Earning ₹5 lakh a year and worried about income tax?
Here’s the good news — you can legally reduce or completely avoid paying tax with the right deductions and planning.
This guide will help you understand exactly how to save tax on ₹5 lakh income in India for FY 2025–26.
🧠 Understanding the ₹5 Lakh Tax Exemption Rule
Under the old tax regime, if your taxable income is up to ₹5,00,000 after deductions, you pay zero tax thanks to the rebate under Section 87A.
✅ This means:
- You can claim up to ₹2.5L in deductions
- If final taxable income ≤ ₹5L → no tax at all
So the goal is to bring gross salary minus deductions ≤ ₹5L
✅ Step-by-Step Tax Saving Plan for ₹5 Lakh Salary
1. 🏦 Use Section 80C – Up to ₹1.5 Lakh Deduction
Spend on any of the following:
- Public Provident Fund (PPF)
- Employee Provident Fund (EPF)
- Life Insurance Premiums
- ELSS Mutual Funds
- 5-Year Bank FD
- Sukanya Samriddhi Yojana (for girl child)
💡 Pro tip: ELSS funds give tax benefit + grow money faster than FDs.
2. 🏥 Section 80D – Health Insurance Premiums
You can claim:
- ₹25,000 deduction for self/family health insurance
- Additional ₹25,000 if you pay for parents (₹50,000 if they are senior citizens)
3. 🎓 Section 80E – Education Loan Interest
If you’re repaying an education loan (yourself or dependent), claim the interest paid under Section 80E. No upper limit.
4. 🏠 HRA or Home Loan Benefits
If you live in a rented house:
- Use House Rent Allowance (HRA) exemption
If you have a home loan: - Use Section 24(b): ₹2L interest deduction
- Use 80C for ₹1.5L principal repayment
5. ⚖️ Choose the Right Tax Regime
| Old Regime | New Regime |
|---|---|
| You get all deductions (80C, 80D) | You get lower tax slabs but no deductions |
| Best for tax planning lovers | Best for those without deductions |
For ₹5L salary, old regime is better if you’re claiming deductions.
📌 Example Tax Plan for ₹5 Lakh Salary
| Component | Amount (₹) |
|---|---|
| Gross Salary | 5,00,000 |
| Section 80C (ELSS + PPF) | -1,50,000 |
| Section 80D (Health Insurance) | -25,000 |
| HRA / Standard Deduction | -50,000 |
| Final Taxable Income | 2,75,000 |
✅ No tax payable due to Section 87A
🛑 Common Tax Mistakes to Avoid
- Not submitting proof of investments on time
- Choosing new regime without analysis
- Putting all savings into FDs (low returns & TDS!)
- Missing out on health insurance benefits
🔁 Related Posts:
- Emergency Fund vs Insurance – What to Prioritize First?
- Beginner’s Guide to SIP Investing in India
- 50/30/20 Budget Rule Explained for India
- How to Start Saving with ₹500 a Month
💬 Final Thought
Even on a ₹5 lakh salary, smart tax planning can help you pay ZERO tax legally and grow wealth using your savings.
Start early, stay informed, and use every section the law offers.
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