Understanding income tax rules can feel confusing, especially if you are unsure how to begin planning your savings. In India, individuals can choose between the new tax regime and the old tax regime, each offering different benefits depending on your financial situation. While one focuses on lower tax rates, the other allows multiple deductions and exemptions. Before selecting the most suitable option, it is important to explore the various tax-saving investments and deductions available. Knowing these options in advance can help you plan better and reduce your taxable income effectively for the financial year 2026–27.
How to save income tax for FY 2026-27 in India
Saving tax requires a mix of smart planning and choosing the right financial instruments. By investing in government-backed schemes, retirement funds, and other approved options, you can legally lower your taxable income while building long-term wealth. Below are some popular and effective tax-saving options to consider.
Public Provident Fund (PPF)
The Public Provident Fund is a long-term savings scheme supported by the Government of India. You can start investing with as little as Rs. 500, while the maximum annual contribution is Rs. 1.5 lakh. The scheme has a lock-in period of 15 years, which can be extended in blocks of five years. It is ideal for retirement planning due to its stability and guaranteed returns. Additionally, the interest earned and maturity amount are fully tax-free under Section 10 of the Income Tax Act, 1961.
National Savings Certificates (NSC)
National Savings Certificates are fixed-income instruments available through post offices across India. They come with a maturity period of five years and can be purchased by adults, including on behalf of minors. This government-backed scheme is considered safe and suitable for individuals seeking steady returns. Investments of up to Rs. 1.5 lakh qualify for tax deductions under Section 80C, making it a preferred choice for conservative investors.
Sukanya Samriddhi
The Sukanya Samriddhi scheme is designed for parents or guardians of a girl child. The account can be opened before the child turns 10 and matures when she reaches 21 years of age. It allows partial withdrawals for education needs. With a minimum deposit of Rs. 250 and a maximum of Rs. 1.5 lakh per year, this scheme supports long-term financial security. Contributions are eligible for tax benefits under Section 80C.
National Pension System (NPS)
The National Pension System is a retirement-focused investment option suitable for both salaried and self-employed individuals. It offers a mix of investments, including equities, which can help generate better long-term returns. Managed by the Pension Fund Regulatory and Development Authority, it ensures regulated and transparent operations. Investments made in NPS qualify for tax benefits under Section 80C, making it a strong choice for retirement planning.
Equity Linked Savings Schemes (ELSS)
ELSS funds are tax-saving mutual funds that invest primarily in equity markets. They offer the potential for higher returns over the long term while also providing tax deductions. These funds come with a mandatory lock-in period of three years, which is shorter compared to many other tax-saving instruments. Investments up to Rs. 1.5 lakh are eligible for deduction under Section 80C, making ELSS a popular option among investors willing to take moderate risk.
Employees Provident Fund (EPF)
The Employees Provident Fund is a government-supported savings scheme managed by the Employees Provident Fund Organisation. Both employer and employee contribute 12% of the basic salary and Dearness Allowance towards this fund. It offers an interest rate of around 8.25% per annum, although this may change periodically. Contributions made by employees qualify for deductions under Section 80C, while employer contributions are tax-exempt up to specified limits.
Fixed Deposits (FD)
Fixed Deposits are a traditional investment option offering guaranteed returns over a fixed period. The tenure can range from 7 days to 10 years, depending on your preference. These deposits are available through banks, post offices, and NBFCs, with interest rates varying accordingly. Tax-saving FDs with a lock-in period of five years allow deductions of up to Rs. 1.5 lakh under Section 80C, making them suitable for risk-averse investors.
Income tax regimes
At present, individual taxpayers in India can choose between two tax systems:
- The Old Tax Regime allows you to claim several deductions and exemptions. However, it comes with comparatively higher tax rates and fewer income slabs.
- The New Tax Regime offers reduced tax rates spread across more slabs. In exchange, most deductions and exemptions, such as those under Sections 80C and 80D, are not available.
Choosing between the two depends on your income level, investment habits, and the deductions you are eligible to claim.
Tax slabs under the Old Tax Regime
Income slabs |
Tax rate |
0 to Rs. 2.5 lakh |
NIL |
Rs. 2.5 lakh to Rs. 5 lakh |
5% |
Rs. 5 lakh to Rs. 10 lakh |
20% |
Above Rs. 10 lakh |
30% |
How to save income tax in the Old Tax Regime
If you choose the old tax regime, you can benefit from a wide range of deductions that help reduce your taxable income. Here are some important sections and provisions to consider:
Section 80C – Up to Rs. 1.5 lakh
This section allows deductions on various investments and expenses. Eligible options include EPF, PPF, life insurance premiums, ELSS, tax-saving FDs, NPS, home loan principal repayment, and Sukanya Samriddhi investments.
Section 80D – Health Insurance Premium
You can claim deductions for health insurance premiums paid for yourself and your family. The limit is Rs. 25,000 if all insured members are below 60 years. This increases to Rs. 50,000 if senior citizens are covered.
Section 80E – Education Loan
Interest paid on education loans for higher studies is fully deductible. There is no upper limit, and the benefit can be claimed for up to eight years from the start of repayment.
Section 80EE – Up to Rs. 50,000
First-time homebuyers can claim an additional deduction on home loan interest, provided certain conditions regarding property value and loan amount are met.
Section 80G – Donations
Donations made to approved charities and relief funds qualify for tax deductions. Typically, 50% of the donated amount can be claimed, subject to limits. Cash donations above Rs. 2000 are not eligible.
Section 80GG – Rent Paid
If you do not receive House Rent Allowance but pay rent, you can claim a deduction under this section. The amount allowed is based on specific conditions and limits.
Section 80TTA – Savings Account Interest
Interest earned from savings accounts is eligible for a deduction of up to Rs. 10,000 for individuals and HUFs. Senior citizens can claim higher benefits under Section 80TTB.
Tax slabs under the New Tax Regime
Income slabs |
Tax rate (FY 2025-26) |
0 to Rs. 4 lakh |
NIL |
Rs. 4 lakh to Rs. 8 lakh |
5% |
Rs. 8 lakh to Rs. 12 lakh |
10% |
Rs. 12 lakh to Rs. 16 lakh |
15% |
Rs. 16 lakh to Rs. 20 lakh |
20% |
Rs. 20 lakh to Rs. 24 lakh |
25% |
Above Rs. 24 lakh |
30% |
Tax saving under the New Tax Regime 2025-26
The table below outlines what you can claim under the new regime.
Tax benefit |
Allowed |
Section 87A Rebate (Income up to Rs. 2 lakh) |
Yes. Rs. 60,000 rebate allowed. |
Standard Deduction (Rs. 75,000) |
Yes. |
Family Pension Deduction (Up to Rs. 25,000) |
Yes. |
Interest on EPF/ PPF (within limits) |
Yes. |
Long-Term Capital Gains up to Rs. 1.25 lakh |
Yes. |
Section 80D (Health Insurance) |
No. |
House Rent Allowance (HRA) |
No. |
Section 80C (Investments) |
No. |
Education Loan Interest (80E) |
No. |
Other ways to save taxes in India
Apart from standard deductions and investments, there are additional legal ways to reduce your tax burden:
- Agricultural income is fully exempt from income tax, making it a tax-free source of earnings.
- Money received through inheritance is not taxed in India, as there is no inheritance tax.
- Business owners can claim work-related travel and operational expenses to reduce taxable income.
- Hindu Undivided Families (HUFs) are treated as separate entities and enjoy a basic exemption of Rs. 2.50 lakh.
- Donations to political parties are eligible for 100% deduction under relevant sections.
- Gifts received during weddings from relatives are tax-free, while gifts from others are exempt up to Rs. 50,000.
Income tax old regime vs. income tax new regime
Selecting between the old and new tax regimes depends largely on your financial behaviour. If you actively invest in tax-saving instruments, pay insurance premiums, or have a home loan, the old regime may offer greater benefits. On the other hand, if you prefer a simpler structure with fewer conditions and do not claim many deductions, the new regime might suit you better. It is always advisable to compare both options carefully before filing your returns to ensure you minimise your tax liability effectively.
Conclusion
To sum up, there are multiple ways to reduce your tax liability for the financial year 2026–27 under both tax regimes. From government-backed schemes to deductions on expenses, each option serves a different financial goal. The key is to plan early and choose investments that align with your long-term objectives. Always review both the old and new tax systems before making a decision. With proper planning and awareness, saving income tax can become a straightforward and beneficial process.
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