The Ultimate Guide to Saving Taxes for Indian Salaried Individuals (2025)

For Indian salaried employees, tax planning is not just about reducing the annual tax burden—it’s also about smart wealth creation. With the Income Tax Act offering a variety of deductions, exemptions, and benefits, understanding every available avenue helps optimize savings. This guide details the popular—and often missed—tax-saving options for the 2025-26 assessment year, including National Pension System (NPS) and tax advantages on home purchases for both single and joint owners.

Understanding the Indian Tax Regime for Salaried Employees

Currently, Indian taxpayers can choose between the Old Tax Regime (with exemptions and deductions) and the New Tax Regime (with lower slabs, but fewer deductions). Most tax-saving opportunities exist primarily under the Old Tax Regime, so this guide focuses on that structure.

Section 80C: The Foundation of Tax Saving

Section 80C remains the most popular section for salaried individuals, allowing deductions up to ₹1,50,000 per annum. Common investment options eligible are:

• Employees’ Provident Fund (EPF): Automatically deducted from salary and eligible for 80C deduction.
• Public Provident Fund (PPF): 15-year government-backed savings scheme with attractive returns.
• Life Insurance Premiums: Premiums paid for self, spouse, or children.
• Equity Linked Savings Scheme (ELSS): Mutual funds with a 3-year lock-in; offers market-linked returns.
• Principal repayment on home loan: Amount paid towards the principal portion qualifies for deduction.
• Tuition Fees: For up to two children.
• National Savings Certificate (NSC), Sukanya Samriddhi Yojana, Senior Citizens Savings Scheme, etc: Other eligible investment avenues.

Section 80CCD(1B): Exclusive NPS Benefits

The National Pension System (NPS) deserves special mention. Over and above the standard ₹1.5 lakh in 80C, an additional deduction of up to ₹50,000 is available exclusively for NPS contributions under Section 80CCD(1B). This makes NPS one of the best tax-saving instruments, especially for those who have exhausted their 80C limit.

• Investment Flexibility: NPS offers flexibility in asset allocation (Equity, Corporate Debt, Government Bonds).
• Tax Benefits: Total NPS tax exemption can go up to ₹2,00,000 per year (₹1.5 lakh under 80C + ₹50,000 under 80CCD(1B)).
• Employer Contribution: Contributions by employer up to 10% of salary (Basic + DA) under Section 80CCD(2) are tax-deductible and outside the 80C/80CCD(1B) limits.
• Taxation on Maturity: 60% of the NPS corpus withdrawn at retirement is tax-free (as per current rules), and 40% must be used for annuity, which is taxable as income.

Section 80D: Medical Insurance Premiums

Premiums paid for health insurance policies for self, spouse, children, and parents are eligible for deduction up to ₹25,000 (or ₹50,000 for senior citizens). Preventive health check-ups up to ₹5,000 are included in this limit.

Section 24(b) and Section 80EE/80EEA: Home Loan Interest Deduction

If a home loan is taken for purchase or construction of a house, interest paid up to ₹2 lakh per annum is deductible under Section 24(b) from income from house property. Additionally, under Section 80EE/80EEA (for first-time home buyers), up to ₹1.5 lakh may be claimable, subject to conditions.

Tax Benefits for Single and Joint Home Ownership

Single Ownership

• 80C: Principal repayment up to ₹1.5 lakh per annum can be claimed by the owner.
• Section 24(b): Interest on home loan up to ₹2 lakh per annum can be claimed.
• Stamp Duty: Payments towards stamp duty and registration charges are also eligible for deduction under Section 80C.

Joint Ownership

• Both owners must be co-borrowers as well as co-owners to claim tax benefits individually.
• Principal and Interest deductions can be split as per the ownership share, subject to respective overall limits for each co-owner (₹1.5 lakh for principal under 80C, ₹2 lakh for interest under Section 24(b)).
• This can potentially double the total deduction claimed for a family, significantly lowering the tax outgo when structured properly.

Other Important Deductions and Exemptions

• House Rent Allowance (HRA): Individuals living in rented accommodation can claim HRA exemption under Section 10(13A) using Rule 2A calculation.
• Standard Deduction: ₹50,000 is available to all salaried individuals irrespective of actual expenses.
• Section 80TTA/80TTB: Interest earned from savings accounts up to ₹10,000 for non-seniors and ₹50,000 for senior citizens is deductible.
• Leave Travel Allowance (LTA): Can be claimed twice in a block of four years for travel within India (only for travel tickets, not accommodation or food).
• Section 80G: Donations made to specified funds/charitable institutions are deductible subject to limits.

Tax Saving Tips for Salaried Individuals

• Opt for salary restructuring to include tax-efficient allowances—meal vouchers, telephone/internet allowance, etc.
• Plan investments at the start of the year for smoother cash management and better returns.
• If your spouse is earning, plan home purchase in joint names to maximize tax benefits.
• Utilize employer contributions to NPS for deductions under Section 80CCD(2)—this is over and above your individual limits.
• Keep all proofs (investment receipts, premium statements, rent agreements, etc.) safely for smooth processing during tax filing.

Choosing Between Old and New Tax Regime

The New Tax Regime offers lower slab rates, but most deductions discussed above are not available. If your total deductions (80C, NPS, 80D, home loan interest, etc.) collectively exceed ₹2-2.5 lakh annually, the Old Tax Regime often leads to lower taxable income.

Conclusion

Choosing the right mix of investments and deductions—especially leveraging NPS for the exclusive 80CCD(1B) benefit and optimizing home ownership structures—can help Indian salaried employees save substantial taxes. Start your tax planning early each financial year, and evaluate both the Old and New Regimes before filing your return.

Disclaimer

This article is for informational purposes only and is not investment or tax advice. Consult a qualified tax advisor or financial planner before making decisions pertaining to investments and tax planning.