Quick Answer
The first step in saving income tax is choosing the right tax regime. The new regime has lower slab rates and almost no deductions, and it is the default. The old regime has higher rates but lets you claim deductions for investments such as PPF, ELSS and NPS, health insurance, home loan interest and HRA. Work out your tax under both and pick the lower one before you invest only to save tax.
Step 1: Choose between the old and new tax regime
Most deductions people talk about (the earlier Section 80C, 80D and so on) are available only in the old regime. If you are in the new regime, investing in a tax-saving fixed deposit will not reduce your tax at all. So decide the regime first.
- New regime: lower slab rates, very few deductions. It applies automatically unless you opt out.
- Old regime: higher slab rates, but a long list of deductions and exemptions. You have to choose it.
Salaried people can switch between the two regimes every year. Those with business or professional income have limited chances to switch, so they should decide carefully.
New tax regime slab rates
These slabs were introduced by the Union Budget 2025 and apply from FY 2025-26:
| Taxable income | Tax rate |
|---|---|
| Up 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% |
Because of the tax rebate, a resident individual with taxable income up to Rs. 12 lakh pays no tax under the new regime. For salaried people the figure works out to Rs. 12.75 lakh, after the standard deduction of Rs. 75,000. The rebate does not apply to income taxed at special rates, such as capital gains.
Slab rates can change with each Budget. Check the rates for the year you are filing for, or ask our team.
What you can still claim in the new regime
- Standard deduction of Rs. 75,000 from salary
- Your employer's contribution to your NPS account, within the allowed limit
This is why asking your employer to restructure your salary with an NPS contribution is one of the few ways to save tax in the new regime.
Deductions available in the old regime
| What you spend or invest in | Earlier section | Maximum deduction |
|---|---|---|
| PPF, ELSS, EPF, life insurance premium, home loan principal, children's tuition fees, Sukanya Samriddhi, 5-year tax-saving FD, NSC | 80C | Rs. 1.5 lakh in total |
| Your own contribution to NPS, over and above 80C | 80CCD(1B) | Rs. 50,000 |
| Health insurance premium for self, spouse and children | 80D | Rs. 25,000 (Rs. 50,000 for senior citizens) |
| Health insurance premium for parents | 80D | Rs. 25,000 more (Rs. 50,000 if they are senior citizens) |
| Interest on home loan for a self-occupied house | 24(b) | Rs. 2 lakh |
| Interest on education loan | 80E | Full interest, for up to 8 years |
| Interest on savings account | 80TTA | Rs. 10,000 (Rs. 50,000 for senior citizens on all deposits, under 80TTB) |
| Donations to approved funds and charities | 80G | 50% or 100% of the donation, as specified |
House Rent Allowance (HRA) and a standard deduction of Rs. 50,000 are also available to salaried people in the old regime.
The Income-tax Act, 2025 applies from 1 April 2026 and has given new numbers to these sections. The benefits broadly continue. We have used the earlier section numbers above because most people still know them by those names.
Compare the lock-in before you invest
A tax-saving investment blocks your money for some years. Match the lock-in with your goal:
| Investment | Lock-in period | Risk |
|---|---|---|
| ELSS mutual funds | 3 years | Market-linked |
| 5-year tax-saving fixed deposit | 5 years | Low |
| National Savings Certificate (NSC) | 5 years | Low |
| Senior Citizen Savings Scheme (SCSS) | 5 years | Low |
| Public Provident Fund (PPF) | 15 years | Low |
| Sukanya Samriddhi Yojana (SSY) | Until the girl turns 21 | Low |
| National Pension System (NPS) | Until age 60 | Market-linked |
Interest rates on small savings schemes are revised by the government every quarter, so check the current rate before investing.
Common mistakes that cost you tax
- Investing in March in a hurry: Start in April. Monthly investing is easier on your cash flow and gives better decisions.
- Investing without checking the regime: Deductions do not help if you are in the new regime.
- Buying insurance only to save tax: Buy cover for the protection you need. The tax benefit is a bonus.
- Not giving proofs to your employer: Your employer then deducts more TDS, and you have to wait for a refund.
- Counting what you already pay twice: EPF, tuition fees and home loan principal already use part of the Rs. 1.5 lakh limit. Invest only the balance.
- Ignoring capital gains: Sale of shares, mutual funds or property is taxed separately, and needs its own planning.
Frequently asked questions
Which tax regime is better, old or new?
It depends on your income and how many deductions you can claim. If your deductions are small, the new regime usually works out lower. If you have a home loan, HRA and full use of the investment limits, compare both before deciding.
Can I claim PPF or ELSS in the new tax regime?
No. Deductions for investments such as PPF, ELSS, life insurance and tax-saving FDs are available only in the old regime.
Up to what income is there no tax in the new regime?
A resident individual with taxable income up to Rs. 12 lakh pays no tax because of the rebate. For salaried people, this works out to Rs. 12.75 lakh after the standard deduction of Rs. 75,000.
Can I change my tax regime every year?
Salaried individuals can choose the regime every year. Those with business or professional income have limited options to switch back once they move out of the new regime.