How to Save Income Tax in India: Complete Guide for Taxpayers
Paying income tax is a national responsibility. There are several legal and effective ways to reduce your income tax liability in India. Whether you’re a salaried employee, a freelancer, or a landlord, use deductions, exemptions, and smart investments. These can significantly lower your taxable income.
In recent years, India’s income tax acts have shifted focus. They are concentrating more on higher tax-free income. They are allowing fewer tax-saving deductions.
This detailed guide answers key questions. These include “How to save income tax in India” and “How can I reduce my income tax?” It even covers “Is ₹12 lakh salary zero tax?” Let’s explore the best strategies.
How to Save Income Tax in India 2025?
India’s Income Tax Act offers deductions, rebates, and exemptions to reduce taxable income. Understanding these benefits is crucial for saving income tax legally. However, all the deductions have now been relevant in the old tax regime.
As all these deductions are now on the verge of abolition under the New Tax regime. Almost all deductions are now disallowed except for a few.
In the last few years, Indian taxpayers have witnessed reduced income tax deductions under the new tax regime. This regime offers higher tax-free income slabs. The old tax regime is losing popularity because of its limitations, even though it provides full income tax deductions.
How to Save Income Tax: Understand the Two Tax Regimes: Old vs. New
Before choosing any tax-saving strategies, it’s essential to select the right tax regime:
| Criteria | Old Tax Regime | New Tax Regime (Post-2025 updates) |
|---|---|---|
| Basic Exemption Limit | ₹2.5L | ₹4L |
| Deductions (80C, 80D, HRA, etc.) | Available | Not available (except a few) |
| Tax Slabs | Progressive | Reduced slab rates |
Let’s understand the income tax slabs under both regimes for FY 2025-26.
Tax Slabs under the new tax regime for FY 2025-26 & AY 2026-27 are as follows.
| Income Slab (₹) | Tax Rate (%) |
|---|---|
| 0 – 4,00,000 | 0% |
| 400,001 – 8,00,000 | 5% |
| 8,00,001 – 12,00,000 | 10% |
| 12,00,001 – 16,00,000 | 15% |
| 16,00,001 – 20,00,000 | 20% |
| 20,00,001 – 24,00,000 | 25% |
| Above 24,00,000 | 30% |
Tax Slabs under the Old Tax Regime for FY 2025-26 & AY 2026-27 are as follows.
| Tax Rate | Individual Tax Payer (Below 60 Years) | Senior Citizen (61-80 Years) | Super Senior Citizen (Above 80 Years) |
| NIL | Up to 2,50,000 | Up to 3,00,000 | Up to 5,00,000 |
| 5% | 2,50,001- 300,000 | 3,00,001- 5,00,000 | NIL |
| 20% | 5,00,001-10,00,000 | 5,00,001-10,00,000 | 5,00,001-10,00,000 |
| 30% | >10,00,000 | >10,00,000 | >10,00,000 |
How to Save Tax in 2025: Deductions available under both regimes
Tax deductions available under the New Tax Regimes:
This is very unfortunate. The new tax regime emphasises reducing your tax liability, but it completely ignores the basic deductions. Indian taxpayers have been accustomed to these deductions from time immemorial.
One of the biggest changes in the new tax regime is the removal of most exemptions and deductions. But not all is lost—some benefits are still available.
Which Deductions are Allowed in New Tax Regime?
The following deductions are allowed in the new tax regime:
- Interest on Home Loan for Let-Out Property: Interest repayment on housing loan(construction, purchase)is allowed as a deduction U/S 24(b), not for self-occupied property, but only for a let-out property;
- Standard Deduction: ₹75,000 (As per Budget 2025 for salaried and pensioners);
- Employer Contribution to NPS: Up to 14% of basic salary under Section 80CCD(2);
- EPF Employer Contribution: Taxable beyond ₹7.5 Lakhs from multiple employer contributions;
- Gratuity: Still tax-exempt as per limits under existing provisions;
- Leave Encashment: It is exempt up to Rs. 25 Lakhs for non-government employees U/S 10(10AA)(ii) and for Government employees, it is fully tax exempt.
How to save Income Tax on Salary: Deductions allowed under Old Tax Regime
Salaried individuals have several options to save income tax in India from salary, especially under the old tax regime:
a. Standard Deduction:
- ₹50,000 standard deduction is automatically available to all salaried taxpayers and pensioners opting Old tax regime.
b. House Rent Allowance (HRA) U/S 10(13A):
- If you live in a rented house, HRA can be partially or fully tax-exempt, depending on the following factors:
- Actual HRA received from the employer
- 50% of [Basic Salary + DA] for Metro Cities or 40% for non-metro cities
- Rent paid minus 10% of [Basic Salary + DA]
c. Section 80C (Maximum ₹1.5 Lakhs):
These are the most popular tax-saving options available under the old tax regime. Eligible investments include:
- Employee Provident Fund (EPF)
- Public Provident Fund (PPF)
- Life Insurance Premiums
- Tax-saving ELSS Mutual Funds
- Principal repayment on home loans
- Tuition fees for children
d. Section 80D – Medical Insurance premium paid:
- Deduction up to ₹25,000 for self/family members and ₹50,000 for parents (senior citizens).
e. Leave Travel Allowance (LTA) U/S 10(5):
- Available for two trips in four calendar years, subject to fulfillment of certain conditions.
f. National Pension Scheme (NPS) – Extra ₹50,000 U/S 80CCD(1B):
- This deduction is most popular among the young generations as it involves investment in equities in a proportionate manner. Also this deductions is allowed over and above section 80C deductions. It is Ideal for long-term retirement planning.
How to Save Income Tax on Salary Income of ₹12 Lakhs?
If your annual salary is ₹12 lakhs, here’s a breakdown to achieve zero tax or minimize it under the old tax regime:
| Component | Amount |
|---|---|
| Standard Deduction | ₹50,000 |
| Tax on Employment | ₹2,400 |
| Section 80C Investments | ₹1,50,000 |
| NPS U/S 80CCD(1B) | ₹50,000 |
| Health Insurance (80D) | ₹75,000(25000+50000) |
| HRA Exemption | ₹1,80,000 (Non-metro) |
| Home Loan Interest (Section 24) | ₹2,00,000 |
| Total Deductions | ₹7,07,400 |
| Net Taxable Income after all deductions | ₹4,92,600 |
| Tax Liability | 0(Zero) |
After deductions, your taxable income may reduce to ~₹4.92 lakhs, which qualifies for the Section 87A rebate, effectively making your net tax zero.
✅ Is ₹12 lakh salary zero tax?
Yes, you need to pay zero tax on ₹12 lakh salary with the old tax regime. You need the right mix of deductions and exemptions as shown in the above table.
How to save tax from rental income?
Many a time we find people asking this question i.e. how to save tax from rental income. But the answer is that you can not avoid paying taxes on earning any legitimate income.
However, you should learn how to minimize the tax liability on your rental income. Here’s how to save tax from rental income:
a. Standard Deduction – 30% :
- Firstly, 30% of your gross rent is automatically deducted for repairs and maintenance purposes as per Section 24.
b. Home Loan Interest (Section 24):
Secondly, you can deduct up to ₹2 lakhs of interest on home loans as per Section 24(b) of the Income Tax Act, 1961. This deduction is from your rental income.
c. Property Tax:
Thirdly, you can fully deduct the property tax or municipal tax paid during the financial year. This applies to the property on which you are earning rental income.
By following the above calculation strategies you can minimise your tax liability on rental income substantially.
How to Save Tax in 2025: Tax Saving Options for Salaried Employees
Here’s a list of common and lesser-known (hidden) ways to save tax:
| Option | Section | Maximum Benefit |
|---|---|---|
| ELSS Mutual Funds | 80C | ₹1,50,000 |
| EPF/PPF | 80C | ₹1,50,000 |
| NPS | 80CCD(1B) | ₹50,000 |
| Health Insurance | 80D | ₹25,000 – ₹75,000 |
| HRA | Section 10(13A) | Variable |
| Education Loan Interest | 80E | No limit |
| Donations | 50%-100% of the donation | 50%-100% of donation |
| Home Loan Interest | Section 24 | ₹2,00,000 |
| Interest on Savings Account | 80TTA/80TTB | ₹10,000/₹1,00,000 |
How to Save Income Tax 100%?
To pay zero tax, your net taxable income must fall below:
- ₹5 lakhs (old regime) or ₹12 lakhs (new regime) to qualify for Section 87A rebate.
Strategies to save 100% income tax:
- Claim all your deductions: 80C, 80D, 80CCD(1B), HRA, Home Loan
- Structure your salary efficiently
- Invest in NPS and ELSS
- Avail HRA or live in rented accommodation
- Claim home loan interest U/S 24(b)
Summary: How to Save Income Tax in India – Key Takeaways
| Income Range | Strategy |
|---|---|
| ₹5–10 Lakhs | Maximise home loan interest and ELSS, combine with HRA |
| ₹10–20 Lakhs | Maximise home loan interest and ELSS, combine with HRA |
| ₹20–30 Lakhs | Use advanced planning (HUF, trusts, NPS employer contribution) |
| ₹30L+ | Invest in tax-free instruments, explore business expenses, and alternate income streams |
✅ Quick Checklist:
- Choose the right tax regime
- Claim HRA and standard deductions
- Max out 80C and NPS investments
- Use 80D, 80E, and 80G deductions
- Invest smartly in ELSS, PPF, and NPS
- Use rent and loan interest exemptions
Conclusion
If you’re salaried, explore all deductions under the old regime. If you’re earning from rent or interest, claim standard deductions and tax rebates. With proper planning, even a ₹12 lakh salary can attract zero tax liability.
There are multiple answers to “How to save income tax in India”. These answers depend on your income level, employment type, and willingness to invest smartly.
