How to Save Tax in India: 10 Legal Ways You Should Know in 2025
Introduction
Paying taxes is important, but overpaying them isn’t! With the right planning, you can legally save a significant amount of tax in India. The Income Tax Act offers several exemptions, deductions, and benefits — all you need is to know where to look.
Here’s your complete 2025 guide to saving tax legally without getting into any grey areas.
1. Invest Under Section 80C
You can claim deductions up to ₹1.5 lakh by investing in eligible options:
- Equity Linked Savings Schemes (ELSS)
- Public Provident Fund (PPF)
- National Savings Certificate (NSC)
- Life Insurance Premium
Pro Tip: ELSS has the shortest lock-in (3 years) and historically better returns compared to other 80C options.
2. Use NPS (Section 80CCD)
NPS investments give you:
- ₹50,000 extra deduction (over 80C limit) under 80CCD(1B)
- Partial withdrawal benefits after 3 years for special purposes
Pro Tip: Employer contribution to NPS is also tax-free up to 10% of your salary.
3. Health Insurance Premium (Section 80D)
Deduction limits:
- ₹25,000 for self & family
- Additional ₹25,000 for parents (₹50,000 if parents are senior citizens)
Pro Tip: Pay premiums online to ensure proper records for tax filing.
4. Home Loan Benefits
- Section 24(b): Interest up to ₹2 lakh deductible
- Section 80C: Principal repayment up to ₹1.5 lakh
5. HRA Exemption
If you live in rented accommodation and receive HRA, you can claim exemption based on:
- Actual HRA received
- Rent paid minus 10% of salary
- 50% of salary in metro cities (40% in non-metro)
6. Education Loan Interest (Section 80E)
No upper limit on interest deduction for up to 8 years.
7. Donations (Section 80G
8. Savings Account Interest (Section 80TTA/80TTB)
- Up to ₹10,000 deduction (₹50,000 for senior citizens).
9. Capital Gains Exemptions
Invest in specific bonds (54EC) to avoid tax on long-term capital gains from property.
10. Standard Deduction
📊 Case Study: Salaried Individual – ₹12 LPA
| Tax Saving Option | Amount Invested | Deduction Claimed |
|---|---|---|
| 80C Investments | ₹1,50,000 | ₹1,50,000 |
| NPS Extra Limit | ₹50,000 | ₹50,000 |
| Health Insurance | ₹25,000 | ₹25,000 |
| HRA Exemption | — | ₹1,20,000 |
| Standard Deduction | — | ₹50,000 |
| Total Savings | — | ₹3,95,000 |