It is your civic duty to pay your taxes on time. However, taxes have a huge impact on your pockets, as they reduce your earnings. As an informed individual, your aim is to reduce your tax liability. You are always looking to learn different ways on how to save tax. A healthy budget will ensure that you remain financially responsible and always make well- informed decisions. If you do not plan well, you will not be able to saves tax. Hence, it is important to be aware of the different tax saving methods in India.
Tax saving methods
Listed below are some common tax-saving options available for individuals in India to help save tax as per the Income Tax Act, 1961 (and the Income Tax Act, 2025, effective April 1, 2026). Please note that most of the deductions listed below are available only under the Old Tax Regime. Taxpayers who have opted for the New Tax Regime (which is now the default regime) will not be eligible for these deductions but will benefit from lower slab rates.
1. Home loan repayment
If you have a home loan, the Equated Monthly Installments (EMIs) will help reduce the burden of taxes. You will be able to claim a deduction of the interest component and principal amount of the installment. If you are repaying the home loan for your first house, you can save a higher amount of tax. The deductions will be available under Section 24, Section 80C, and Section 80EE.
2. Term insurance
A term insurance plan is one of the best tax-saving instruments under the Old Tax Regime. You can claim a maximum tax deduction of ₹1.5 lakh under Section 80C (Section 123 of the Income Tax Act, 2025) on the premium amount paid for term insurance. The death benefit continues to remain tax-free under Section 10(10D). However, for policies issued on or after April 1, 2023, the maturity proceeds will be taxable if the aggregate annual premium across all life insurance policies (other than ULIPs) exceeds ₹5,00,000. These deductions are applicable only under the Old Tax Regime.
3. Rent paid
According to Section 80GG of the Income Tax Act, individuals who do not receive House Rent Allowance (HRA) as part of their salary can claim a deduction on rent paid. The deduction under Section 80GG is the least of the following: ₹5,000 per month, 25% of total income, or actual rent paid minus 10% of total income. This deduction is available only under the Old Tax Regime. Salaried individuals who receive HRA as part of their salary can claim HRA exemption under Section 10(13A) instead.
4. Employee Provident Fund (EPF)
Investing in an EPF can help in tax saving under the Old Tax Regime. EPF is the amount contributed by you in your Provident Fund (PF) or EPF account and can be claimed as a deduction under Section 80C (Section 123 of the Income Tax Act, 2025), subject to the overall limit of ₹1,50,000. The interest and maturity amount are exempt from tax if you have completed five years of continuous service. However, please note that interest credited on EPF contributions exceeding ₹2,50,000 per year (₹5,00,000 for government employees where there is no employer contribution) is taxable in the hands of the employee. These deductions are available only under the Old Tax Regime.
5. National Pension Scheme (NPS)
NPS is a low-risk and highly secure investment option. The investment is eligible for a for income tax deduction under Section 80C.
6. Sukanya Samriddhi Scheme
: This scheme is available only for parents or guardians of a girl child and it offers a higher return as compared to a PF or Public Provident Fund (PPF). The current interest rate for Sukanya Samriddhi Yojana (SSY) is 8.2% per annum (reviewed quarterly by the government). Investments up to ₹1,50,000 per year qualify for a deduction under Section 80C (Section 123 of the Income Tax Act, 2025), and the interest earned as well as the maturity amount are fully exempt from tax. This deduction is available only under the Old Tax Regime.
7. Donations
Charitable donations to eligible institutions and funds make you eligible for a tax deduction under Section 80G of the Income Tax Act. The deduction can be 50% or 100% of the donated amount, depending on the recipient organization. Donations exceeding ₹2,000 must be made through non-cash modes such as cheque, demand draft, or digital payment to qualify for the deduction. This deduction is available only under the Old Tax Regime.
8. Unit-Linked Insurance Plans (ULIPs)
ULIPs are one of the most preferred tax-saving instruments in the country under the Old Tax Regime. If the premium paid is below 10% of the sum assured, you can avail of tax benefits under Section 80C (Section 123 of the Income Tax Act, 2025) up to ₹1,50,000. However, for ULIPs issued on or after February 1, 2021, the maturity proceeds will be taxable if the aggregate annual premium across all ULIP policies exceeds ₹2,50,000. In such cases, the gains will be treated as capital gains and taxed accordingly. These deductions are applicable only under the Old Tax Regime.
Consider these tax-saving options to reduce the amount of tax payable by you. Do not make an investment keeping the tax benefit in mind, consider your long- term goals, risk, and return before you make a call. It is important to make a well- informed decision to enhance the returns and make the most of tax benefits.
