You’re Probably Paying More Tax Than You Need To
India’s Income Tax Act contains dozens of provisions allowing taxpayers to legally reduce their tax liability through deductions, exemptions, and rebates. Yet surveys consistently show that most salaried Indians claim only the most basic deductions — Section 80C — and miss significant savings available through other provisions. This guide covers the main ones.
First: Old Regime vs New Regime
Since FY 2023-24, the New Tax Regime has been the default, with a simplified tax rate structure but very few deductions allowed. The Old Tax Regime has higher base rates but allows the full range of deductions described in this guide. For salaried individuals with significant investments, home loans, and other deductible expenses, the Old Regime often results in lower total tax. Calculate both and choose the one that benefits you — you can switch once per year.
The New Regime is beneficial for those with few deductions and income primarily from salary — especially at income levels below ₹10-12 lakh where the new standard deduction and rebate structures make it attractive.
Section 80C: The Workhorse Deduction (Up to ₹1.5 Lakh)
Section 80C allows deduction of up to ₹1.5 lakh invested in specified instruments. Common qualifying investments:
- Employee Provident Fund (EPF) — deducted automatically for salaried employees
- Public Provident Fund (PPF) — 15-year instrument with 7.1% tax-free returns
- Equity Linked Savings Scheme (ELSS) — mutual funds with 3-year lock-in, market-linked returns
- Life Insurance Premiums — term insurance and endowment premiums
- National Savings Certificates (NSC)
- Home Loan Principal Repayment
- Children’s tuition fees (up to 2 children)
- 5-year tax-saving Fixed Deposits
- Sukanya Samriddhi Yojana (for girl children)
Section 80D: Health Insurance (Up to ₹75,000)
Premium paid for health insurance is deductible: ₹25,000 for self/spouse/children (₹50,000 if any member is a senior citizen); additionally ₹25,000 (or ₹50,000 for senior citizens) for parents’ health insurance. Preventive health check-up costs up to ₹5,000 are included within the overall limit. Maximum deduction of ₹75,000 if you are a senior citizen with senior citizen parents.
Section 24(b): Home Loan Interest (Up to ₹2 Lakh)
If you have a home loan on a self-occupied property, interest paid up to ₹2 lakh per year is deductible from income. For let-out property, there is no cap on interest deduction but the net loss can only offset ₹2 lakh of other income per year (remaining carried forward for 8 years).
Section 80TTA/80TTB: Interest Income
Savings account interest up to ₹10,000 per year is deductible under 80TTA (for non-senior citizens). Senior citizens can deduct up to ₹50,000 of all interest income (savings, FD, post office) under Section 80TTB.
National Pension System (NPS): Additional ₹50,000
Under Section 80CCD(1B), an additional ₹50,000 invested in NPS per year is deductible over and above the ₹1.5 lakh 80C limit. This makes NPS extremely tax-efficient for those in the 30% tax bracket — a ₹50,000 investment saves ₹15,000-16,000 in tax. NPS returns are market-linked with compulsory annuitisation at retirement (40% must be converted to a pension).
HRA and LTA Exemptions (For Salaried Employees)
House Rent Allowance (HRA) received from your employer is partially exempt from tax based on a formula involving your salary, HRA received, rent paid, and city of residence. If you are paying rent but do not receive HRA, Section 80GG provides a deduction of up to ₹5,000/month. Leave Travel Allowance (LTA) for domestic travel is exempt for 2 trips in a block of 4 years.
Planning Tip: Start Early
Most people make all their tax-saving investments in January-March when their HR sends reminders. Investing through the year (especially ELSS via SIP) gives you 12 months of market exposure instead of buying at potentially peak valuations in January. Plan your tax deductions at the start of the financial year — April — not the end.
