Income Tax Saving Guide FY 2025–26: Old vs New Tax Regime

Introduction

The journey of prudent financial planning involves various milestones of efficiently planned components, like savings, taxation, investments, and so on. Among all these components, taxation remains primarily influenced by agents beyond the investor since tax laws are drafted, implemented, and controlled by the government.

Direct tax policy can significantly influence individual wealth and financial plans. Therefore, this blog compares the old vs new tax regime, along with various other aspects like the section 80C investments, tax-saving ELSS, NPS tax benefits, and more, to help you curate an optimised tax-saving investment strategy.

Income Tax Slabs And Rates

Before getting into the old vs new tax regime debate to choose which works best, along with other tax-saving components like section 80C investments, home loan tax deduction, etc., it is necessary to take a closer look at the essence of income tax.

Income tax is the tax liability imposed directly on the total amount of funds earned under several headings or categories of income. The Income Tax Act, 1961, which was recommended for amendment in February 2025, through the Budget 2025, governs income in India. The goal of the amendment was to make its mechanism and structure simpler and more effective.

The act allows taxpayers to file their income tax under the old vs new tax regime, while opting for various applicable tax-saving options through the section 80C investments, notably NPS tax benefits, and tax-saving ELSS, besides others. Discussed below are two key components that help reduce the tax burden.

1. Exemptions: These are incomes exempted from the calculation of gross taxable income.

2. Deductions: These are contributions or expenditures that can help reduce the tax liability through different sections.

These exemptions, deductions, income tax slabs, and their rates will vary depending on the income tax regime chosen. Therefore, let us not compare the old vs new tax regime.

New Tax Regime (Default Regime)

First introduced in the Union Budget 2020-21, the new tax regime was inaugurated as the default regime in FY 2023-24 to simplify the tax structure.

As of FY 2025–2026, there is no tax liability up to INR 12 lakhs for regular citizens and up to INR 12,75,000 for salaried citizens, following the use of a refund under section 87A¹. The following slabs apply to anyone under 60.

According to data, around 75% of taxpayers have already chosen the new tax system. Nevertheless, under the new tax structure, taxpayers are eligible for limited exemptions or deductions. Some of the deductions that can be claimed under the new tax regime are shown below.

• Deductions under section 80CCD(2) and 80CCH are eligible².
• 80JJAA deductions can also be claimed.
• Standard Deduction up to INR 75,000.

Old Tax Regime

For investors with varying deductible costs, this regime may be one of the best ways to reduce income taxes. There is no tax on income up to INR 5 lakhs because of the refund under 87A³. The following are the income tax slabs:

Taxpayers with significant investment into tax-saving assets might prefer the old regime in a debate of the old vs new tax regime. This is primarily because, while deductions are limited under the new regime, it remains accessible in the old regime. Similarly, new entrants into the workforce and taxpayers preferring a simplified tax structure, due to their reduced dependence on tax-saving assets, may choose the new regime.

Therefore, the debate between the old vs new tax regime cannot be settled till you consider the popular deductions available, like those on section 80C investments, like tax-saving ELSS, etc.

15 Income Tax Savings Options

Some crucial expenses can be claimed as a deduction for reducing the overall tax liability under the following sections.

1. Save Tax under 80C

Section 80C allows a deduction of up to INR 1,50,000 annually under the old tax regime⁴. It applies only to individuals and taxpayers registered as the Hindu Undivided Family (HUF). Moreover, investments must be made in a financial year. Some common investments that enjoy 80C deductions are Public Provident Fund (PPF), life insurance premiums, Equity-Linked Savings Schemes (ELSS), etc.

The table below shows a list of some common Section 80C investments and their returns.

The above mentioned investment can provide a clear tax deduction up to a limit. However, investments like corporate bonds can be used for efficient tax planning with a long-term approach. There are different types of corporate bonds to suit the varying aspirations of the investor. Moreover, interest income and long-term maturity of some corporate bonds also make them a suitable option for income tax savings for senior citizens. They can provide tax benefits in mainly two ways:

A. Tax-Saving Bonds: Corporate bonds like zero-coupon bonds can be used to save Tax Deducted at Source (TDS) on interest income.

B. Long-Term Investment: During the sale or redemption of corporate bonds, capital gains tax is charged. However, in the long-term holding, this tax rate is reduced, and investors can also earn potential market returns due to corporate exposure. The tax structure for these corporate bonds is as follows:

Therefore, investing in schemes like PPF, NSC, NPS and so on can help investors reduce their tax liability. Moreover, strategic investments like corporate bonds can also be used for long-term tax benefits8.
2. Save Tax under 80D
There are varied opportunities for income tax savings other than 80C. The premium paid for the health insurance of self or close family members like spouse, children and parents. It can be availed under section 80D, and the prescribed limits are as follows:

3. House Rent Payment
Salaried employees without HRA benefits or self-employed individuals can claim a deduction of rental payment as follows:

Moreover, as per the Budget 2025 announcement, the threshold for TDS is also increased to INR 6 lakhs per annum from April 1, 2025. It will help reduce the overall tax liability11.
4. Home Loan Interest Payment
Section 24 (B) allows the borrower to claim deduction of interest on loan taken for purchase, construction, repair, or reconstruction of a let-out or self-occupied property. In case of let-out property, there is no limit on the maximum interest amount for deduction. However, in self-occupied property, the limit is INR 2 lakhs or INR 30,000 as per the case.
Moreover, if a borrower has availed a loan for the first time in FY 2017, they can claim a deduction of INR 50,000 for a loan amount up to INR 35 lakhs. Home loan interest is a significant obligation, and deductions can be a relief for the borrowers.
5. Educational Loan Interest Payment
Under Section 80E, the total amount of interest paid on the high-education loan can be claimed as a deduction12.
6. Child Education Allowance
Up to 2 surviving children, an individual can get an allowance of INR 1200 per annum per child under section 10 (14). Hostel allowance can be INR 3,600 per annum per child. Such allowances can be unique income tax savings options13.
7. Leave Travel Allowance
You can claim LTA under Section 10(5) twice in four financial years. This can be during domestic travel during your leave for yourself or your family members, including your dependent parents, spouse, children, and siblings14.
8. Section 44ADA
50% of the income earned from profit and gains of the business/profession by self-employed individuals can be claimed as deduction. These are presumptive taxation norms. However, the cash receipts in the total income should not exceed 5%.
9. Section 80TTA
Individuals, less than 60 years old, can claim a deduction of up to INR 10,000 for interest received on their bank savings account15.
10. Donations
Any donations by the taxpayer towards the betterment of society is available for deduction. It can be made to charitable trusts, funds or institutions and the deduction can be claimed under section 80G. The rate applicable for deduction is as follows:

11. Interest on Savings for Senior Citizens (Section 80TTB)

Senior citizens (aged 60 years and above) can claim a deduction of up to INR 50,000 on interest income earned from savings accounts, fixed deposits, and recurring deposits held with banks, post offices, or co-operative banks.

12. Additional Home Loan Benefits for Affordable Housing (Section 80EE / 80EEA)

First-time homebuyers purchasing affordable residential properties may be eligible for additional interest deductions over and above Section 24(b), subject to property value and loan size conditions.
This provision was introduced to encourage home ownership and can significantly reduce taxable income for eligible borrowers.

13. Electric Vehicle Loan Interest (Section 80EEB)

Interest paid on loans taken to purchase electric vehicles is eligible for a deduction of up to INR 1.5 lakh per financial year.
This incentive supports sustainable mobility while offering a tax-efficient way to finance EV purchases.

14. Gratuity Exemption (Section 10(10))

Gratuity received by employees at retirement, resignation, or death is partially or fully exempt from tax, depending on whether the employee is covered under the Payment of Gratuity Act.
This exemption plays a key role in retirement tax planning for salaried individuals.

15. Commuted Pension Exemption (Section 10(10A))

A portion of the lump-sum pension (commuted pension) received at retirement is exempt from tax.
Government employees generally enjoy full exemption, while non-government employees receive partial exemption depending on whether gratuity is received.

Also Read: Rise In STT After The Budget: What The Securities Transaction Tax Hike Means For Investors

Tax-Saving Strategies For Senior Citizens

While most of the tax-saving laws and assets discussed are open to all, irrespective of age, some laws are curated specifically for senior citizens. Discussed below are a few of them

• Senior Citizen Savings Scheme (SCSS): It is an essential tool for older citizens looking to reduce their income taxes. It is a safe, government-backed Indian retirement plan that provides guaranteed quarterly interest, regular income, and tax advantages as a Section 80C investment. From 1 April 2025 to 31 March 2026, the SCSS interest rate is at 8.20%.
• 80DDB: With age, medical expenses become a serious concern and financial strain. In such a scenario, a tax law like 80DDB becomes crucial. It allows deduction of up to INR 40,000 (for regular citizens) and up to INR 1,00,000 (for senior citizens) for medical expenses on specific serious illnesses.

However, the successful implementation of tax-saving measures requires optimal tax-filing.

Common Mistakes: ITR Filing Tips 2026

It is important to file an ITR optimally without errors or omissions to obtain the full benefit of tax-saving laws. Discussed below are some common mistakes that must be avoided.

1. Incorrect ITR Form: Different ITR forms are customised for different taxpayers and income types. It is important to choose one that fits you. While the income tax portal has sufficient resources and methodologies to choose an ITR file, if it still appears daunting, contacting an expert might be necessary.

2. Wrong Assessment Year: The confusion between the assessment year and the previous year is a common phenomenon. Before filling in the ITR file, confirming the tax year might be crucial.

3. Incomplete Income Disclosures: A taxpayer should not leave income undisclosed. Therefore, before filing, make a comprehensive list of your income disclosure that must be made in the ITR.

4. Incorrect Details: Personal or bank details like PAN, Aadhaar, or bank account, must be free from error. Double-checking them before submitting might help reduce the risk of error.

5. Missing Deductions and Exemptions: Under the income tax law, there is a plethora of tax-saving deductions and exemptions. Taxpayers applying via the old regime must make a comprehensive list of deductions and exemptions applicable to them before filing their ITR.

Conclusion

Investors might keep a sizable portion of their profits by managing taxation through income tax savings alternatives, like the Section 80C investments. Additionally, several deductions incentivise investors to make long-term or particular asset investments. In the end, it contributes to the establishment of financial stability. To control their total tax payment for the next fiscal year, taxpayers might investigate several income tax savings strategies.

Planning to invest in corporate bonds? Log in to Grip Invest and explore a wide variety to suit your investment objectives.

FAQs On Ways To Save Taxes In FY 25-26

1. How can I save taxes under Section 80c of the Income Tax Act 1961?

Certain investment contributions like life insurance premiums, PPF, National Savings Certificate, or National Pension System can be claimed as a deduction under section 80C. However, their total amount can be INR 1.5 lakhs.

2. How can I claim insurance premiums paid to avail of a tax deduction?

Taxpayers can claim an insurance premium of INR 25,000 for the insurance premium under Section 80 D. This limit increased to INR 50,000 for senior citizens. Moreover, one can also claim insurance premiums paid for family members. They can mention the same during tax calculations under the old regime.

3. How can I benefit from tax planning while purchasing a home?

House purchases can be a highly expensive decision. Therefore, the loan availed for this purchase can help in tax planning. Taxpayers can claim interest amounts and principal amounts and even get the benefit of a first-time home loan borrower for reducing the overall tax liability.

4. What are the best 80C investments for FY 2026-27?

Various 80C investment options, like the Public Provident Fund (PPF), life insurance premiums, Equity-Linked Savings Schemes (ELSS), etc., can be used by taxpayers to optimise their income tax payment. Moreover, investments like the Senior Citizen Savings Scheme also enjoy 80C benefits.

5. New vs old tax regime: Which is better for the salaried?

Investors with a portfolio focus or significant concentration of tax-saving investments often choose the old regime to claim the deductions. However, investors who do not have such a portfolio, or desire a less complicated tax-filing system, can prefer the new regime.

6. What is the PPF interest rate and limit for 2026?

The PPF has a lock-in of 15 years. Moreover, till 31 March 2026, the PPF interest rate 2026 is at 7.1%. Although the rate can be subject to revision, PPF enjoys fixed returns.

References

1. PIB, accessed from: https://www.pib.gov.in/PressReleasePage.aspx?PRID=2098352®=3&lang=2

2. Income Tax India, accessed from: https://www.incometax.gov.in/iec/foportal/help/new-tax-vs-old-tax-regime-faqs

3. Income Tax India, accessed from:  https://shorturl.at/TxqUS

4.  Income Tax India, accessed from:  https://shorturl.at/yJ6CE

5. Morning Star, accessed from: https://www.morningstar.in/tools/mutual-fund-category-performance.aspx

6. Income Tax India, accessed from: https://shorturl.at/oPGC4

7.  NSI India, accessed from: https://www.nsiindia.gov.in/(S(azob1kqn5j2gy045eqk25kzt))/InternalPage.aspx?Id_Pk=178

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