Dempo scored through Joaquim Abranches (73rd) and Koko Sakibo (85th) after a goalless first-half as their Goan rivals were reduced to 10 men in the final few minutes in the second semifinal at the floodlit Kanchenjungha Stadium here.
From a right flank counter-attack, Abranches found the back of the net with a powerful right-footer to give Dempo the lead.
There was then a fine display by Sakibo that took the game away from the Karim Bencherifa-coached side.
Sakibo was tackled inside the box by Luciano Sabrosa but with an inside dribble and turning around, the former unsettled the Salgaocar defender who fell down in the bargain.
Sakibo was quick to slot it home to put the ball past Salgaocar goalkeeper Karanjit Singh for a 2-0 lead.
A minute later Fulgencio Cardozo was redcarded by referee Ajit Meetei of Manipur after a bad tackle on Anthony Pererira.
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There was no looking back for Dempo as they made their fifth appearance into the Federation Cup final.
Playing with just one foreigner in Nigerian recruit Sakibo as the other -- Ryuji Suyeoka -- was injured, Dempo dished out an attacking game in the first half.
After the changeover, Dempo captain Clifford Miranda's left-sided corner hit the cross bar and went out in the 53rd minute.
The most successful team of the I-League, Dempo don't enjoy a similar record in the Federation Cup, winning it only once, in Bangalore 2004, which is remembered for the tragic death of their Brazilian forward Cristiano Junior.
Dempo will take on the last year's runners-up East Bengal in the summit showdown on Sunday.