Tax Savings Tips: Navigating Old and New Regime

Income tax savings can have a significant impact on your take-home income and long-term financial planning. With the introduction of the new tax regime, Indian taxpayers now have two options: the old regime with deductions and exemptions, and the new regime with lower tax rates but limited benefits. Choosing the right one depends on your income, lifestyle, and financial commitments.

This guide breaks down the best ways to save income tax in India under both regimes for the financial year 2024-25 (assessment year 2025-26).

Understanding Income Tax Savings in India

Taxpayers can reduce their taxable income through eligible deductions, investments, and exemptions. The old tax regime allows you to claim these benefits, while the new regime simplifies taxation by offering reduced slab rates but removes most exemptions.

To make informed decisions, it is essential to understand what each regime offers in terms of income tax savings in India.

Section 80C: Key to Tax Deductions in the Old Regime

Under the old tax regime, Section 80C allows a maximum deduction of ₹1.5 lakhs per financial year. Common eligible instruments include:

• Public Provident Fund (PPF)

• Employee Provident Fund (EPF)

• Equity Linked Saving Scheme (ELSS)

• Life Insurance Premiums

• 5-Year Tax-Saving Fixed Deposits

• National Savings Certificates (NSC)

Additionally, tuition fees and home loan principal repayment are also covered under 80C. For many salaried individuals, this is the foundation of income tax savings in India.

Section 80D: Health Insurance Benefits

Medical costs can create financial strain, especially during emergencies. Section 80D provides relief through deductions on health insurance premiums:

• ₹25,000 for self, spouse, and children

• ₹50,000 additional for senior citizen parents

This benefit supports your health coverage while contributing to your income tax savings in India.

HRA, Home Loans, and Education Loans

House Rent Allowance (HRA)

Salaried individuals living in rented houses can claim HRA exemption under the old regime. The calculation depends on your basic salary, rent paid, and city of residence.

Home Loan Interest – Section 24

Interest paid on home loans qualifies for a deduction of up to ₹2 lakhs under Section 24.

Education Loan – Section 80E

Interest on education loans can be claimed without an upper limit for a maximum of 8 years.

New Tax Regime: Simplified but With Fewer Benefits

The new regime removes most deductions but offers lower tax rates:

A standard deduction of ₹75,000 is still available for salaried and pensioners.

Old vs New Regime: A Practical Example

Assume an individual earns ₹15 lakhs annually.

Old Regime:

• Deductions: ₹3 lakhs (80C, 80D, HRA)

• Taxable Income: ₹12 lakhs

• Approximate Tax: ₹1,12,500

New Regime:

• Deduction: ₹75,000 (standard)

• Taxable Income: ₹14.25 lakhs

• Approximate Tax: ₹1,03,750

While the new regime may look attractive, it benefits individuals with fewer eligible deductions. In contrast, those with regular investments and expenses may save more under the old regime.

6 Smart Ways to Maximize Income Tax Savings in India

1. Invest up to ₹1.5 lakhs under Section 80C

2. Purchase health insurance and claim under Section 80D

3. Utilize HRA if staying in rented accommodation

4. Invest in NPS and claim additional ₹50,000 under Section 80CCD(1B)

5. Pay interest on education loans (Section 80E)

6. Donate to eligible charities for deductions under Section 80G

How to Choose the Right Regime

The right tax regime depends on your financial situation:

• Choose the old regime if your deductions exceed ₹3 lakhs

• Go for the new regime if you prefer simplicity and have fewer expenses to claim

• Use tax calculators or consult a financial expert to simulate your tax liability under both options

Effective tax planning is essential for increasing your income tax savings in India. Whether you benefit more from the old regime’s deductions or the new regime’s simplified structure, making an informed choice can help you save significantly. Review your financials early in the financial year to avoid last-minute decisions and optimize your tax outcome.

FAQs

1. Is the new tax regime better for all income groups?
   Not necessarily. It depends on your eligible deductions. High investors and loan payers usually benefit from the old regime.
2. Can I switch between regimes every year?
   Yes! Salaried individuals can choose between regimes each financial year.
3. Do I still need to invest in 80C under the new regime?
   No, it’s not mandatory as 80C deductions aren’t allowed under the new regime.
4. How do I calculate my HRA exemption?
   HRA exemption is calculated as the minimum of these three:

• Actual HRA received
• 50% of basic salary (metro) / 40% (non-metro)
• Rent paid minus 10% of basic salary

5. What’s the best tax-saving instrument for young professionals?
   ELSS is a great pick—it offers market-linked growth and the shortest lock-in under 80C.