Most salaried Indians end up paying more income tax than they need to - simply because they do not claim all available deductions. Whether you earn ₹6 lakh or ₹25 lakh, there are legal ways to reduce your tax outgo significantly. This guide covers every major deduction available in FY 2026-27.
Old vs New Tax Regime - Quick Overview
India now has two tax regimes. The new regime offers lower slab rates but removes most deductions. The old regime keeps higher rates but lets you claim deductions under 80C, 80D, HRA, and more.
| Feature | New Regime | Old Regime |
|---|---|---|
| Tax-free income | Up to ₹12L (with rebate) | Up to ₹5L (with rebate) |
| Standard deduction | ₹75,000 | ₹50,000 |
| Section 80C | Not available | ₹1.5L deduction |
| HRA exemption | Not available | Available |
| Section 80D (health) | Not available | ₹25K-₹1L |
| Home loan interest | Not available | ₹2L (Sec 24b) |
| Default regime | Yes (since FY 2023-24) | Must opt-in |
Section 80C - ₹1.5 Lakh Deduction
This is the most popular tax-saving section. You can claim up to ₹1,50,000 deduction by investing in any of these:
- PPF: 7.1% returns, 15-year lock-in, completely tax-free (EEE)
- ELSS Mutual Funds: Equity-linked, 3-year lock-in, potential for 10-15% returns
- EPF: Employee contribution (auto-deducted from salary)
- Life Insurance Premium: Only pure term plans recommended
- NSC: 7.7% interest, 5-year lock-in
- Tax Saver FD: 5-year lock-in, bank FD rates
- Children's Tuition Fees: Up to 2 children
- Home Loan Principal: Repayment of housing loan principal
Section 80CCD(1B) - Additional ₹50K for NPS
Over and above the ₹1.5L under 80C, you can claim an additional ₹50,000 deduction by investing in the National Pension System (NPS). This effectively lets you save tax on ₹2 lakh total. NPS also offers market-linked returns with equity exposure up to 75%.
🏛️Section 80D - Health Insurance Premium
Deductions for health insurance premiums paid:
- Self, spouse, children: up to ₹25,000 (₹50,000 if senior citizen)
- Parents: additional ₹25,000 (₹50,000 if parents are senior citizens)
- Preventive health check-up: ₹5,000 (within the above limits)
Maximum deduction: ₹1,00,000 (if both you and parents are senior citizens).
HRA Exemption
If you live in a rented house and receive HRA as part of your salary, you can claim HRA exemption. The exempt amount is the minimum of:
- Actual HRA received
- 50% of basic salary (metro) or 40% (non-metro)
- Rent paid minus 10% of basic salary
Even if you do not receive HRA, you can claim up to ₹60,000 under Section 80GG if you pay rent and do not own a house in that city.
🏠Home Loan Benefits - Section 24(b)
If you have a home loan, you can claim up to ₹2,00,000 deduction on interest paid (for self-occupied property) under Section 24(b). For a joint home loan, both co-borrowers can claim separately - effectively doubling the benefit to ₹4 lakh.
Other Useful Deductions
- Section 80E: Education loan interest - no upper limit, for 8 years from start of repayment
- Section 80G: Donations to approved charities - 50% or 100% deduction depending on the charity
- Section 80TTA: Up to ₹10,000 interest from savings account (₹50,000 for senior citizens under 80TTB)
Month-Wise Tax Saving Plan
Do not wait until March to make last-minute investments. Spread your ₹1.5 lakh across the year:
- April: Start ELSS SIP (₹12,500/month for 80C)
- April: Pay health insurance premium upfront (80D)
- April: Set up NPS auto-debit for ₹50K (80CCD)
- June: Submit rent receipts for HRA (if applicable)
- December: Review and top up if any 80C gap remains
- January: Submit investment proofs to employer
Common Mistakes to Avoid
- Investing ₹1.5 lakh in a single product in March - spread it out
- Buying insurance policies as investment (endowment plans are poor investments)
- Ignoring employer NPS contribution under 80CCD(2) - it is over and above ₹2L
- Not claiming HRA when eligible - many salaried employees miss this
- Choosing old regime without enough deductions to justify it