How to Save Tax in India Legally: Deductions, Investments and Regime Choice (FY 2026-27)

Saving tax legally starts with one decision most people skip: which regime you file under. Under the new regime most deductions disappear, so the tips below fall into two groups: things that help in both regimes, and things that matter only in the old regime. Use our income tax calculator to test both before you invest anything for tax reasons.

Step 1: Pick the regime with numbers, not habit

In the new regime, income up to ₹12 lakh is tax-free (₹12.75 lakh for salaried people with the standard deduction), and slabs start at 5% above ₹4 lakh. At ₹15 lakh gross, the new regime costs about ₹97,500 in tax and the old regime needs about ₹5.6 lakh of total deductions to match that. If your claimable deductions are smaller than this, do not buy products just to "save tax".

What works in both regimes

Old regime only: the deductions that matter

Section 80C (up to ₹1.5 lakh)

Covers EPF/VPF, PPF, ELSS mutual funds (3-year lock-in), 5-year tax-saver FD, NSC, Sukanya Samriddhi, life insurance premium, children's tuition and principal repayment on a home loan. Many salaried people already use the limit through EPF and a home loan, so check before buying more.

NPS extra ₹50,000 (80CCD(1B))

Over and above 80C. For someone in the 30% bracket it saves about ₹15,600 including cess. Money is locked till retirement, so contribute only what you will not need.

Health insurance (80D)

Up to ₹25,000 for self, spouse and children and ₹25,000 for parents (₹50,000 if parents are senior citizens), with a preventive health check-up counting within the limit. Maximum ₹1 lakh when you and your parents are all seniors.

Home loan interest (24(b))

Up to ₹2 lakh a year for a self-occupied house. Principal falls under 80C. First-time-buyer extras like 80EEA have lapsed.

HRA

The exemption is the least of: actual HRA, rent paid minus 10% of basic+DA, or 50% (metro) or 40% of basic+DA. You need rent receipts, and the landlord's PAN if rent exceeds ₹1 lakh a year. Pay by bank transfer for a clean record. Try the HRA calculator.

Other useful sections

• 80E: interest on an education loan, no upper limit, for up to 8 years.
• 80TTA / 80TTB: up to ₹10,000 savings-account interest (₹50,000 on deposits for seniors).
• 80G: donations to eligible institutions, 50% or 100% depending on the fund.

Tax-smart investing

• Hold equity funds beyond 12 months: long-term gains are taxed at 12.5% above ₹1.25 lakh, versus 20% short-term.
• Harvest gains every year up to the ₹1.25 lakh exemption by selling and reinvesting.
• Use debt or hybrid choices after checking how they are taxed at your slab.
• Do not let tax drive the product. A 3-year-locked ELSS you don't need is not a saving.

A 12-month tax calendar

Mistakes to avoid

• Buying insurance as an investment to save tax.
• Claiming HRA from a family member without actual rent payments.
• Ignoring TDS credits in Form 26AS.
• Missing the ITR deadline and paying the late fee.

Frequently asked questions

How can I save maximum tax legally?

Choose the right regime, use the standard deduction, employer NPS, and in the old regime 80C, 80D, NPS, HRA and home-loan interest.

Is 80C available in the new regime?

No. 80C, 80D, HRA and most other deductions are not available in the new regime.

How much tax does NPS save?

Up to ₹50,000 under 80CCD(1B) in the old regime, about ₹15,600 at the 30% slab including cess, plus employer NPS in both regimes.

Which is the best tax-saving investment?

It depends on your goals and risk. ELSS, PPF and NPS suit different needs, so don't choose on tax alone.

Can I claim HRA and home-loan interest together?

Yes in the old regime, if you live in a rented house in a different city from the one you own, and meet the conditions.

Does the new regime make tax planning pointless?

Not entirely: standard deduction, employer NPS and capital-gains planning still matter.

Last reviewed 8 November 2026. Rates, limits and rules change, so confirm figures with the official source before you act.