10 Legal Ways to Save Income Tax in India (2025-26)

Section 80C is the most widely used deduction, allowing up to ₹1,50,000 per financial year. Available only under the old tax regime.

Best 80C options ranked by return potential:

• ELSS (Equity Linked Savings Scheme) — Shortest 3-year lock-in; historically 12–15% CAGR; market-linked growth
• PPF (Public Provident Fund) — Government-backed; ~7.1% interest; fully tax-exempt; 15-year tenure
• EPF (Employee Provident Fund) — Employer contribution tax-free too; 8.25% interest FY24-25
• NSC (National Savings Certificate) — 7.7% assured; 5-year lock-in
• Home Loan Principal Repayment — EMI principal qualifies under 80C up to ₹1.5L
• Children's Tuition Fees — Up to 2 children's school/college tuition fees

Section 80D allows deductions on health insurance premiums — providing both tax savings and medical protection:

Additionally, ₹5,000 can be claimed for preventive health check-ups (within the above limits). Tax saving at 30% bracket on ₹50,000 deduction: ₹15,600.

A home loan provides two distinct deductions:

• Section 24(b) — Interest on home loan up to ₹2,00,000 per year for self-occupied property. No limit for let-out property. Available in both regimes for let-out property.
• Section 80C — Principal repayment up to ₹1,50,000 (within 80C limit). Old regime only.

For a taxpayer in the 30% bracket with ₹2L interest: direct tax saving of ₹62,400 per year from Section 24(b) alone — ₹93,600 if Section 80C principal benefit is also counted.

If you receive HRA as part of your salary and live in rented accommodation, claim the HRA exemption. The exemption is the least of:

1. Actual HRA received from employer
2. Actual rent paid minus 10% of basic salary
3. 50% of basic salary (metro: Delhi/Mumbai/Chennai/Kolkata) | 40% for non-metro cities

The National Pension System (NPS) offers an additional ₹50,000 deduction per year under Section 80CCD(1B) — completely separate from and over and above the ₹1.5L Section 80C limit.

This alone saves ₹15,600 in tax at the 30% + cess bracket. Additionally, the employer's NPS contribution under 80CCD(2) (up to 10% of basic salary for private sector) is deductible in both old and new tax regimes.

NPS is particularly useful for: salaried individuals wanting an additional ₹50K deduction beyond 80C, those looking for government-secured retirement corpus, and taxpayers in the 30% bracket where the NPS tax benefit is highest.

Interest paid on an education loan for yourself, your spouse, or your children (or a student for whom you are the legal guardian) is fully deductible under Section 80E — with no upper limit.

The deduction is available for up to 8 consecutive years starting from the year you begin repayment. Applicable only to loans from recognised financial institutions and approved charitable institutions.

If you have sold property or long-term capital assets, reinvestment exemptions can significantly reduce LTCG tax:

• Section 54 — Sell a residential house and buy another within 1 year before or 2 years after (or construct within 3 years). Gain exempt up to new house cost.
• Section 54F — Sell any long-term asset (non-residential), invest net sale proceeds in a residential house — gain fully exempt if entire proceeds invested. Once-in-a-lifetime.
• Section 54EC — Invest LTCG (max ₹50 lakh per year) in NHAI/REC bonds within 6 months of sale. Gain exempt up to investment. 5-year lock-in.

LTA covers actual domestic travel costs (train/air/bus tickets) with family during leave. The exemption is limited to economy air fare or AC First Class rail fare for the shortest route.

You can claim LTA for 2 trips in a block of 4 calendar years (current block: 2022–2025). If one trip was unclaimed in the previous block, it can be carried over to the first year of the next block.

Donations to approved charitable organisations, relief funds, and educational institutions qualify for deduction under Section 80G — ranging from 50% to 100% of donation depending on the recipient.

Key eligible donations:

• PM National Relief Fund: 100% deduction, no limit
• PMNRF, PM CARES Fund: 100% deduction
• Approved NGOs/charitable institutions: 50% deduction subject to 10% of adjusted gross total income limit

A Hindu Undivided Family (HUF) is a separate tax entity. By creating an HUF and transferring income-generating assets to it, business families can effectively double certain tax benefits:

• HUF gets its own basic exemption of ₹2.5 lakh (old regime) or ₹4 lakh (new regime)
• Separate Section 80C limit of ₹1.5 lakh for the HUF
• HUF can own property, invest, and conduct business independently