How to Save Maximum Tax in India (FY 2025–26)? Proven Legal Ways Explained!
Tax planning is not about evasion — it is about using legal deductions, exemptions, and smart structuring so that your hard-earned money is optimized. In this guide, we will cover 25+ methods to save tax under the Indian Income Tax Act, along with worked examples so you can apply them directly.
1. Section 80C — The King of Deductions (Limit ₹1.5 Lakh)
- EPF (Employees’ Provident Fund)
- PPF (Public Provident Fund)
- Life Insurance Premium
- ELSS (Tax-saving mutual funds)
- 5-year Fixed Deposit in banks/Post office
- Children’s tuition fees
- Home loan principal repayment
Tip: ELSS often beats PPF/FD in returns if you can handle market risk.
Worked Example
Gross salary = ₹10,00,000
Invest in PPF = ₹80,000
ELSS = ₹50,000
Life insurance premium = ₹30,000
Total = ₹1,60,000 but capped at ₹1,50,000
Taxable income reduced by ₹1,50,000
2. Section 80D — Health Insurance Premium
- Self & family (up to ₹25,000)
- Parents (additional ₹25,000; ₹50,000 if senior citizen)
Example:
Family premium = ₹20,000
Parents (senior citizens) = ₹40,000
Total 80D deduction = ₹20,000 + ₹40,000 = ₹60,000
3. HRA (House Rent Allowance)
Exemption = least of:
- Actual HRA received
- Rent paid − 10% of basic salary
- 50% of basic (metro) / 40% (non-metro)
Submit rent receipts & landlord PAN (if rent > ₹1 lakh/year).
4. Home Loan Benefits
- Principal repayment under 80C (up to ₹1.5 lakh)
- Interest deduction under Section 24(b) (up to ₹2 lakh for self-occupied)
- Additional ₹1.5 lakh under Section 80EEA (for affordable housing, subject to conditions)
5. NPS (National Pension System) — Extra Beyond 80C
- 80CCD(1B): Extra ₹50,000 over and above 80C
- Employer contribution: up to 10% of basic + DA exempt
Example: You already maxed 80C (₹1.5 lakh). Invest ₹50,000 in NPS Tier I.
Now you save tax on additional ₹50,000.
6. Education Loan Interest — Section 80E
Interest on higher education loan (no cap, deduction up to 8 years).
7. Donations — Section 80G
50% or 100% deduction depending on institution (with/without qualifying limit). Always donate to approved institutions & keep receipts.
8. Leave Travel Allowance (LTA)
For domestic travel expenses. Allowed twice in 4 years block. Air/train/bus fare covered, not hotels/food.
9. Tax-free Allowances & Perks
- Meal coupons (up to ₹50 per meal)
- Mobile/Internet reimbursements (actuals)
- Conveyance allowance
10. Standard Deduction (Salaried & Pensioners)
₹50,000 flat deduction (Old regime only).
11. Capital Gains Exemptions
- Section 54: Exemption if you reinvest in another house property.
- Section 54EC: Invest in NHAI/REC bonds (limit ₹50 lakh).
- Section 54F: Sale of assets other than house, reinvest in residential house.
12. Agricultural Income
Agricultural income is exempt but may be used to compute tax on non-agri income via partial integration method.
13. Interest on Savings Account — 80TTA / 80TTB
- 80TTA: Deduction up to ₹10,000 on savings bank interest.
- 80TTB: For senior citizens, deduction up to ₹50,000 on bank/post office interest.
14. Tuition Fee for Children
Covered under 80C (up to 2 children).
15. Disability Benefits — Section 80U / 80DD
- 80U (self): ₹75,000 (₹1,25,000 for severe disability)
- 80DD (dependent): Similar deductions
16. Voluntary Retirement Benefits — Section 10(10C)
Exemption up to ₹5 lakh for VRS compensation (one-time).
17. Gratuity
Exempt up to certain limits for non-government employees (check ₹20 lakh cap as per latest rules).
18. Long-Term Investments in ELSS, ULIPs
Not only give 80C benefit but also lower long-term capital gains tax.
19. Avoid TDS on FD Interest — Submit Form 15G/15H
If your income is below taxable limit, file Form 15G/15H to avoid unnecessary TDS.
20. Rebate under Section 87A
If taxable income ≤ ₹5 lakh (Old regime) or revised limit in New regime, rebate = 100% tax up to ₹12,500 (Old) or higher under New.
21. Use Company Benefits Smartly
Opt for meal cards, official reimbursements, company car policies where tax treatment is favorable.
22. HUF (Hindu Undivided Family)
Create an HUF for separate tax benefits on ancestral income, investments.
23. Income Splitting
Gift money to non-earning spouse/children in permissible ways to reduce higher-slab tax burden (subject to clubbing rules).
24. Avoid Double Tax on Foreign Income
Use DTAA (Double Taxation Avoidance Agreements) if you work abroad but are resident in India.
25. Timing of Investments
Plan investments across April–March, don’t wait until March rush.
Big Picture — How much can you save?
| Strategy | Max Deduction (₹) |
|---|---|
| 80C | 1,50,000 |
| 80D | 75,000 (if parents senior citizens) |
| 80CCD(1B) NPS | 50,000 |
| Home loan interest (24b) | 2,00,000 |
| 80EEA (extra for affordable housing) | 1,50,000 |
| 80TTA / 80TTB | 50,000 (for seniors) |
| Others (donations, etc.) | Varies |
Total savings potential: Easily ₹5–8 lakh depending on your profile and investments.
Frequently Asked Questions (FAQ)
Q1 — Can I claim both HRA and home loan benefits?
Yes, if you are paying rent and also repaying a home loan for another property (in a different city or not self-occupied). Both benefits can be claimed if conditions are met.
Q2 — Is investing in ELSS better than PPF for tax saving?
Both qualify under 80C. ELSS has higher risk but higher return potential. PPF is safe, guaranteed but lower interest. Choose as per risk profile.
Q3 — What if I miss investing before 31 March?
You lose the deduction for that year. Always plan in advance (ideally April–December) to avoid March-end rush.
Q4 — Can I still benefit under New Regime?
The New Regime disallows most deductions, but some (employer NPS contribution, standard deduction, family pension) are available. If you maximize 80C/80D etc., Old Regime is usually better.
Q5 — Are all donations deductible?
No. Only donations to registered/approved institutions under 80G are deductible. Keep receipts and ensure the NGO is eligible.
Final Words
Saving tax is about being informed and proactive. If you use the above methods wisely, you can reduce taxable income by several lakhs every year. Always compare Old vs New regime before filing your return for FY 2025–26, and maintain proof for all deductions.