How to Save Income Tax in India: 10 Legal Ways (2026-27)
Before anything else: run the regime comparison. In the new regime (default), lower slabs replace most deductions; in the old regime, deductions are your weapons. The smartest savers do both calculations — then invest. 30-second comparison →
The 10 Ways (With Exact Savings)
1. Standard Deduction — ₹75,000 Free (Both Worlds)
Every salaried person gets ₹75,000 off in the new regime (₹50,000 in the old) — automatically, no proof. It's the only "investment" that requires zero rupees.
2. Section 123 (old 80C) — the ₹1.5 Lakh Workhorse
PPF, ELSS, EPF, LIC premium, Sukanya Samriddhi, home-loan principal, children's tuition fees, 5-year tax-saver FD. Old regime only.
3. Section 124 (old 80D) — Health Insurance That Pays You Back
Premium for self+family: ₹25,000 (₹50,000 if senior). Parents: extra ₹25,000 (₹50,000 if senior). Max stack when parents are senior citizens.
4. NPS — the Only Deduction That Works in BOTH Regimes
Own contribution (old 80CCD(1B)): ₹50,000 extra above 123 (old regime). Employer contribution (80CCD(2)): up to 14% of Basic — deductible in the NEW regime too. If your employer offers corporate NPS, it's the single best free lunch left.
5. HRA Exemption — Rent = Tax Break (Old Regime)
Least-of-3 formula; metro list now has 8 cities at 50% (see the salary guide). Living with parents? Paying them rent with a proper agreement + receipts works — your parents declare it as income (often at a lower slab than yours).
6. Home Loan — the Double Deduction (Old Regime)
Self-occupied: interest up to ₹2,00,000 (old regime) + principal inside the ₹1.5L of Section 123. Let-out property: interest has no cap (set-off against other income limited to ₹2L/year in old regime).
7. Section 125 (old 80E) — Education Loan Interest, No Limit
Interest on an education loan (self/spouse/children) is fully deductible for 8 years — no upper limit. Old regime only.
8. Section 153(2) (old 80TTA/80TTB) — the Forgotten Interest Deduction
Savings interest up to ₹10,000 (under 60) and bank/post-office interest up to ₹50,000 (seniors) — old regime. Nobody claims these, everybody should.
9. Section 80G — Donations That Reduce Tax
Donations to approved funds/NGOs earn 50% or 100% deduction (subject to limits) — old regime. Donating ₹10,000 to a 50% fund in the 30% slab saves ≈ ₹1,560 while doing good.
Smart-Money Moves (Work in Any Regime)
- Tax harvesting: book equity profits within the ₹1.25L/year tax-free LTCG allowance every March — resets your cost basis, costs only STT/brokerage
- PPF/EPF continue: interest is exempt regardless of regime — PPF is still the best tax-free compounding vehicle for most people
- Family planning: gift money to parents (no gift tax for relatives) and let THEM invest — senior citizens enjoy higher basic exemption, 80TTB and often lower slabs (beware clubbing rules for spouse/minors)
- Avoid special-rate tangles: plan crypto/equity-STCG sells knowing rebates don't apply there
Putting It Together — a Real Stack
• Taxable: ₹10.55L → tax = ₹12,500 + ₹1,00,000 + ₹16,500 = ₹1,29,000 + cess = ₹1,34,160
• New regime same salary: ₹1,50,540 → old wins by ₹16,380 here
• Remove the HRA and new regime suddenly wins by ~₹50k. Always compute first — calculator.
Exempt incomes most filers forget: agriculture (exempt but disclosed) →
By TaxSetu Editorial Team · Last reviewed: 7 October 2026
Based on the Income-tax Act 2025, Income Tax Rules 2026 and CBDT notifications; sections per the Income-tax Act 1961 (as amended) with 2025-Act mappings where notified · Verify on the official portal: incometax.gov.in