Smart Ways to Save Tax in FY 2025–26 – Compare, Choose, and Maximize Your Returns!
This blog will help you understand the best tax-saving investment options in India for the financial year 2025–26. Whether you are doing a job, running a business, or just starting to earn, this guide will show you how to save tax legally and grow your savings at the same time.
What Is Tax-Saving , and Why Does It Matter?
Tax-saving means using legal methods to reduce the amount of income tax you have to pay to the government. The Indian government gives us several options—like investments, expenses, and insurance. These are called tax-saving instruments and are part of the Income Tax Act (like Section 80C, 80D, etc.).
Why it matters:
- You keep more of your income instead of paying it as tax.
- You create long-term wealth or savings by making smart investment choices.
- You can plan your future better—be it for retirement, your child’s education, or emergencies.
In short: Tax-saving is not just about paying less tax—it’s about using your money smartly for a better future.So, it is a win-win situation.
Tax Regimes in FY 2025–26: Old vs New
In India, there are two income tax regimes you can choose from when filing your taxes:
1. Old Tax Regime
This is the traditional system where you can claim various deductions and exemptions, such as:
- Section 80C (investments like PPF, ELSS, insurance)
- Section 80D (health insurance)
Salary components like house rent and travel reimbursements.
Best for: People who invest in tax-saving options and have expenses like insurance, home loans, and rent.
2. New Tax Regime
Introduced with lower tax rates but fewer deductions/exemptions allowed. You pay a fixed tax rate based on your income, but cannot claim most deductions under 80C, 80D, HRA, etc.
Best for: People who do not invest much in tax-saving instruments or prefer a simple tax filing process.
Key Difference:
| Feature | Old Regime | New Regime |
| Deductions Allowed | Yes (like 80C, 80D, HRA) | Mostly No |
| Tax Rates | Higher | Lower |
| Ideal For | Investors and high expense earners | Salaried with fewer deductions |
How to Choose the Right Regime?
- If you have fewer deductions, the new regime with lower rates may be better.
- If you are claiming investments like PPF, ELSS, insurance, or home loan, the Old Regime may be better for you.
You can switch between the regimes every year (if salaried), so choose based on what works best for you in FY 2025–26.
Section 80C – Your Main Tax-Saving Tool (Limit: ₹1.5 Lakhs)
Section 80C is one of the most popular sections in the Income Tax Act that helps you save tax by investing or spending money in specific ways.
You can claim a deduction of up to ₹1.5 lakh in a financial year from your total taxable income if you invest in or spend on approved options listed under Section 80C.
This means, if you earn ₹7,00,000 a year and invest ₹1,50,000 in eligible options, your taxable income becomes ₹5,50,000—resulting in lower tax payable.
Who Can Claim 80C?
- Salaried employees
- Self-employed individuals
- Hindu Undivided Families (HUFs)
You just need to ensure the investment or expense is made within the financial year (1st April to 31st March).
Top Tax-Saving Investment Options Under Section 80C
1. Public Provident Fund (PPF)
- What it is: A government-backed long-term savings scheme.
- Return Rate: Around 7%–8% per year, revised quarterly.
- Initial Lock-in Period: 15 years and you can renew it for 5 years at a time afterward.
- Tax Benefit: Investment, interest, and maturity—all are tax-free (EEE status).
- Ideal for: People looking for safe, tax-free long-term savings.
- Additional Notes:Your ₹1 lakh PPF deposit not only saves tax under 80C but also earns tax-free income.
2. Employees’ Provident Fund (EPF)
- What it is: Retirement savings scheme for salaried individuals.
- Contribution: 12% of basic salary is auto-deducted; matched by employer.
- Tax Benefit: Employee’s share is tax-deductible under 80C.
- Lock-in Period: Till retirement or resignation (can be transferred).
- Ideal for: Salaried employees who want long-term, low-risk savings.
- Additional Notes:Auto-deduction from salary, builds a retirement fund, and offers stable returns.
3. Equity-Linked Savings Scheme (ELSS)
- What it is: A mutual fund that invests mainly in the stock market and helps you save tax.
- Returns: Depends on the market. Usually gives 10%–15% returns over the long term.
- Fixed Investment Period: Just 3 years , shorter than other tax-saving tools.
- Tax Benefit: Eligible up to ₹1.5 lakh as per rules.
- Best For: People who want higher returns and are okay with some risk.
- Additional Notes: You can invest monthly through SIP or in one go (lump sum). It’s a great option for growing your money over time.
4. 5-Year Tax-Saving Fixed Deposit (FD)
- What it is: A fixed deposit offered by banks initial 5 years with benefits of tax-saving.
- Returns: Fixed returns between 6%–7%, depending on the bank.
- Tax Benefit: up to ₹1.5 lakh under 80C.
- Interest Tax: Interest is not tax-free—it’s taxed according to your income level.
- Best For: People who want a safe, low-risk investment with fixed returns and no market exposure.
- Additional Notes: Premature withdrawal is not allowed before 5 years.
5. National Savings Certificate (NSC)
- What it is: A government-backed savings bond issued by post offices.
- Return Rate: Fixed and revised by the government (currently ~7%).
- Lock-in Period: 5 years.
- Tax Benefit: Investment qualifies under 80C.
- Interest Tax: Interest is taxable but reinvested and also qualifies for 80C in initial years.
- Ideal for: People who want guaranteed, low-risk returns.
6. Life Insurance Premiums
- What it is: Premiums paid towards life insurance policies—term, endowment, or ULIPs.
- Tax Benefit: Premiums up to ₹1.5 lakh/year qualify under 80C.
- Returns: Depends on the policy (term has no return, ULIP varies).
- Ideal for: Those who need life cover for family protection + tax benefits.
- Additional Notes:Policy must be in the name of self, spouse, or children.
7. Sukanya Samriddhi Yojana (SSY)
- What it is: A government savings scheme for girl children.
- Return Rate: Around 8% (tax-free).
- Lock-in Period: Until the girl turns 21 or gets married after 18.
- Tax Benefit: Deposits up to ₹1.5 lakh qualify under 80C; interest and maturity are tax-free.
- Ideal for: Parents or guardians planning for a girl child’s future education/marriage.
- Additional Notes:Only available for up to 2 girl children under 10 years of age. Operated through post offices and banks.
Quick Comparison Chart
| Investment Option | Lock-in | Returns | Risk | Tax on Returns | Ideal For |
| PPF | 15 yrs | 7–8% | Low | Tax-free | Long-term, safe saving |
| EPF | Till retirement | ~8% | Low | Tax-free | Salaried employees |
| ELSS | 3 yrs | 10–15% | High | Partially taxed | High returns, short lock-in |
| Tax-Saving FD | 5 yrs | 6–7% | Low | Taxable | Safe, simple investment |
| NSC | 5 yrs | ~7% | Low | Taxable | Fixed income, conservative |
| Life Insurance Premiums | 5+ yrs | Varies | Low–Med | Depends | Financial protection + tax saving |
| Sukanya Samriddhi Yojana | Till age 21 | ~8% | Low | Tax-free | Girl child future planning |
Smart Tips for Tax-Saving Planning in 2025–26
• Start investing early (don’t wait till March)
• Max out the ₹1.5 lakh limit under Section 80C
• Claim health insurance benefits under Section 80D
• Use online tax calculators to compare old vs new regime
• Keep all investment proofs and receipts ready
• Avoid last-minute rush to prevent mistakes
• Review your plan yearly or after major life changes
• Don’t invest just to save tax—align it with financial goals
• Use tools like Excel or apps to track deductions and deadlines
Conclusion
Saving tax is not hard if you plan it the right way. By using smart options like PPF, ELSS, insurance, and FDs, you can pay less tax and grow your money at the same time.Tax saving is not just about saving money today, but also about building a better future for you and your family.
Don’t just read—act today and make your money work smarter!
Also Read: Common ITR Filing Mistakes You Must Avoid in AY 2025-26 to ensure faster refunds and error-free returns.
Q. Can I invest in multiple 80C options together?
Yes, but the combined deduction cannot exceed ₹1.5 lakh.
Q. Is ELSS risky?
Yes, ELSS is market-linked, but it offers the highest return potential under 80C.
Q. Can I claim both 80C and 80D?
Absolutely. They are separate sections and can be claimed together.
Q. Is it mandatory to invest for tax saving?
Only under the Old Tax Regime. In the New Regime, most deductions are not available.