By Lal Singh Saving income tax is an important financial goal for every salaried and self-employed person in India. With proper planning and understanding of the Income Tax Act, you can legally reduce your tax liability and increase your savings. The Financial Year (FY) 2025–26 brings several options and updates under both the old tax regime and new tax regime. Let’s understand the best and legal ways to save tax in India this year.
1. Choose Between the Old and New Tax Regime Wisely
The first step to saving income tax is selecting the right tax regime.
- Old Tax Regime: Offers various deductions and exemptions such as HRA, LTA, 80C, 80D, and others.
- New Tax Regime: Provides lower tax rates but removes most deductions and exemptions.
Tip:
If you have several investments and eligible deductions, the old regime may benefit you more. If you have fewer investments or prefer a simpler system, the new regime may be better.
You can compare your tax liability under both regimes before filing your Income Tax Return (ITR).
2. Save Tax Under Section 80C (Up to ₹1.5 Lakh)
Section 80C of the Income Tax Act is one of the most popular options for saving tax. You can claim a deduction of up to ₹1.5 lakh by investing in eligible instruments such as:
- Public Provident Fund (PPF)
- Employee Provident Fund (EPF)
- National Savings Certificate (NSC)
- 5-Year Fixed Deposit in a bank or post office
- Equity Linked Savings Scheme (ELSS) – mutual funds with a 3-year lock-in period
- Life Insurance Premiums for self, spouse, or children
- Principal Repayment of Home Loan
- Tuition Fees for up to 2 children
Example:
If you invest ₹1.5 lakh in PPF or ELSS, you can save up to ₹45,000 (30% of ₹1.5 lakh if you fall in the 30% tax bracket).
3. Get Additional ₹50,000 Deduction Under Section 80CCD(1B)
If you contribute to the National Pension System (NPS), you can claim an extra deduction of ₹50,000 under Section 80CCD(1B), over and above the ₹1.5 lakh limit of Section 80C.
This means you can save tax on a total of ₹2 lakh investment (₹1.5 lakh under 80C + ₹50,000 under 80CCD(1B)).
Why NPS?
NPS not only helps you save tax but also helps build a retirement corpus with partial market-linked growth.
4. Save Tax on Health Insurance Premiums (Section 80D)
Under Section 80D, you can claim deductions for health insurance premiums paid for yourself and your family:
- ₹25,000 for self, spouse, and children (below 60 years)
- ₹50,000 for senior citizen parents
- Additional ₹5,000 for preventive health check-ups
Example:
If you pay ₹25,000 for your family and ₹50,000 for your senior citizen parents, you can claim a total deduction of ₹75,000.
5. Claim Deduction on Home Loan Interest (Section 24(b))
If you have taken a home loan, you can claim a deduction of up to ₹2 lakh on the interest paid under Section 24(b).
This applies to self-occupied property. For rented properties, the entire interest amount is deductible (subject to conditions).
You can also claim the principal amount under Section 80C, giving you double benefits.
6. Deduction for Education Loan (Section 80E)
If you or your child has taken an education loan for higher studies, you can claim a deduction on the interest paid under Section 80E.
There is no limit on the amount, and the deduction is available for 8 years from the start of repayment.
7. Save Tax by Investing in HRA and Rent Payments
If you live in a rented house, you can claim House Rent Allowance (HRA) exemption under the old tax regime.
The amount exempted depends on your salary, rent paid, and city of residence.
If you don’t receive HRA (for example, self-employed individuals), you can still claim a deduction under Section 80GG, subject to specific limits.
8. Get Tax Benefits on Savings Account Interest (Section 80TTA/80TTB)
- Section 80TTA: Deduction of up to ₹10,000 on savings account interest for individuals below 60 years.
- Section 80TTB: Deduction of up to ₹50,000 for senior citizens on interest from bank deposits (savings + fixed).
9. Donate and Claim Deductions (Section 80G)
Donations made to specified charitable organizations and relief funds are eligible for deductions under Section 80G.
You can claim either 50% or 100% of the donation amount, depending on the institution.
Examples of Eligible Funds:
- Prime Minister’s National Relief Fund (100%)
- NGOs registered under Section 80G (50%)
Always collect the donation receipt and verify that the organization is approved by the Income Tax Department.
10. Tax Benefits on Electric Vehicles (Section 80EEB)
If you buy an electric vehicle (EV) on loan, you can claim a deduction of up to ₹1.5 lakh on the interest paid under Section 80EEB.
This deduction is available for individuals under both tax regimes.
11. Save Tax Through Employer Benefits
You can also reduce your taxable income through several employer-provided benefits, such as:
- Meal Coupons (up to ₹50 per meal)
- Leave Travel Allowance (LTA) for travel within India
- Conveyance Allowance for commuting expenses
- Reimbursement of Internet/Telephone Bills
These are applicable under the old tax regime and can significantly reduce your taxable salary.
12. Use Capital Gains Exemptions (Sections 54 to 54EC)
If you have sold a property or asset and earned long-term capital gains, you can save tax by reinvesting the gains:
- Section 54: Reinvest in another residential property within 2 years.
- Section 54EC: Invest in NHAI or REC bonds within 6 months (up to ₹50 lakh).
- Section 54F: Applies when selling non-residential assets and investing in a residential property.
13. Save Tax with Sukanya Samriddhi Yojana (SSY)
For parents of girl children, investing in Sukanya Samriddhi Yojana provides triple benefits:
- Deduction under Section 80C (up to ₹1.5 lakh).
- Tax-free interest earned.
- Tax-free maturity amount.
It is one of the most tax-efficient and secure schemes for your daughter’s future.
14. Take Advantage of the Standard Deduction
Every salaried and pensioned taxpayer can claim a standard deduction of ₹50,000, regardless of other deductions.
This is automatically considered while calculating taxable income.
15. File ITR and Plan Investments Early
To truly save tax, start planning at the beginning of the financial year (April 2025) instead of rushing in March 2026.
This helps you distribute investments monthly and take full advantage of deductions legally.
Conclusion
Tax saving in India for FY 2025–26 is not just about reducing your tax burden — it’s about smart financial planning. By using the right mix of deductions, exemptions, and investments under the old or new regime, you can legally lower your taxes and secure your future.
Always remember, the key is to plan early, invest wisely, and keep proper documentation to claim benefits smoothly during ITR filing.