How to Save Tax in India: A Complete Checklist for FY 2025-26
Most Indians pay more tax than they need to — this checklist closes every legal gap in your tax plan.
Tax saving is not a one-week exercise in March. The most effective tax plans are built in April, refined mid-year, and finalised by January. The Indian Income Tax Act offers more than 20 deduction and exemption provisions — yet the average salaried employee uses fewer than five. This guide walks through every major legal avenue to reduce your tax liability in FY 2025-26.
Step 1: Choose the Right Regime
The very first decision determines which tools are available to you. If you opt for the new tax regime, most deductions disappear. For those with significant deductions (typically ₹3.5 lakh or more), the old regime is still superior. Use the Income Tax Calculator to model both before April.
Step 2: Exhaust Section 80C (₹1.5 Lakh Limit)
| Instrument | Best For |
|---|---|
| ELSS mutual fund (3-year lock-in) | Wealth creation + tax saving |
| PPF (15-year horizon) | Risk-free long-term corpus |
| EPF / VPF (via employer) | Automatic, effortless |
| Home loan principal repayment | Already paying an EMI |
| Sukanya Samriddhi Yojana | Daughter's education/marriage |
| NSC / Tax-saving FD | Short horizon, guaranteed returns |
Step 3: Add NPS for an Extra ₹50,000 (Section 80CCD(1B))
The National Pension System gives you an additional ₹50,000 deduction over and above the 80C limit. At 30% slab, that's ₹15,000 saved. Your employer's NPS contribution (Section 80CCD(2)) is also deductible — up to 10% of salary — without any ceiling. Use the NPS Calculator to model your corpus.
Step 4: Claim Health Insurance Under Section 80D
- Self, spouse, and children: up to ₹25,000 premium
- Senior citizen parents: up to ₹50,000 premium
- Combined maximum: ₹75,000 per year
A family floater plan for ₹10 lakh cover from HDFC Ergo or Star Health typically costs ₹18,000–22,000 for a 35-year-old — easily claiming the full self/family limit.
Step 5: Optimise HRA If You Pay Rent
House Rent Allowance exemption is calculated as the minimum of:
1. Actual HRA received from employer
2. Actual rent paid – 10% of basic salary
3. 50% of basic salary (metro cities: Mumbai, Delhi, Kolkata, Chennai)
40% of basic salary (non-metro cities)
If your employer does not pay HRA but you live on rent, you can claim deduction under Section 80GG (up to ₹5,000/month or 25% of total income, whichever is lower).
Step 6: Home Loan Benefits
- Section 80C: Principal repayment up to ₹1.5 lakh (within the 80C pool)
- Section 24(b): Interest payment up to ₹2 lakh per year for a self-occupied property
- First-time buyer (Section 80EEA): Additional ₹1.5 lakh interest deduction if stamp duty value ≤ ₹45 lakh and loan sanctioned by March 2022
See our detailed Home Loan Tax Benefits guide for worked examples.
Step 7: Other Often-Missed Deductions
| Section | Benefit | Max Deduction |
|---|---|---|
| 80E | Education loan interest | Entire interest (8 years) |
| 80G | Donations to approved charities | 50–100% of donation |
| 80TTA | Savings bank interest | ₹10,000 |
| 80TTB | Bank interest for senior citizens | ₹50,000 |
| 16(ia) | Standard deduction | ₹75,000 (salaried) |
Step 8: Use Leave Travel Allowance
LTA allows exemption on actual travel expenses (economy flight or train fare for shortest route) for domestic travel twice in a block of 4 years. The current block is 2022–2025. Claims must be supported by tickets and boarding passes. LTA is only available under the old tax regime.
Putting It All Together: Sample Tax Saving for ₹18 Lakh Salary
| Deduction | Amount |
|---|---|
| Standard deduction | ₹75,000 |
| Section 80C (ELSS + EPF) | ₹1,50,000 |
| NPS (80CCD 1B) | ₹50,000 |
| 80D (health insurance) | ₹50,000 |
| Section 24(b) home loan interest | ₹2,00,000 |
| HRA exemption | ₹1,20,000 |
| Total deductions | ₹6,45,000 |
| Taxable income | ₹11,55,000 |
Versus the new regime taxable income of ₹17,25,000 — the old regime clearly wins here.
These figures are estimates for educational purposes. Consult a SEBI-registered advisor for personalised advice.
Frequently asked questions
What is the maximum tax I can save in India legally in FY 2025-26?+
Using all available deductions — 80C (₹1.5L), NPS 80CCD(1B) (₹50K), 80D (₹75K), Section 24(b) (₹2L), standard deduction (₹75K) — a 30% bracket taxpayer can save over ₹1.8 lakh in tax annually.
Can I save tax without investing in any instrument?+
Yes, through standard deduction (₹75,000), HRA exemption (if you pay rent), LTA, and Section 80D (health insurance premium). These reduce tax without locking money in investments.
Is NPS deduction available under the new tax regime?+
The extra ₹50,000 deduction under Section 80CCD(1B) is not available in the new regime. However, the employer contribution deduction under 80CCD(2) is available in both regimes.
What is the last date to complete tax-saving investments?+
Tax-saving investments under 80C, 80D, NPS, etc. must be made by 31 March of the relevant financial year. However, investing early (April–December) allows your money more time to grow.
Can I claim both HRA and home loan benefits simultaneously?+
Yes. If you live in a rented property in one city and own a home in another (or a different city where you work), you can claim both HRA exemption and home loan interest deduction under Section 24(b).
Try the calculators
Keep reading
- Old vs New Tax Regime India: Which Should You Choose?
Choosing the wrong tax regime could cost you thousands — here is how to pick the right one for your salary and investments.
- Section 80C Investments Explained: How to Save Up to ₹1.5 Lakh in Tax
Section 80C lets you cut ₹46,800 off your tax bill every year — if you invest in the right instruments.
- Section 80D Deduction: Save Tax on Health Insurance Premiums in India
Paying health insurance premiums? Section 80D lets you deduct up to ₹75,000 from your taxable income — most people leave money on the table here.
Elena writes about taxes and the money side of running a small business. She’s on a mission to make VAT, margins, and break-even points feel a lot less scary.