Save Tax Legally: TaxBuddy’s Expert-Approved Deductions
- Bhavika Rajput
- 4 hours ago
- 9 min read
Filing taxes efficiently requires a clear understanding of India’s tax framework and the options available to optimize your savings. For FY 2025-26, taxpayers can choose between the old tax regime, which allows deductions under various sections, and the new tax regime, which offers lower tax rates but minimal exemptions. Knowing which regime to opt for, which deductions apply, and how to plan your finances can significantly impact your tax liability. Accurate planning, timely filing, and maximizing eligible deductions are essential to avoid penalties, reduce taxable income, and ensure compliance. Platforms like TaxBuddy make this process seamless, providing automated calculations, deduction suggestions, and expert guidance to help taxpayers navigate both regimes efficiently. Let's explain how to understand India’s tax regimes, the legal avenues to save taxes, and practical strategies to optimise your deductions for FY 2025-26.
Table of Contents
Understanding India’s Tax Regimes for FY 2025-26
India offers two primary tax regimes for individual taxpayers: the old regime and the new regime. The old tax regime retains higher tax rates but allows exemptions and deductions under sections such as 80C, 80D, 80CCD, HRA, home loan interest, and more. The new tax regime, introduced to simplify filing, provides lower tax rates but eliminates most exemptions and deductions. Choosing the right regime depends on your income structure, eligible deductions, and financial goals. Taxpayers with high deductions typically benefit more under the old regime, while those with minimal deductions may find the new regime advantageous. Understanding these regimes is crucial for optimizing tax liability while staying compliant with regulations.
Maximizing Savings Under the Old Tax Regime
Maximizing Savings Under the Old Tax Regime
The old tax regime continues to be a preferred option for many taxpayers who want to leverage a variety of deductions and exemptions to lower their taxable income. By carefully planning and utilizing these provisions, individuals can significantly reduce their tax liability while staying compliant with income tax laws.
One of the most commonly used strategies is investing under Section 80C. This section allows deductions for contributions made to instruments such as life insurance premiums, Public Provident Fund (PPF), Equity-Linked Savings Scheme (ELSS), and the principal repayment of home loans. The total deduction under Section 80C is capped at ₹1.5 lakh per financial year, and careful planning can ensure that all eligible investments are included to maximize savings.
In addition to Section 80C, taxpayers can make additional contributions to the National Pension Scheme (NPS) under Section 80CCD(1B). These contributions are eligible for an extra deduction of ₹50,000, which is over and above the 80C limit. This allows for both tax savings and long-term retirement planning benefits.
Health insurance premiums also offer substantial tax-saving potential under Section 80D. Premiums paid for oneself, family members, and even parents qualify for deductions, subject to specified limits. For instance, premiums paid for parents who are senior citizens are eligible for a higher deduction, making it an effective way to reduce taxable income while ensuring financial protection for the family.
House Rent Allowance (HRA) is another important area where taxpayers can save on taxes under the old regime. Those living in rented accommodation can claim HRA deductions, provided they maintain proper documentation such as rent receipts and rental agreements. By carefully calculating the eligible HRA exemption, individuals can lower their taxable income significantly.
Overall, maximizing tax savings under the old regime requires proper planning, maintaining detailed records, and strategically allocating investments and expenses across eligible deductions. Consistently tracking eligible contributions and staying informed about permissible limits ensures that taxpayers make the most of available exemptions, reducing their overall tax liability effectively.
Key Sections for Legal Tax Deductions (80C, 80CCD, 80D)
Understanding legal tax deductions under sections 80C, 80CCD, and 80D is crucial for efficient tax planning, as these provisions allow taxpayers to lower their taxable income by making eligible investments or payments.
Section 80C is one of the most commonly used tax-saving sections. It covers a variety of investments and payments, including contributions to Public Provident Fund (PPF), Employee Provident Fund (EPF), Equity-Linked Savings Schemes (ELSS), National Savings Certificates (NSC), life insurance premiums, and the principal repayment portion of housing loans. Taxpayers can claim a maximum deduction of ₹1.5 lakh under this section in a financial year. By systematically investing in instruments covered under 80C, individuals can not only reduce their tax liability but also build a long-term savings corpus for future financial goals.
Section 80CCD(1B) provides an additional opportunity to save on taxes. Contributions to the National Pension System (NPS) qualify for an extra deduction of ₹50,000 over and above the 80C limit. This section is particularly useful for those aiming to enhance their retirement corpus while availing of tax benefits simultaneously.
Section 80D focuses on health and wellness. It allows taxpayers to claim deductions on premiums paid for health insurance policies covering themselves, their spouse, children, and parents. The deduction limit varies depending on the age of the insured individuals; for instance, higher limits are applicable when insuring senior citizen parents. This not only provides financial relief against medical expenses but also encourages maintaining health security for the family.
By strategically planning investments and payments across sections 80C, 80CCD, and 80D, taxpayers can substantially reduce their taxable income, optimize tax savings, and achieve better financial security over time.
Is HRA Exemption Allowed in the New Tax Regime?
Under the new tax regime, most exemptions, including HRA, are not allowed. Taxpayers can still claim deductions available under specific sections like 80CCD(2) for employer contributions to NPS, but HRA cannot be used as a deduction. In contrast, the old regime allows detailed HRA calculations to reduce taxable income. Taxpayers with substantial HRA benefits should evaluate whether continuing under the old regime provides higher tax savings.
Home Loan Interest & Other Property-Based Deductions
Interest payments on home loans are eligible for deductions under Section 24(b) up to ₹2 lakh for self-occupied properties. Additionally, principal repayment qualifies under Section 80C. Income from property, including rental income, is taxed after allowing standard deductions of 30% of the annual value. Combining these deductions with other eligible investments reduces overall tax liability significantly.
Health, Education, and Retirement Contributions
Health, education, and retirement contributions provide taxpayers with a valuable way to reduce their taxable income while also encouraging financial discipline in essential aspects of life. Under Section 80D, individuals can claim deductions for health insurance premiums paid for themselves, their spouse, children, and parents. This includes premiums for family floater plans and separate policies for parents, allowing taxpayers to safeguard their family’s health while enjoying tax benefits. The deduction helps offset medical expenses and promotes the purchase of adequate health coverage, which is increasingly important given rising healthcare costs.
Section 80E allows deductions on the interest paid on education loans for higher studies, whether in India or abroad. This provision encourages individuals to invest in education without worrying about the financial burden, as the interest component of the loan repayment is deductible from taxable income.
For retirement planning, Section 80CCD provides deductions for contributions made to the National Pension Scheme (NPS). These contributions not only reduce taxable income but also help build a long-term corpus for retirement, ensuring financial security in later years. Collectively, these sections support prudent financial planning in health, education, and retirement, making tax saving an integral part of overall financial well-being.
Lesser-Known Legal Avenues to Save Tax
Apart from the commonly used deductions under Section 80C or standard exemptions, taxpayers can take advantage of several lesser-known provisions under the Income Tax Act to optimize their tax liability. These sections are often overlooked but can provide significant savings when used strategically.
Section 80G allows deductions for donations made to specified charitable institutions, relief funds, and certain political parties. The deduction can be either 100% or 50% of the donated amount, with or without restriction, depending on the nature of the institution. This not only promotes social responsibility but also helps reduce taxable income.
Section 80TTA and 80TTB provide deductions on interest income from savings accounts. Under Section 80TTA, non-senior citizens can claim a deduction of up to ₹10,000 on interest earned from savings accounts with banks, post offices, or cooperative societies. Senior citizens can avail a higher deduction under Section 80TTB, which allows up to ₹50,000 in interest income to be deducted, covering savings accounts, fixed deposits, and recurring deposits.
Section 80EEA provides an additional deduction for interest on home loans taken for affordable housing. Taxpayers who meet the eligibility criteria, including loan amount and property value limits, can claim this deduction over and above the regular Section 24(b) limit, effectively lowering their tax outgo while making home ownership more affordable.
By incorporating these provisions into tax planning, taxpayers can strategically reduce their taxable income and maximize savings beyond the convetional deductions, creating a more efficient and legally compliant tax strategy.
How TaxBuddy Helps Optimize Deductions
TaxBuddy provides AI-driven tax filing solutions that simplify deduction planning. The platform automatically identifies eligible deductions based on uploaded documents, calculates tax liability under both old and new regimes, and suggests the optimal regime for maximum savings. Additionally, TaxBuddy ensures error-free filing, timely submission, and tracks all tax-related compliance, providing a seamless experience for taxpayers. Using TaxBuddy, taxpayers can maximize legal deductions without missing critical opportunities.
Conclusion
Effective tax planning for FY 2025-26 requires understanding India’s old and new tax regimes, maximizing deductions, and strategically managing investments and contributions. Legal deductions across sections like 80C, 80CCD, 80D, HRA, and home loan interest can significantly reduce taxable income. Leveraging platforms like TaxBuddy ensures a streamlined, error-free process while helping taxpayers optimize their savings efficiently. For anyone looking to simplify tax filing and maximize deductions, it is highly recommended to download the TaxBuddy mobile app for a secure, hassle-free, and seamless experience.
FAQs
Q1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options?
TaxBuddy provides both options. Self-filing allows taxpayers to upload documents like Form 16, bank statements, and TDS certificates, while the AI-driven platform auto-fills relevant fields and performs error checks. For complex returns, expert-assisted plans offer professional guidance to ensure accurate filing, maximize deductions, and handle any notices or clarifications from the Income Tax Department.
Q2. Which is the best site to file ITR?
While multiple platforms exist, TaxBuddy stands out for its AI-driven system, real-time TDS validation, automated error checks, and expert support. It offers both self-filing and assisted filing, making it suitable for beginners as well as professionals with complex tax scenarios.
Q3. Where to file an income tax return?
ITR can be filed through the official Income Tax Department portal or via reliable platforms like TaxBuddy. Using TaxBuddy simplifies the process by auto-matching data, reducing errors, and providing mobile-based filing for convenience.
Q4. Can I claim HRA under the new tax regime?
Under the new tax regime, HRA exemption is not available. Only under the old regime can salaried employees claim HRA based on rent paid, salary received, and location of residence.
Q5. How much deduction is allowed under Section 80C for FY 2025-26?
Section 80C allows a maximum deduction of ₹1,50,000 per financial year for eligible investments and expenses like life insurance premiums, PPF, ELSS, tuition fees, and principal repayment of home loans. This applies only in the old tax regime.
Q6. Is health insurance premium deductible under both regimes?
Yes. Premiums paid for health insurance for self, spouse, children, and parents can be claimed under Section 80D. The deduction limit differs by age: ₹25,000 for adults below 60, and ₹50,000 for senior citizens. This is applicable under both old and new tax regimes.
Q7. Can education loan interest be claimed under Section 80E?
Yes. Interest paid on an education loan for higher studies is fully deductible under Section 80E for up to 8 years or until the interest is paid, whichever is earlier. This applies under the old tax regime; the new regime does not provide this deduction.
Q8. What is the additional NPS deduction under Section 80CCD(1B)?
Section 80CCD(1B) allows an extra deduction of up to ₹50,000 for contributions to the National Pension Scheme (NPS), over and above the ₹1,50,000 limit of Section 80C. This deduction is available only in the old tax regime.
Q9. Are charitable donations eligible for deduction under Section 80G?
Yes. Donations made to approved charitable organizations are eligible for deductions under Section 80G. The amount of deduction depends on the type of donation, ranging from 50% to 100%, with or without restrictions, and is claimable only in the old tax regime.
Q10. Can senior citizens claim higher deductions under 80TTB?
Yes. Senior citizens (60 years and above) can claim deductions up to ₹50,000 under Section 80TTB on interest income from savings accounts, fixed deposits, or recurring deposits, which is over and above the standard exemptions available under Section 80TTA for non-senior citizens.
Q11. Does TaxBuddy suggest the optimal tax regime automatically?
Yes. TaxBuddy analyzes your income, investments, and deductions to recommend whether the old or new tax regime is more beneficial. It considers exemptions, deductions, and other factors to help minimize your tax liability effectively.
Q12. How can TaxBuddy ensure error-free ITR filing and compliance?
TaxBuddy uses AI-driven checks to automatically validate TDS entries, match Form 16 details, identify missing information, and verify all calculations. Its system flags potential errors and offers expert review if needed, ensuring accurate filing, timely compliance, and reducing the risk of notices or penalties.
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