How to Save Tax Legally in India: 10 Smart Tips you Must Know
Under the new regime FY 2025-26, the Public Provident Fund (PPF) is not deductible. However, the maturity and the interest amounts remain completely tax-free under the new regime
The Indian Income Tax Act offers several provisions that allow taxpayers to reduce their taxable income through deductions and exemptions. By understanding the available deductions and exemptions under Indian tax laws, you can legally reduce your tax liability. This article explains 10 smart tips for taxpayers in order to save their taxable income legally from tax. 1. Claim the...
The Indian Income Tax Act offers several provisions that allow taxpayers to reduce their taxable income through deductions and exemptions. By understanding the available deductions and exemptions under Indian tax laws, you can legally reduce your tax liability. This article explains 10 smart tips for taxpayers in order to save their taxable income legally from tax.
1. Claim the Standard Deduction (Salaried & Pensioners):
Salaried individuals and pensioners can deduct Rs. 75,000 from income as a standard deduction under the new regime. This is an automatic deduction that reduces your taxable salary/pension income. In the old regime, the standard deduction was Rs. 50,000 for salary/pension. This benefit is available to all salaried employees and pensioners.
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2. Utilize the Enhanced Section 87A Rebate (All Taxpayers):
The Union Budget 2025 has increased the tax rebate limit under Section 87A of the Income Tax Act for resident individuals opting for the new tax regime. The new regime offers a 100% tax rebate on taxable incomes up to Rs. 12 lakh (from FY 2025–26 onward). This means if your net taxable income is Rs. 12 lakh or less, you owe zero tax which effectively makes Rs. 12 lakh income tax-free after rebate.
3. Maximize Employer’s NPS Contribution (Salaried Employees):
Under the new regime, up to 14% of your basic salary contributed by the employer to NPS is tax-free for you under Section 80CCD(2) of the Income Tax Act. In the old regime, employer NPS contributions were tax-free only up to 10% of basic salary.
This not only builds your retirement corpus but also reduces your taxable income. This change will be more beneficial to Salaried individuals, especially in higher income brackets, who can save more tax via NPS in the new regime.
4. Use Tax-Free Perquisites & Reimbursements (Salaried Individuals):
The Taxpayer can restructure salary to include certain perquisites and reimbursement components. Telephone/internet reimbursements and conveyance or fuel reimbursements for work are non-taxable in both regimes. Likewise, food coupons/vouchers (e.g. meal cards up to Rs. 2,200 per month) can be provided tax-free by the employer.
Under the new regime, these specific allowances for official purposes are still allowed and can replace fully taxable salary components. In the old regime, in addition to these, you could also get tax-free HRA, LTA, etc., which are not available in the new regime.
By using company-provided perks (vehicle lease, communication, meal allowance, etc.) the taxpayer can reduce taxable salary.
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5. Avail Family Pension Deduction (Family Pensioners):
If taxpayers receive a family pension (as a spouse/child of a deceased employee), the new regime allows a higher standard deduction on that income. Taxpayers can claim Rs. 25,000 or 1/3 of such pension (whichever is lower) as a deduction.
The old regime also allowed a family pension deduction up to Rs. 15,000 under Section 57(iia) of the Income Tax Act. This provides tax relief to family pensioners, often benefiting elderly surviving spouses by reducing taxable pension income.
6. Special Benefits for Differently-Abled Individuals:
The new regime continues to support differently-abled taxpayers through specific exemptions. Any transport allowance received by an employee with a disability for commuting is still tax-exempt (as was in the old regime). Also, conveyance allowances for official duties and other allowances remain tax-free in the new regime.
However, note that under the new regime you cannot claim Section 80U or 80DD deductions (flat Rs. 75,000 / Rs. 1,25,000 for disability) which were available in the old regime. This means a disabled individual or someone maintaining a disabled dependent loses those specific deductions if opting for a new regime.
Differently-abled taxpayers should ensure any transport/conveyance perks from the employer are utilized to the maximum, as those are still exempt.
7. Home Loan Interest – Rent out Property for Deductions (Property Owners):
The new regime allows interest on a home loan for a rented property to be deductible in full against the rental income in the new regime. In other words, if the taxpayer has a second house or moves to cities and is considering renting out property then the entire home loan interest can be claimed against that rental income.
In the old regime, interest on self-occupied property was deductible up to Rs. 2 lakh under Section 24, and interest on let-out property had no upper limit just like the new regime. This will be useful for homeowners with loans; it ensures a tax benefit on interest in the new regime via rental route.
8. Advantage of Lower Surcharge Rates (High-Income Earners):
The new regime has a significantly lower surcharge on high incomes. If taxpayers income exceeds Rs. 2 crore, under the new regime the surcharge is capped at 25%. In the old regime, surcharges could go up to 37% for super-rich individuals, leading to an effective tax rate of about 42.7%. The new regime caps the effective top rate around 39%.
This difference means taxpayers earning high can save several lakhs in taxes by opting for the new regime. If you have very high taxable income (e.g. from salary, business or capital gains not eligible for special rates), consider the new regime to automatically cut the surcharge. This primarily benefits top-bracket earners.
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9. Deduction for New Employees – Section 80JJAA (Business Owners):
Entrepreneurs and small business owners who opt for the new regime can still avail Section 80JJAA deduction. This provision available in both regimes allows an additional 30% deduction of employee cost for new full-time employees hired for up to 3 years subject to certain conditions.
The new regime did not disallow business-related deductions like 80JJAA of the Income Tax Act. So, if you run a business (proprietorship) or are a professional and you increase your staff, you can claim this extra deduction for salaries paid, even under 115 BAC of the Income Tax Act.
This is taxpayers involved with small business owners/startups who are expanding their workforce. Even under the new regime’s constraints, they won’t miss out on this benefit, which effectively lowers taxable business income.
It complements the fact that all normal business expenditures like rent, salaries, utilities, etc. continue to be deductible in the new regime just as in the old regime. Thus, business persons with minimal personal investments can enjoy lower tax rates under the new regime without sacrificing deductions for business growth.
10. Invest in Tax-Exempt Instruments (General Taxpayers):
Even though you cannot claim deductions like 80C under the new regime, you should still invest in tax-free or tax-exempt instruments to save tax in the long run. Public Provident Fund (PPF) contributions aren’t deductible in the new regime, but PPF interest and maturity amounts remain completely tax-free.
The same goes for Sukanya Samriddhi Yojana, life insurance maturity proceeds (subject to conditions), or certain bonds whose earnings are exempt from tax regardless of regime. Under the old regime, you could deduct the investment under 80C/80CCC/etc., and the maturity/interest was tax-free too.
These ensure that even without yearly deductions, your long-term returns are tax-sheltered. This will be beneficial for all individuals (salaried or not) who want to minimize tax on investment income.
By focusing on investments that don’t get taxed at maturity, you effectively save on taxes outside the scope of the regime limitations. For instance, Rs. 1.5 lakh/year PPF investment will yield a large maturity sum that is tax-free in both regimes.
In the new regime you just don’t count it for a deduction, but you still enjoy zero tax on the outcome.
Bonus Tip:
Opt for the Right Tax Regime
Choosing between the old and new tax regime is a critical step in legal tax planning. The old regime offered a wide range of deductions and exemptions, such as under Sections 80C (investments), 80D (health insurance), HRA, LTA, and home loan interest, making it ideal for taxpayers with eligible expenses.
On the other hand, the new regime (FY 2025–26) comes with significantly reduced slab rates but removes most deductions and exemptions. It is more suitable for individuals with fewer investments or simplified income structures. Taxpayers must assess which regime offers maximum savings based on their income profile.
Conclusion (awareness, consistency and early action):
Saving tax legally in India isn’t just about last-minute planning but it’s about making smart, informed choices throughout the financial year. By investing in tax-efficient instruments, claiming eligible exemptions, and staying updated with the latest amendments under the Income Tax Act, taxpayers can significantly reduce their tax burden legally. The key aspect to effective tax planning lies in awareness, consistency, and early action.
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