As the new financial year 2025-26 begins, salaried individuals must make a crucial decision: whether to continue with the new tax regime or opt for the old one. While the new tax regime offers a simpler structure and higher tax-free income thresholds, it does not support many popular deductions and exemptions. For those planning to stick with the old tax regime, it is essential to understand the available tax-saving tools to reduce taxable income effectively.
This comprehensive guide details all major deductions under the old tax regime, particularly those available under Section 80C and other related provisions of the Income Tax Act.
Summary Table Of Tax Saving in FY 2025-26
| Topic | Details |
|---|---|
| Financial Year | 2025-26 |
| Tax Regime Options | New (default) or Old (optional) |
| Maximum Deduction under 80C | Rs 1.5 lakh per year |
| Other Key Sections | 80D, 80E, 80CCD, 24(b) |
| Key Instruments | PPF, EPF, NPS, ELSS, SCSS, SSY, FDs, Home Loan, Insurance |
| Official Tax Portal | https://incometax.gov.in |
Section 80C: Foundation of Tax Savings
Section 80C of the Income Tax Act allows individuals to claim deductions of up to Rs 1.5 lakh annually by investing in or spending on eligible financial instruments. Here are the main avenues under 80C:
1. Employees’ Provident Fund (EPF)
A mandatory retirement savings scheme for salaried individuals, both employee and employer contribute 12% of the employee’s basic salary. The employee’s contribution qualifies for tax deductions.
2. Public Provident Fund (PPF)
A government-backed savings scheme offering an interest rate of 7.1% (as of April 2025). PPF has a lock-in of 15 years, and both the interest and maturity amounts are tax-free.
3. Sukanya Samriddhi Yojana (SSY)
Targeted at parents of girl children under 10, SSY currently offers 8.2% interest. Investments and returns are exempt from tax, but there’s a long lock-in period until the child turns 21.
4. Senior Citizens Savings Scheme (SCSS)
Available to individuals above 60 years of age, SCSS provides an 8.2% annual return with a 5-year lock-in (extendable). Principal is eligible for 80C deductions, but interest is taxable.
5. National Savings Certificate (NSC)
This fixed-income investment offers a 7.7% interest rate compounded annually with a 5-year lock-in. Interest is taxable but reinvested interest qualifies for deduction under 80C.
6. Equity-Linked Savings Scheme (ELSS)
These are diversified equity mutual funds with a 3-year lock-in. Returns are market-linked and partially taxable under capital gains. Popular for offering quick liquidity and high return potential.
7. Life Insurance Premiums
Premiums paid towards life insurance policies (self, spouse, children) are deductible under Section 80C. Ensure that the annual premium does not exceed 10% of the sum assured to qualify.
8. Tax-Saving Fixed Deposits
Banks offer 5-year tax-saving FDs eligible under 80C. While the investment qualifies for deductions, the interest earned is taxable.
9. Home Loan Principal Repayment
The principal portion of your home loan EMI can be claimed under 80C. Ensure the property is not sold within 5 years to retain the deduction benefit.
Additional Deductions Outside Section 80C
Section 80CCD(1B): National Pension System (NPS)
Beyond the 80C limit, you can claim an additional Rs 50,000 for contributions to NPS under Section 80CCD(1B). This is in addition to the Rs 1.5 lakh under 80C.
Section 24(b): Home Loan Interest
You can claim up to Rs 2 lakh per annum on the interest paid on home loans for a self-occupied property. For let-out properties, there’s no upper limit, but overall loss from house property is capped at Rs 2 lakh.
Section 80E: Education Loan Interest
Interest paid on education loans for higher education (self, spouse, or children) is fully deductible for up to 8 years from the year repayment starts.
Section 80D: Health Insurance Premiums
Premiums paid for health insurance are deductible:
- Up to Rs 25,000 for individuals below 60
- Up to Rs 50,000 for senior citizens
- An additional Rs 5,000 for preventive health checkups
New Tax Regime: Why Some Avoid It
The new regime (default) offers zero tax liability up to Rs 7 lakh via rebate under Section 87A and reduced rates up to Rs 15 lakh income. However, it eliminates the benefit of deductions. For taxpayers who invest heavily in 80C and other eligible deductions, the old regime may result in lower tax liability.
Example:
- A person with an income of Rs 10 lakh using full 80C, 80D, and 24(b) deductions may end up paying less tax under the old regime than under the new.
Choosing the Right Regime
To choose the optimal regime:
- Calculate your total eligible deductions
- Use tax calculators available on the official income tax website
- Communicate your choice to your employer early in the financial year
Defaulting to the new regime may result in higher TDS if your investments are not declared in time.
Frequently Asked Questions (FAQs)
Q1. What is the maximum deduction I can claim under Section 80C?
A: The maximum deduction is Rs 1.5 lakh per financial year.
Q2. Can I switch between the new and old tax regime every year?
A: Yes, salaried individuals can switch every year by informing their employer. For business owners or professionals, switching is allowed only once.
Q3. Is interest from PPF taxable?
A: No, both the interest and maturity amount are tax-free.
Q4. Can I claim deductions under 80C and also under 80CCD(1B)?
A: Yes, 80CCD(1B) allows an additional deduction of Rs 50,000 over and above the Rs 1.5 lakh under 80C.
Q5. What happens if I don’t declare my tax regime to my employer?
A: You will automatically be placed under the new tax regime by default.
Q6. Is the SCSS scheme only for government employees?
A: No, SCSS is available to all senior citizens aged 60 and above.
Q7. Are ELSS investments risky?
A: ELSS mutual funds invest in equities, so they carry market risks, but also offer higher return potential.
Conclusion
For many taxpayers, the old tax regime still provides significant savings through strategic investments and spending. If you’re willing to invest in schemes like PPF, ELSS, NPS, and insurance, or if you’re paying EMIs or school fees, sticking with the old regime may offer better returns.
Make sure to review your financial situation annually and consult a tax advisor or use tools from the Income Tax Department to make an informed decision.
Official Link: Income Tax India Official Portal
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