Tax planning continues to be an important part of personal finance in India, enabling one to reduce their tax burden while ensuring they remain within the purview of the Income Tax Act, 1961. With the Union Budget 2025 bringing in significant alterations, including changed tax slabs under the new regime and increased rebates, it is more essential than before to know what your choices are. This blog discusses tax-saving legal strategies for the Financial Year (FY) 2025-26 (Assessment Year 2026-27), including both the old and new tax regimes. Always take advice from a tax expert for specific advice, as laws change.
1. Know and Select the Appropriate Tax Regime
India has two taxation regimes: the Old Tax Regime (deductions and exemptions) and the New Tax Regime (lower rates with a simpler structure but fewer deductions), which is now the default. You may choose to opt out of the new regime and revert to the old one while filing your ITR, but for business income you are required to file Form 10-IEA by the due date.
- Old Tax Regime: Keeps old slabs (0% for up to ₹2.5 lakh, 5% between ₹2.5-5 lakh, etc., up to 30% above ₹15 lakh) and permits high deductions. Best if you have lots of investments or expenses that are eligible for rebates.
- New Tax Regime: Includes new slabs for FY 2025-26 – 0% from ₹4 lakh, 5% (₹4-8 lakh), 10% (₹8-12 lakh), 15% (₹12-16 lakh), 20% (₹16-20 lakh), 25% (₹20-24 lakh), and 30% over ₹24 lakh. It has a rebate under Section 87A of up to ₹60,000, so income up to ₹12 lakh becomes tax-free (₹12.75 lakh for salaried with standard deduction). There are fewer deductions, but it is suitable for those with little claims.
Tip: Use an ITR calculator to compare liabilities. For example, if your deductions exceed ₹3.75 lakh, the old regime might save more.
2. Maximize Deductions Under Section 80C (Old Regime Only)
Under the old regime, invest up to ₹1.5 lakh in eligible instruments to claim deductions under Section 80C.
| Investment Option | Key Benefits | Lock-in Period |
|---|---|---|
| Public Provident Fund (PPF) | Tax-exempt interest (7.1% up to 2025), secure government-guaranteed | 15 years |
| Equity-Linked Savings Scheme (ELSS) | Market returns, possible 12-15% CAGR | 3 years |
| National Savings Certificate (NSC) | Guaranteed 7.7% interest, secure | 5 years |
| Life Insurance Premiums | Protection + tax deduction | Varies |
| Home Loan Principal Repayment | Decreases taxable income | Loan tenure |
| Tuition Fees of Children | For a maximum of two children | N/A |
Tip: Diversify between choices such as ELSS for growth and PPF for stability. Recent X considerations mention best ELSS funds with good 1-10 year XIRR for 2025.
3. Health Insurance and Medical Deductions Under Section 80D (Old Regime)
Claim up to ₹25,000 for self/spouse/children health insurance premiums, and an additional ₹25,000 (or ₹50,000 in case of seniors) for parents. Preventive check-ups amount to an additional ₹5,000 within limits.
Tip: Go for family floater plans in order to ensure maximum coverage and savings.
4. Home Loan Benefits
- Interest Deduction (Section 24(b), Old Regime): Interest up to ₹2 lakh for self-occupied property; unlimited for let-out property.
- More for First-Time Buyers (Section 80EEA, Old Regime): Additional ₹1.5 lakh of interest if stamp price ≤ ₹45 lakh and not owning any other property.
- Principal under 80C as stated above.
Recent Change: NIL annual value possible on up to two self-occupied houses irrespective of purpose of occupation.
5. House Rent Allowance (HRA) Exemption (Old Regime)
If you get HRA and pay rent, exclude the lower of:
actual HRA, 50%/40% of salary (metro/non-metro), or rent reduced by 10% of salary.
Tip: File rent receipts and PAN of landlord if rent > ₹1 lakh a year.
6. Enhance Retirement Savings with National Pension System (NPS)
- Section 80C/80CCD(1): ₹1.5 lakh (old regime).
- Additional 80CCD(1B): ₹50,000 additional (old regime).
- Employer Contribution (80CCD(2)): Maximum of 14% of salary (both regimes).
Tip: Self-employed individuals can claim up to 20% of gross income under 80CCD(1). NPS provides tax-free maturity of up to 60%.
7. Charitable Donations Under Section 80G (Old Regime)
Deduct 50-100% of donations to eligible funds (e.g., PM CARES – 100%). Cash contributions up to ₹2,000 for maximum deduction.
8. Interest Income Deductions
- Section 80TTA/80TTB (Old Regime): ₹10,000 on interest earned on savings (₹50,000 for seniors).
- Tax-saving FDs: Eligible under 80C, but interest is taxable.
Fixed Income Options for 2025: PPF (7.1%, tax-free), SCSS (8.2% for seniors), RBI Bonds (8.05%).
9. Education Loan Interest Under Section 80E (Old Regime)
Complete deduction on interest on higher education loans, up to 8 years.
10. Tax-Free Perquisites and Allowances (Both Regimes, Where Applicable)
- Standard deduction: ₹50,000 (old), ₹75,000 (new) for salaried individuals.
- Family pension: ₹25,000 deduction (new regime).
- Exemptions such as gratuity, VRS, LTA (old regime).
11. For Businessmen and Professionals
- Presumptive Taxation: 8% of turnover (Section 44AD) or 50% for professionals (44ADA) as presumed profit.
- Deduct business expenses such as depreciation, rent.
- MSMEs: Take advantage of utility expenses, depreciation for tax savings.
Recent: No detailed books required if under presumptive scheme.
12. File ITR Within Time and Use New Returns
File by 31st July, 2026, for carry forward of losses. New returns now permitted up to 48 months from end of AY, with additional tax (25-50%).
Conclusion
For FY 2025-26, the new regime provides ease and no tax up to ₹12 lakh, but the old regime excels for individuals with high deductions. Plan ahead—invest in ELSS, NPS, or insurance by March 31, 2026. Check details on the Income Tax portal and keep updated about changes such as the proposed Income Tax Bill 2025.
Disclaimer: This is for informational purposes. Tax laws may change; seek a CA’s advice according to your situation.