Income tax planning in India involves using exemptions, deductions, and rebates to minimize tax liability while staying compliant.
Under the Finance Act 2025, the new tax regime is the default, with revised slabs: income up to ₹4 lakh is tax-free, ₹4–8 lakh taxed at 5%, ₹8–12 lakh at 10%, ₹12–16 lakh at 15%, ₹16–20 lakh at 20%, ₹20–24 lakh at 25%, and above ₹24 lakh at 30%. With the enhanced rebate and standard deduction, salaried income up to ₹12.75 lakh can effectively be tax-free.
Income Tax Planning & Current Rates (FY 2025–26, AY 2026–27)
What is Income Tax Planning?
Income tax planning is the process of organizing finances to reduce tax liability legally. It involves:
- Choosing between regimes: Old vs new tax regime.
- Claiming deductions: Sections 80C (investments), 80D (health insurance), 80G (donations), etc.
- Using rebates: Section 87A rebate for individuals with income below thresholds.
- Structuring income: Salary components, HRA, LTA, and allowances.
- Investing smartly: PPF, ELSS, NPS, insurance, and retirement funds.
Current Income Tax Slabs – New Regime (Default)
| Income Range | Tax Rate |
|---|---|
| Up to ₹4 lakh | Nil |
| ₹4 – ₹8 lakh | 5% |
| ₹8 – ₹12 lakh | 10% |
| ₹12 – ₹16 lakh | 15% |
| ₹16 – ₹20 lakh | 20% |
| ₹20 – ₹24 lakh | 25% |
| Above ₹24 lakh | 30% |
- Rebate: Section 87A rebate increased to ₹60,000, making income up to ₹12 lakh effectively tax-free.
- Standard Deduction: Raised to ₹75,000 for salaried taxpayers.
Old Regime (Optional)
- Retains traditional slabs (₹2.5 lakh basic exemption, higher rates thereafter).
- Allows deductions under 80C, 80D, HRA, LTA, etc.
- Best suited for taxpayers with large investments and deductions.
Importance of Tax Planning
- Reduces Liability: Legally minimizes taxes through deductions and exemptions.
- Ensures Compliance: Avoids penalties and litigation.
- Supports Wealth Creation: Investments in tax-saving instruments also grow wealth.
- Cash Flow Management: Helps plan expenses and savings efficiently.
- Retirement Security: Contributions to NPS, PPF, and insurance aid long-term planning.
Key Updates in Finance Act 2025
- Zero-tax threshold raised to ₹4 lakh.
- Enhanced rebate under Section 87A.
- Standard deduction increased to ₹75,000.
- Relaxed TDS/TCS thresholds.
- Presumptive taxation limits expanded for small businesses.
- Equalization levy on digital ads removed.
With the new regime, most middle-class salaried taxpayers earning up to ₹12.75 lakh annually may pay zero tax. Effective tax planning — choosing the right regime and leveraging deductions — is crucial for maximizing savings and building long-term wealth.