to Rs 2.5 lakh | 0% |
| Rs 2.5 lakh – Rs 5 lakh | 5% |
| Rs 5 lakh – Rs 10 lakh | 20% |
| Above Rs 10 lakh | 30% |
The old regime's slabs look punishing compared to the new regime on paper, but the full deduction toolkit is available: Rs 1.5 lakh under 80C, HRA exemption, home loan interest up to Rs 2 lakh, Rs 25,000–Rs 50,000 under 80D, Rs 50,000 extra NPS under 80CCD(1B), and the Rs 50,000 standard deduction.
Which Regime Is Better for You?
A salaried individual earning Rs 10 lakh gross with Rs 1.5 lakh in 80C investments, Rs 1.2 lakh in annual rent (HRA exemption of roughly Rs 60,000), and Rs 25,000 in health insurance premiums would have a taxable income of approximately Rs 6.65 lakh under the old regime — tax of around Rs 46,500. Under the new regime, taxable income is Rs 9.25 lakh — tax of approximately Rs 62,500. The old regime saves Rs 16,000 here.
The crossover point shifts as income rises. At Rs 15 lakh with the same deduction set, the new regime's lower rates at higher slabs may narrow the gap significantly. Run the Old vs New Tax Regime Calculator with your actual numbers — the answer is income and deduction specific.
General heuristic: If your total deductions (80C + HRA + 80D + 24B) exceed Rs 3.75 lakh, the old regime is likely better at incomes up to Rs 20 lakh. Below that deduction threshold, the new regime wins.
Step 2: Maximise Section 80C
If you have chosen the old regime, Section 80C is your largest single deduction — up to Rs 1.5 lakh per financial year. The mistake most taxpayers make is waiting until February to invest, losing compounding benefits for the entire year. Use the 80C Deduction Calculator to map out your current utilisation and what remains.
Priority Order for 80C Instruments
EPF (Employee Provident Fund) — If you are salaried, your 12% contribution to EPF is automatically counted under 80C. Calculate your annual EPF contribution first; in many cases it already covers Rs 72,000–Rs 1 lakh of the limit without any additional action.
PPF (Public Provident Fund) — Contributes to 80C and offers a government-guaranteed return currently at 7.1% per annum (revised quarterly). Interest is tax-free. Lock-in is 15 years, but partial withdrawals are allowed from year 7. Ideal for risk-averse savers who want a guaranteed, tax-free fixed income component in their 80C basket.
ELSS (Equity Linked Savings Scheme) — Mutual funds investing primarily in equities, with a three-year lock-in (the shortest among all 80C instruments). Historically deliver 10–14% CAGR over long horizons, though returns are market-linked and not guaranteed. Long-term capital gains above Rs 1.25 lakh are taxable at 12.5% — factor this into your return calculation. ELSS is best suited for investors with a 5+ year horizon who are comfortable with market volatility.
NPS Tier I — Contributions to NPS Tier I up to Rs 1.5 lakh qualify under 80C. An additional Rs 50,000 is available under Section 80CCD(1B) — see Step 4.
Tax-Saving Fixed Deposits — Five-year FDs with scheduled banks qualify under 80C. Interest is taxable at your slab rate, which makes them less efficient than PPF for high-income taxpayers. Useful for capital preservation when equity exposure is already high.
What to Avoid: LIC endowment and traditional money-back policies are frequently sold as 80C instruments. The internal returns on these policies typically range from 4–5% per annum — far below PPF, and the 80C benefit does not compensate for the low yield. Buy term insurance separately for life cover; do not conflate insurance with tax-saving investments.
Practical Allocation Example (Rs 1.5 lakh limit)
If your EPF contribution is Rs 72,000 annually, Rs 78,000 remains. Allocate Rs 50,000 to PPF (SIP mode, monthly Rs 4,167) and Rs 28,000 to ELSS (monthly SIP of Rs 2,333). This gives you diversification across fixed-return and market-linked instruments within the 80C bucket.
Step 3: Claim HRA Exemption
HRA exemption is one of the most underutilised deductions because the calculation feels complicated. Use the HRA Calculator to compute your exact exempt amount — but understanding the formula prevents errors.
How HRA Exemption Is Calculated
The exempt HRA is the minimum of these three amounts:
- Actual HRA received from employer
- 50% of basic salary (metro cities: Delhi, Mumbai, Kolkata, Chennai) or 40% of basic salary (all other cities)
- Rent paid minus 10% of basic salary
If your basic salary is Rs 5 lakh per year, you live in Bengaluru (non-metro), receive Rs 2 lakh HRA annually, and pay Rs 1.8 lakh rent annually:
- Actual HRA: Rs 2 lakh
- 40% of basic: Rs 2 lakh
- Rent minus 10% of basic: Rs 1.8 lakh − Rs 50,000 = Rs 1.3 lakh
Exempt HRA = Rs 1.3 lakh (the minimum). The remaining Rs 70,000 of HRA received is taxable.
Documentation Requirements
Collect rent receipts for every month. If annual rent exceeds Rs 1 lakh (i.e., monthly rent above Rs 8,333), your employer must collect the landlord's PAN — failing to submit it will result in the entire HRA becoming taxable. For rent paid to parents, the arrangement is legally valid provided your parents show the rental income in their own ITR. Keep the rent agreement and bank transfer records to support the claim in case of scrutiny.
Step 4: Use Other Available Deductions
Beyond 80C and HRA, several other deductions are available under the old regime that can reduce your taxable income significantly.
Section 80D — Health Insurance Premium
You can deduct health insurance premiums paid for yourself, spouse, and dependent children up to Rs 25,000 per year. If your parents are below 60, an additional Rs 25,000 for their premium qualifies — total Rs 50,000. If your parents are senior citizens (60 years or older), the limit for their premium increases to Rs 50,000 — total Rs 75,000 deduction possible. If you are also a senior citizen, your own limit increases to Rs 50,000 — making the maximum Rs 1 lakh in a single year.
Premiums must be paid by any mode other than cash. Preventive health check-up costs (up to Rs 5,000, within the overall limit) are included.
Section 80CCD(1B) — NPS Additional Deduction
Over and above your 80C limit, you can contribute an additional Rs 50,000 to NPS Tier I and claim it as a deduction under Section 80CCD(1B). This deduction does not overlap with the Rs 1.5 lakh 80C ceiling — it is completely separate. For someone in the 30% slab, this saves Rs 15,600 in tax (including cess) on a Rs 50,000 investment. The catch: NPS money is locked until retirement (age 60), and only 60% can be withdrawn tax-free; the remaining 40% must be used to purchase an annuity, which is taxable as income.
Section 24B — Home Loan Interest
Interest paid on a home loan for a self-occupied property is deductible up to Rs 2 lakh per financial year under Section 24B. This is applicable only in the old regime. If the property is let out, there is no Rs 2 lakh cap — the full interest can be set off against rental income, and any remaining loss can be set off against other income up to Rs 2 lakh per year (excess loss can be carried forward for eight years).
Section 80TTA — Savings Account Interest
Interest earned on savings accounts in banks, co-operative societies, and post offices is deductible up to Rs 10,000 per year under Section 80TTA. Senior citizens get a higher limit of Rs 50,000 under Section 80TTB, which covers savings account interest, fixed deposit interest, and recurring deposit interest.
Step 5: Optimise Your Salary Structure
Your Cost to Company (CTC) is fixed, but the split between taxable and exempt components is often negotiable — especially in mid-sized companies and startups. Use the Salary Calculator to model how restructuring affects your take-home pay.
Components Worth Requesting
House Rent Allowance — If your employer currently provides a low HRA, request a restructuring to increase the HRA component at the cost of Special Allowance, which is fully taxable. Higher HRA increases the exempt portion when you pay rent.
Leave Travel Allowance (LTA) — Exempt for actual travel costs within India for two journeys in a block of four calendar years (current block: 2022–2025, next: 2026–2029). Only rail or air fare for economy class is exempt — not hotel stays. Keep boarding passes and tickets.
Food Coupons / Meal Vouchers — Food coupons provided by the employer are exempt up to Rs 50 per meal for two meals a day, on days actually worked (approximately 26 working days per month). Maximum exemption: Rs 50 × 2 × 26 × 12 = Rs 31,200 per year. This is a small but zero-effort saving.
Mobile and Internet Reimbursement — Actual bills reimbursed by the employer for official use of your personal phone and internet are exempt from tax. Amounts typically range from Rs 1,000–Rs 2,500 per month — keep bills and submit for reimbursement rather than treating these as a fixed allowance.
Professional Development Allowance — Reimbursement of costs for books, courses, or subscriptions relevant to your role is fully exempt with supporting bills. Many employees leave this entirely unused.
The combined impact of these restructuring moves — higher HRA, LTA, food coupons, phone reimbursement — can reduce taxable salary by Rs 80,000–Rs 1.5 lakh annually without any reduction in CTC.
Step 6: Verify TDS and File on Time
The final step is ensuring that the TDS your employer deducts throughout the year matches your actual tax liability, and that you file your return before the deadline to avoid penalties and interest.
Submit Form 12BB at the Start of the Year
Form 12BB is the investment declaration form you submit to your employer. It should include:
- House rent details (landlord name, address, PAN if annual rent exceeds Rs 1 lakh)
- HRA claim amount
- LTA claim with travel details
- Home loan interest — lender name, account number, interest certificate
- Section 80C investments — EPF, PPF, ELSS, insurance premiums
- Section 80D premiums
- NPS contributions under 80CCD(1B)
Submit this in April or May. Your employer will spread the TDS deduction evenly across the year based on your declarations. If you wait until January–February, the remaining TDS is compressed into the last two or three months' salary, causing a significant drop in take-home pay during those months.
Update Form 12BB if you make additional investments during the year.
Cross-Check Form 26AS and AIS
Before filing your ITR, download Form 26AS and the AIS from the income tax portal (incometax.gov.in). Form 26AS shows TDS deducted by your employer and any banks. AIS shows broader financial activity reported against your PAN — dividend income, mutual fund redemptions, property sales, and large cash transactions.
Verify that:
- TDS in Form 26AS matches what your employer shows in your salary slips and Form 16
- Any interest income, dividend income, or capital gains in AIS is included in your ITR
- There are no transactions in AIS that you do not recognise (which could indicate PAN misuse)
Discrepancies between AIS entries and what you report in your ITR trigger automated notices from the tax department. It is far easier to reconcile these before filing than to respond to a notice six months later.
Filing Deadline and Penalties
The deadline for salaried individuals with no audit requirement is July 31, 2026 for FY 2026-27. Missing this deadline attracts:
- Late filing fee under Section 234F: Rs 1,000 if total income is below Rs 5 lakh; Rs 5,000 for income above Rs 5 lakh
- Interest on unpaid tax under Section 234A: 1% per month from August 1 onwards
- Loss of ability to carry forward capital losses to future years (though brought-forward losses can still be set off)
File early — the income tax portal becomes congested in the last two weeks of July, and early filers typically receive refunds faster.
Use the TDS Calculator to verify your total tax liability against the TDS already deducted before filing, so you know whether a refund is due or whether you need to pay self-assessment tax before filing.
Putting It All Together
A tax planning checklist for FY 2026-27, in order of priority:
- Run the Old vs New Tax Regime Calculator in April — commit early so your employer sets TDS correctly from month one.
- Check your EPF contribution — it likely covers Rs 60,000–Rs 1 lakh of your 80C limit automatically.
- Start PPF and ELSS SIPs in April rather than investing a lump sum in March.
- Submit Form 12BB to HR by the end of April with all investment declarations and rent details.
- Ensure you have a health insurance policy covering yourself, spouse, and parents — claim the 80D deduction.
- If you have an NPS account, contribute the additional Rs 50,000 under 80CCD(1B) for a guaranteed Rs 15,600 tax saving in the 30% slab.
- Ask HR to restructure salary towards higher HRA, food coupons, and phone reimbursement if you have not already done so.
- Use the Income Tax Calculator in December to check whether your actual investments match your Form 12BB declarations — update if necessary.
- Download Form 26AS and AIS in June 2027, reconcile with your Form 16, then file your ITR-1 or ITR-2 before July 31, 2027.
Tax saved through planning is not income avoided — it is income retained by using provisions Parliament has explicitly created for this purpose. The instruments under 80C build long-term wealth; health insurance under 80D protects against medical emergencies; and the salary structure optimisation in Step 5 costs your employer nothing while increasing your take-home pay. Start in April, not March.