How to Save Income Tax by Choosing the Right Regime and Using Key Deductions

Every year around January, offices across India experience the same scene. People are rushing to collect insurance receipts, searching for old policy documents and trying to figure out how to invest quickly so that their tax liability is reduced. The truth is that most people do not struggle because tax planning is difficult. They struggle because the information arrives too late, and by then, the question of how to save income tax becomes an urgent task^.

Let us explore he investment options that offer tax benefits!

How to Save Tax with the Right Income Tax Saving Options?

These are simple tools that help you reduce taxable income legally.

What is Section 80C?

Section 80C is one of the most popular ways to save tax. It is available only in the old regime. You can claim a maximum deduction of one lakh fifty thousand rupees per financial year through eligible investments and payments.

How to Save Tax Under Sec 80C?

Here are the main ways to save tax under Section 80C:

• Public Provident Fund (PPF)
  A long-term, government-backed savings scheme with tax-free interest and tax-free maturity.
• Employees Provident Fund (EPF)
  The mandatory employee contribution is eligible for deduction.
• Equity Linked Savings Scheme (ELSS)
  These are mutual funds that invest in equities and have a three-year lock-in period. They offer the potential for better returns.
• Life Insurance Premiums
  Premiums paid for life insurance policies for yourself, your spouse and your children qualify under this section.
• Home Loan Principal Repayment
  The principal portion of your home loan Equated Monthly Instalment is eligible for deduction.
• Tuition Fees
  Fees paid for the full-time education of up to two children can be claimed.
• Other Options
  These include National Savings Certificates, five-year tax-saving fixed deposits and the Sukanya Samriddhi Yojana.

This is the answer for many people who search for how to save tax under Section 80C because it covers the most practical and widely used instruments.

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Income Tax Saving Options- Other Major Deductions and Exemptions

Saving tax in India is not limited to Section 80C. Several other sections offer tax benefits based on your life choices and responsibilities.

1. Section 80D: Health Insurance Premiums
You can claim deductions for health insurance premiums paid for yourself, your spouse, your children and your parents.

The limits are:

• Twenty-five thousand rupees for self, spouse and dependent children
• Fifty thousand rupees if the insured person is a senior citizen
• An additional twenty-five thousand or fifty thousand rupees for parents

2. National Pension System (NPS)
Under Section 80CCD(1B), you can claim an additional deduction of fifty thousand rupees over the Section 80C limit. Employer contributions to NPS also qualify for separate deductions under Section 80CCD(2) in both regimes.

3. Home Loan Interest (Section 24 and Section 80EE or 80EEA)
Interest paid on a home loan for a self-occupied property can be claimed up to two lakh rupees annually under Section 24(b) in the old regime. For a let-out property, the entire interest can be deducted against rental income in both regimes.

4. Education Loan Interest (Section 80E)
Interest on a loan taken for higher education of self, spouse or children can be deducted for up to eight years.

5. House Rent Allowance (HRA)
Salaried individuals receiving HRA can claim an exemption on rent paid, subject to rules. This is available only in the old regime.

6. Standard Deduction
A flat deduction of fifty thousand rupees in the old regime and seventy-five thousand rupees in the new regime for salaried taxpayers and pensioners.

These are some of the most commonly used income tax saving options across India.

Want to understand your salary breakup and tax documents better? Read our complete guide on What is Form 16 to avoid mistakes during tax filing.

Five Common Mistakes People Make When They Try To Learn How To Save Income Tax

1. Choosing a tax regime without checking the numbers
Many individuals select the old or new regime based on what their colleagues say or what they used last year. They do not compare the actual tax payable in both regimes.

2. Investing only in February and March
A last-minute rush often leads to rushed decisions. People buy products they do not need, lock money for long periods and still do not claim the full deduction. Planned monthly contributions into simple instruments such as PPF, ELSS or NPS often work better than panic-driven investments.

3. Not understanding what Section 80C actually covers
Most people think they need to invest the entire one lakh fifty thousand rupees separately. In reality, their EPF already covers a large part of this limit. 

Without knowing this, individuals either miss the benefit or invest more than required in unsuitable products. Understanding what is included under Section 80C makes tax planning simpler.

4. Ignoring deductions beyond 80C
Health insurance premiums, education loan interest, home loan interest and NPS contributions offer strong tax benefits, yet many individuals forget to claim them. These deductions often reduce tax liability more than small last-minute investments.

5. Not reviewing the salary structure with human resources
Many salaried individuals accept their salary breakup as it is. They do not check if allowances are useful or if certain components unnecessarily increase taxable income. A yearly review helps remove wasteful components and add tax-friendly ones.

Step-by-Step Guide To Save Income Tax

Below are he simple things you ned to do to save tax on your salary- 

Step 1: Choose Between Old Regime And New Regime With Actual Numbers

From FY 2025 to 2026, the new regime is the default.
It works best for people who do not use many tax deductions.

A quick comparison:

• If your annual income is up to ₹12,75,000 and you claim almost no deductions, the new regime can bring your tax close to zero after the standard deduction and rebate.
• If your deductions across the year add up to more than ₹2,50,000 to ₹3,00,000 (for example, contributions, premiums, loan interest, etc), the old regime generally reduces your tax more.

Step 2: Read The New Regime Slabs 

For FY 2025 to 2026, the tax slabs in the new regime are:

• ₹0 to ₹4,00,000: 0 percent
• ₹4,00,000 to ₹8,00,000: 5 percent
• ₹8,00,000 to ₹12,00,000: 10 percent
• ₹12,00,000 to ₹16,00,000: 15 percent
• ₹16,00,000 to ₹20,00,000: 20 percent
• ₹20,00,000 to ₹24,00,000: 25 percent
• Above ₹24,00,000: 30 percent

A practical way to use these slabs:

• Keep taxable income below the next slab wherever possible. Even a reduction of ₹10,000 to ₹20,000 in taxable income can shift your bracket and reduce your total tax bill.
• Avoid adding allowances or reimbursements that unnecessarily increase taxable income. Some perks add ₹30,000 to ₹60,000 to your taxable salary and push you into a higher slab.

Step 3: Use Section 80C Wisely Without Overthinking

Section 80C allows a maximum of ₹1,50,000 in deductions.

A practical view:

• Check your payslip. Many salaried individuals already cover ₹60,000 to ₹90,000 yearly through EPF.
• That means you only need to consciously plan for the remaining ₹60,000 to ₹90,000 instead of the full ₹1,50,000.
• Plan this shortfall at the start of the year instead of scrambling at the end.

A simple formula:

EPF contribution per month × 12 = Your automatic 80C coverage.

Once you know your number, you can plan the remaining gap calmly.

Step 4: Reduce Tax Through Health, Retirement And Home Decisions

These three areas quietly determine how much you finally save:

• Health
• Retirement
• Housing

A practical way to think about it:

• Health insurance premiums often qualify for deductions up to ₹25,000 or ₹50,000.
• Retirement contributions allow an additional ₹50,000 under a specific section.
• Home loan interest can reduce taxable income by up to ₹2,00,000 in the old regime.

A combined approach across these three often reduces taxable income by ₹1,00,000 to ₹2,50,000 for an average salaried person.

If you’re planning a home loan or comparing financing options, check out our detailed breakdown of Secured Loan vs Unsecured Loan to make smarter borrowing decisions.

Step 5: Use Smaller Sections Only When They Fit Your Real Life

Think of this step like rounding off your tax plan.

Examples include:

• Interest on education loans
• Approved donations
• Specific expenses for higher studies

Practical rule:

If the expense is already part of your life, claim the benefit.
If not, do not spend money only to save tax. It rarely works in your favour.

Step 6: Handle Your Capital Gains Intelligently

Your salary is not the only place where tax appears. Investments also create tax obligations.

A simple, real approach:

• Track gains once every year, not every month.
• Check whether you will cross long-term or short-term thresholds before selling.
• If selling mutual funds or stocks, spread redemptions across two financial years when possible to stay below limits.
• If selling property, understand your reinvestment timeline clearly before planning the sale.

These small decisions can save tens of thousands of rupees over time.

Step 7: Review Your Salary Structure Once A Year

Your salary breakup has a bigger impact on tax than most people realise.

A practical habit:

• Once every financial year, meet your human resources or payroll team.
• Review each allowance, each reimbursement and each taxable component.
• Remove anything that increases taxable income without offering any real benefit.
• Make sure you are not missing out on allowances that are tax-friendly in your chosen regime.

Even a thirty-minute review can change your yearly tax outgo meaningfully.

Step 8: Use A Calculator Instead Of Assumptions

Instead of guessing, run your numbers through a tax calculator.

Input:

• Income
• Deductions
• Expected investments
• Rent
• Loan details

Check the tax payable in both regimes.
Whichever gives you the lower number is the correct choice for the year.

This one step has saved many people more tax than any product ever could.

Step 9: Follow Behavioural Habits That Make Tax Planning Natural

Practical habits:

• Start planning in April, not January or February.
• Convert yearly goals into monthly contributions.
• Avoid unnecessary trading in markets.
• Keep all proofs saved digitally.

When these habits become routine, tax planning stops feeling like a stressful annual task and becomes part of a stable financial system.

Conclusion

If you understand how to save income tax through the right deductions, Section 80C choices and a clear regime comparison, tax planning becomes easier than expected. The goal is not to chase products but to use income tax saving options that support your long-term financial goals.

Save Income Tax- FAQs