Income Tax On ₹5 Lakh Salary

Income Tax On ₹5 Lakh Salary

Discover the old vs. new regime difference, budget updates, and smart savings tips. Simple onmguide for salaried folks!

Written by : Knowledge Centre Team

2025-12-24

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6 minutes read

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Understanding how income tax works on a ₹5 lakh annual salary is essential when planning your finances. Even though this income slab sits at the lower end of the tax spectrum, the choice between the old and new regimes, the available deductions, and the final tax outgo can vary widely. A clear breakdown helps you anticipate your liabilities, make smarter investment decisions, and ensure you are not paying more tax than required. This blog walks you through the tax rules, rates, and savings opportunities applicable to a ₹5 lakh salary so that you can manage your money with confidence.

Key Takeaways

  • A ₹5 lakh salary incurs no income tax in FY 2025-26 under both the old and new regimes due to the Section 87A rebate

  • The new regime offers slabs ranging from 0% to ₹4 lakh, with a full rebate of up to ₹12 lakh, ideal for simplicity

  • The old regime allows deductions like 80C (₹1.5 lakh), but still results in nil tax at this income level

  • Budget 2025 raised exemption limits and standard deduction to ₹75,000, benefiting moderate earners

  • Choose regimes based on deductions: new for low investments; old for high savers

Tax Slabs for FY 2025-26 (AY2026-27)

Understanding the slabs helps calculate tax on salary accurately under both regimes.

New Regime Slabs

The new regime is default and offers zero tax up to ₹12 lakh due to enhanced rebate under Section 87A, making it ideal for a ₹5 lakh salary.

Income Slab (₹)Tax Rate (%)

0 to 4,00,000

0

4,00,001 to 8,00,000

5

8,00,001 to 12,00,000

10

12,00,001 to 16,00,000

15

16,00,001 to 20,00,000

20

20,00,001 to 24,00,000

25

24,00,001 and above

30

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Old Regime Slabs

Opt for the old regime if deductions exceed benefits in the new one, though slabs remain largely unchanged for lower incomes.

Income Slab (₹) - All IndividualsTax Rate (%)

0 to 2,50,000

0

2,50,001 to 5,00,000

5

5,00,001 to 10,00,000

20

Above 10,00,000

30

(Senior citizens 60-80 years: basic exemption ₹3 lakh; super seniors 80+: ₹5 lakh.)

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Did You Know?

Even if your salary exceeds ₹5 lakh, deductions like ₹75,000 (standard) + ₹1.5 lakh (80C) can bring income under ₹7 lakh, letting Section 87A erase tax.

 

Source: Calculation

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Income Tax On ₹5 Lakh Salary Comparison: Old Vs New Regime for 

For a ₹5 lakh annual salary in FY 2025-26, income tax liability is effectively nil under both regimes, thanks to Section 87A rebates.

ParticularsNew Regime (Sec 115BAC(1A))Old Regime (Regular Slabs)

Gross annual salary

₹5,00,000

₹5,00,000

Standard deduction (if applicable)

₹75,000

₹50,000

Taxable income used for tax calculation

₹4,25,000

₹4,50,000

Slab tax before rebate

₹1,250

₹10,000

Rebate under Section 87A

₹1,250 (full)

₹10,000 (full)

Health & education cess (4% on tax)

₹0

₹0

Final income tax payable

₹0

₹0

Both regimes result in zero tax on a ₹5 lakh salary after standard deduction and full rebate eligibility. The new regime offers minimal deductions, while the old regime offers more if claiming 80C/80D.

Latest Updates: Budget 2025

Budget 2025 simplified taxation to boost middle-class savings, directly benefiting ₹5 lakh earners.

  • Basic exemption hiked to ₹4 lakh from ₹3 lakh, with Section 87A rebate covering up to ₹12 lakh tax-free (₹12.75 lakh for salaried after ₹75,000 standard deduction).

  • New slabs start taxing at 5% only above ₹4 lakh, reducing effective tax on salary for moderate earners.

  • Employer NPS contribution deduction raised to 14% of salary, available even in the new regime.

  • Standard deduction remains at ₹75,000 for salaried employees, ensuring near-zero tax on a ₹5 lakh gross salary.

Saving Income Tax on a ₹5 Lakh Salary

Even if you fall under the low-income bracket, smart moves minimise tax on salary, especially in the old regime.

  • Claim Section 80C deductions up to ₹1.5 lakh (ELSS, PPF, EPF, life insurance premiums, tuition fees)

  • Use Section 80D for health insurance (₹25,000 for self/family; extra ₹25,000/50,000 for parents)

  • Maximise HRA exemption if renting, based on actual rent, salary, and city limits

  • Opt for NPS under Section 80CCD(1B) for an extra ₹50,000 deduction beyond 80C

  • Switch to the new regime if deductions are low, as it yields zero tax liability on a ₹5 lakh salary post standard deduction

Conclusion

A ₹5 lakh salary now attracts minimal income tax, thanks to Budget 2025's taxpayer-friendly reforms. Choose the new regime for simplicity and zero tax, or the old one for deductions if investments qualify. Stay updated via official portals, file on time, and consult a tax advisor for personalised advice. More money in your pocket means better financial freedom ahead.

Glossary

  1. New Tax Regime: Simplified income tax system with lower rates and limited deductions, default for individuals under Section 115BAC
  2. Old Tax Regime: Traditional tax structure allowing multiple deductions and exemptions under Chapter VI-A
  3. Tax Slab: A specific income range attracting a defined tax rate percentage in progressive taxation systems
  4. Section 87A: Provision offering a rebate on income tax for resident individuals with income up to a specified limit
  5. Section 80C: Provision offering deduction up to ₹1.5 lakh on specified investments, savings, and expenses
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FAQs

Most residents with a ₹5 lakh annual salary will not pay tax under either the old or the new regime, as the Section 87A rebate fully offsets their tax liability (subject to applicable conditions and slab rules).

At a 5 lakh salary, both regimes generally result in zero tax, so the choice is driven more by future income levels and whether the taxpayer wants to claim multiple deductions (old regime) or keep things simple (new regime).

In most cases, you do not need to claim additional deductions to reach zero tax at ₹5 lakh income, because the rebate under Section 87A takes care of the tax payable up to the prescribed income limit.

These deductions help reduce taxable income, but at exactly ₹5 lakh income, even without large deductions, the rebate usually ensures that the final tax outgo is nil, particularly for resident individuals within the specified income threshold.

Once income crosses the rebate threshold for a particular regime, there may be some tax payable; however, under the old regime, you can often use deductions like 80C, 80D, HRA, and NPS to bring taxable income back within the rebate limit.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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