10 best ways to save tax in india for fy 2025-26

26/08/16

Understanding Tax Saving in India – Old vs New Regime

For FY 2025-26, the new tax regime is the default option with lower slab rates. However, if you want to claim deductions like 80C/80D, HRA, home-loan interest (Section 24(b)), education-loan interest (80E), and donations under 80G, the old regime works better. The best way to pick between the old and new regime is to calculate the tax payable under both regimes considering all your real-time deductions. Once you have the figures ready for both regimes, pick the lower one.

1. Invest Smartly Under Section 80C (Save Up to ₹1.5 Lakh)

One of the best ways to save tax in India is investing under Section 80C. It lets you reduce taxable income by up to ₹1.5 lakh in a financial year through approved investments and payments. So, plan early and choose your investment options matching your long-term goals (like safety, extra lock-in period, high returns). With just one clean bucket, you can save a big part of your taxes under Section 80G of the old regime.

Eligible Investment Options

The eligible investment options to save tax in India under Section 80C are :

PPF (Public Provident Fund)
ELSS (Equity Linked Savings Scheme)
Tax-saving fixed deposits (with 5-year lock-in period),
Life insurance premiums (eligible portions)
EPF/VPF
NSC, and
Tuition fees (in certain approved cases)

Key Limits and Benefits

The overall limit for tax deduction under Section 80C limit is ₹1.5 lakh (within the Chapter VIA/80CCE framework). However, if you’re looking for the best ways to save tax minus complicated paperwork, we recommend setting up a plan for each financial year with proofs/receipts ready for employer/self ITR filing.

2. Get Extra Deduction with National Pension System (NPS)

For many, Section 80C limit can be already used up. So, the best way to save tax for FY 2025-26 under the old regime is definitely NPS (National Pension Scheme). This is one instrument that not only helps reduce your taxable income but also systematically build a long-term retirement corpus.

Section 80CCD(1B) – Additional ₹50,000 Savings

NPS offers an extra deduction on your taxable income for up to ₹50,000 under Section 80CCD(1B) (old regime). This is helpful as the deduction is over and above the ₹1.5 lakh limit.

3. Save Tax with Health Insurance Premiums

Have you been asking your friends and family about how to save tax? Chances are you’ve been advised to buy a health insurance policy. Now that’s actually a wise call. Health insurance is by far the simplest way to save tax in India while staying covered against hefty medical expenses, especially hospitalization.

Section 80D Benefits (Up to ₹25,000 – ₹1 Lakh)

Under Section 80D in the old tax regime, the health insurance premiums you pay for yourself, your family, and parents can further reduce your taxable income. Generally, the tax deduction limit is up to ₹25,000 for self/family, and higher limits may also apply for health premiums of senior citizens (often up to ₹50,000). Depending on your family mix, the combined tax benefit can go up to ₹1 lakh in some cases. So, like all other investments, always keep your premium payment proofs handy when filing returns.

4. Claim House Rent Allowance (HRA) Exemption

For salaried employees living in a rented home, HRA exemption is a good way to save tax in India.
The exemption is calculated using your salary, the actual HRA component, and the rent you pay.

How HRA Calculation Works

If your pay slip has the HRA component and you live in a rented home, the exempt HRA is the generally calculated as the lowest of:

(1) actual HRA received

(2) rent paid minus 10% of salary, or

(3) 50% of salary for metro cities (Delhi/Mumbai/Kolkata/Chennai) or 40% for non-metro.

Note: HRA exemption can be generally claimed under the old tax regime. You’re advised to keep a record of all your rent receipts and other related documents in place for a hassle-free returns filing.

Documents Required for Claim

The documents you required for HRA exemption under old tax regime are:

Rental agreement
Rent receipts
Landlord PAN (wherever applicable as per employer/ITR requirements)

Smart Tip: Pay your rent digitally (through payment apps or bank transfer) and automatically maintain a clean virtual record.

5. Use Tax-Free Salary Allowances & Reimbursements

Besides investments, one’s salary structure also impacts how much tax is paid. Luckily, the old tax regime allows for certain allowances and reimbursements that are tax-efficient. However, you’ll need to know how to set them up correctly and support them with eligible bills and proofs. That way, you can significantly lower your tax burden without reducing your take-home pay.

Common Allowances (Conveyance, Medical, Telephone, LTA)

For FY 2025-26, the salary components that are eligible for exempt are based on certain documents, like:

HRA (where eligible)
LTA under prescribed conditions (old regime),and
Reimbursements for official use (like telephone/internet use for office work)

6. Reduce Tax Through Home Loan Repayments

Bought a new house on loan? Congrats! You’e just made an excellent move securing a permanent roof over your head and finding a way to save tax.

Under the old regime, a home loan allows you to claim deductions on both the interest and the principal you repay. If you’re looking for how to save tax for FY 2025-26 and have a home loan running, we recommend keeping all your proof of repayments (EMI payments) and other relevant documents handy.

Interest Deduction Under Section 24(b) (Up to ₹2 Lakh)

The interest on a self-occupied house is eligible for tax deduction up to ₹2 lakh under Section 24(b) in the old regime (certain conditions apply). In comparison, the same benefits under the new tax regime are limited. Homeowners who rent out their property, the interest still stays relevant as “income from house property” subject to pre-fixed rules.

Principal Repayment Under Section 80C

The principal repayment for a home loan generally falls under the 80C ₹1.5 lakh umbrella (old tax regime). So, for those whose 80C limit is already exhausted via other investments, the principal repayment won’t help to add any extra tax benefit beyond ₹1.5 lakh.

Additional Benefits for First-Time Buyers

If you’re a first-time home buyer, we recommend checking for other additional deductions that might apply in your situation. This is because claiming tax deductions for a home loan is usually condition-heavy and largely depends on the nature of the property purchased.

7. Deduct Education Loan Interest

Are you repaying an educational loan for higher studies? Well, the interest you pay stands eligible for lowering your tax burden under the old tax regime. This is extremely helpful for those early repayment years where the interest outgo is always higher.

Section 80E – Unlimited Interest Deduction

The interest paid towards repaying an educational loan for higher studies stands eligible for tax deduction under Section 80E. The normal time duration is for up to 8 years or until the interest is fully paid (whichever is earlier). The benefits claimed under Section 80E can be helpful to plan your expenses while still completing your studies.

8. Make Charitable Donations & Claim Section 80G Benefits

Donations support meaningful social causes, but it also helps lower your taxable income. This is applicable under Section 80G of the old tax regime when you contribute to eligible funds or NGOs. However, the deductions are also based on the organisation’s approval status and the applicable limit (50% or 100%).

50% or 100% Deduction Options

Donations to eligible funds/NGOs qualify for deduction under Section 80G (old regime), either at 50% or 100%. Depending on the donee category, the investments can have other qualifying limits too.

How to Claim 80G Deduction

For a smooth 80G claim deduction, we advise you to donate through traceable mediums and keep the donation receipt and other documents handy. Remember, deductions under 80G are not available if you opt for the new tax regime. So, if you’re looking for the best ways to save tax in India, this is one important area where documentation matters the most.

9. Avail Leave Travel Allowance (LTA)

Salaried employees looking for best ways to save tax in India can rejoice! Yes, if you have Leave Travel Allowance (LTA) as a part of your salary, you lower your tax burden under the old regime (for eligible domestic travels only). However, the exemption is limited to travel costs only, minus your choice of accommodation and food. Also, it needs proper documentation. So, plan your trip right and keep all documents in order, including tickets and invoices that makes LTA claims a lot easier.

Domestic Travel Exemption Rules

LTA exemptions generally apply to domestic travel costs (with pre-fixed conditions) and are available for two journeys in a block of four calendar years. If you’ve already opted for the new tax regime, you’ll no longer be able to claim LTA exemption.

10. Choose the Right Tax Regime for Maximum Savings

Your tax savings for FY 2025-26 majorly depends on your selection between the old and new tax regime.
While the new tax regime promises lower slab rates, it limits most deductions.

Old Regime vs New Regime Comparison (FY 2025-26)

For FY 2025-26, the new tax regime is the default option. However, all deductions under Chapter VIA deductions (with limited exceptions like 80CCD(2) are not allowed. The old regime, on the other hand, is more flexible with standard exemptions/deductions. So, opt for the old tax regime if you plan to lower your tax burden by claiming all common benefits like 80C/80D/HRA/home-loan benefits/80G.

Which One Saves Your More Tax?

The best way to decide between the old and new tax regime is to actually run the math and get real figures on the paper. The equation is simple; if your exemptions and deductions are equally high, the old tax regime fits you best. If they’re low, the new tax regime is a more sensible choice.

Conclusion

You may have noticed that donations mentioned in the list of options require you to actually give money away – this also is an investment into not only yours and your family’s future, but into the future of children everywhere. Happy healthy children of today will become the productive individuals of tomorrow, helping India’s economy and social landscape grow better. However, along with donation benefits, you must consider donating without reference to tax saving. The government’s acknowledgement of this philanthropic spirit has resulted in this income tax exemption benefit. However, ensure that the NGO you are donating to is registered under Societies Registration Act 1860, or a corresponding law, or under section 25 of the Companies Act 1956.

FAQ’s

What is the maximum tax saving under Section 80C?

Under the old tax regime, Section 80C allows deductions up to ₹1.5 lakh in a financial year. However, your actual tax saving depends on your income slab with investment/payment proofs.

Can I claim both HRA and home loan benefits?

Yes, if you’re a salaried employee, you can claim HRA exemption (for rented home) and home loan deductions (for self-owned property). However, check the eligibility conditions as the exact benefits are document-heavy and depend on how the property is used.

Are donations to Bal Raksha Bharat eligible for tax deduction?

Yes, as an approved NGO, the donations you make to Bal Raksha Bharat are eligible for tax deduction. You will get a 80G-valid receipt to help you file your tax return.

Is the new tax regime better in FY 2025-26?

The new tax regime definitely has better income slabs and can be a simpler choice. However, it limits most deductions under most Chapter VIA. So, if you’re someone who wants to claim all standard deductions like 80C/80D/HRA/home loan/80G, go with the old tax regime.

How do I submit proof for tax-saving claims?

Collect all required proofs (like rent receipts, insurance premium receipts, investment statements, loan interest certificates, and donation receipts) to submit for tax returns. If you’re a salaried employee, your employer may ask you to submit all documents for TDS computation too.

Gaurav Sharma

Content Reviewer

“I am an editor and technical specialist at Bal Raksha Bharat, responsible for publishing articles and posts. My role involves evaluating content for consistency, and ensuring a positive user experience across the website."

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10 best ways to save tax in india for fy 2025-26

Understanding Tax Saving in India – Old vs New Regime