Financial Awareness Level
How to Save Tax in India? 10 Smart and Legal Ways for FY 2025-26
Introduction
Every salaried individual, professional, or business owner in India seeks ways to legally reduce their tax burden. Thankfully, the Indian Income Tax Act offers several tax-saving options through deductions, exemptions, and investment incentives. In this blog, we’ll explore how to save tax in India, the best tax-saving investments, and strategies to optimize your income and expenses for FY 2025-26.
1. Use Section 80C to Save up to ₹1.5 Lakh
One of the most popular sections for tax deduction:
- Instruments allowed: ELSS mutual fund schemes, PPF, EPF, NSC, life insurance premium, principal repayment of home loan, children’s tuition fees
- Maximum limit: ₹1.5 lakh per financial year
2. Invest in National Pension System (NPS) – Section 80CCD(1B)
- Additional deduction of up to ₹50,000 over and above Section 80C
- Encourages retirement-focused investing
3. Claim House Rent Allowance (HRA)
If you live in a rented house and receive HRA as part of your salary:
- Deduction depends on rent paid, HRA received, and your salary
- Submit rent receipts and PAN of landlord if applicable
4. Interest on Home Loan – Section 24(b)
- Deduction of up to ₹2 lakh on interest paid for a self-occupied house
- No upper limit if the house is rented out
5. Tax Benefits on Education Loan – Section 80E
- Deduction for interest paid on loans taken for higher education
- Available for 8 years from the year repayment begins
6. Save Tax via Health Insurance – Section 80D
- Up to ₹25,000 for premium paid for self/spouse/children (₹50,000 for senior citizens)
- Additional ₹25,000 for parents (₹50,000 if they are senior citizens)
7. Donations to Charities – Section 80G
- Donations to specified relief funds or charitable institutions can qualify for 50% or 100% deduction
8. Claim LTA (Leave Travel Allowance)
- Exemption on domestic travel expenses incurred while on leave
- Only for travel within India, and subject to conditions
9. Opt for the New Tax Regime If It Saves More
- Compare old and new regimes using income tax calculators
- New regime has lower slab rates but no exemptions or deductions
10. Use Tax-Free Allowances and Reimbursements
- Examples: Meal coupons, mobile/Internet reimbursement, standard deduction of ₹50,000
You are recommended to seek advice from your tax advisor for latest tax legislations and applicable tax regime.
Mutual funds can play a significant role in effective tax planning. ELSS mutual funds, for instance, offer tax benefits under Section 80C of the Income Tax Act, 1961 allowing investors to reduce their taxable income. Additionally, possibly long-term capital gains from equity mutual funds are taxed at a lower rate, making them an attractive option for tax planning. Systematic Investment Plans (SIPs) in mutual funds can also help in disciplined investing and tax planning.
ELSS, is a type of open ended equity scheme that invest primarily in equity and equity-related instruments. ELSS funds come with a mandatory lock-in period of three years, the shortest among all Section 80C options. The returns from ELSS are subject to long-term capital gains tax, but the initial investment qualifies for tax deductions.
Conclusion
Tax planning is not just about saving money—it’s about making smart financial decisions that align with your goals. Whether you use deductions under Section 80C or invest in health insurance, every step counts. Begin early in the financial year to maximize your benefits and reduce last-minute rush during tax season.
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FAQ Section
What is the easiest way to save tax in India?
The easiest way is to invest under Section 80C—options like ELSS mutual fund schemes, PPF, or life insurance are widely accessible and effective. You are recommended to seek advice from your tax advisor for latest tax legislations and applicable tax regime.
How much tax can I save under Section 80C?
You can claim a maximum deduction of ₹1.5 lakh in a financial year under Section 80C.
Can I claim both 80C and NPS deductions?
Yes. NPS under Section 80CCD(1B) gives you an additional ₹50,000 deduction over and above the ₹1.5 lakh limit of 80C.
Is HRA applicable if I live in my own house?
No. HRA can only be claimed if you live in a rented house and receive HRA as part of your salary.
Do I need receipts for claiming 80C deductions?
Yes, you must maintain proper proof such as receipts, premium certificates, and deposit proofs to claim deductions during ITR filing or tax proof submission to your employer.
Is the new tax regime better than the old one?
It depends on your deductions. If you claim fewer deductions, the new regime with lower slab rates. You are recommended to seek advice from your tax advisor for latest tax legislations and applicable tax regime.
Can mutual funds help in tax savings?
Yes, ELSS offers tax benefits under Section 80C of the Income Tax Act, 1961 and long-term capital gains from equity mutual fund schemes are taxed at a lower rate.
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The information is for general purposes only and not an investment advice. Readers should seek professional advice before taking any investment related decisions.
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