Tax Saving: As the new financial year (FY 2025-26) kicks off, employees need to inform their employers about their tax-saving investments. It’s also essential to specify your preferred tax regime; if you don’t, you’ll automatically be placed in the new tax regime. The new regime is quite appealing, especially since it allows for tax-free income up to Rs 12 lakh. However, it doesn’t offer benefits for most tax-saving provisions, leading many to prefer the Old Tax Regime. If you’re planning to stick with the old regime this year, it’s crucial to know the best tax-saving options available.

Tax-Saving Investments under Section 80C

Section 80C is a key part of the Income Tax Act, offering tax benefits on investments up to Rs 1.5 lakh each financial year. Here are some of the main investment options included:

Employees Provident Fund (EPF)

The EPF is a mandatory savings plan for salaried workers, where both the employee and employer contribute an equal share of the salary. The employee’s contribution qualifies for tax benefits under Section 80C, while the employer’s contribution is tax-exempt.

Public Provident Fund (PPF)

The PPF is a government-supported long-term investment option that currently provides an annual interest rate of 7.1%. The returns from a PPF are entirely tax-free, making it a solid choice for retirement planning and wealth accumulation.

Sukanya Samriddhi Yojana (SSY)

This scheme is designed to ensure the financial security of girls under 10 years old, currently offering an interest rate of 8.2% per annum. While it has a long lock-in period, both the contributions and the interest earned are tax-deductible.

Senior Citizens Savings Scheme (SCSS)

The Senior Citizens Savings Scheme (SCSS) is tailored for those aged 60 and older, offering a competitive interest rate of 8.2%. It’s a reliable investment choice.

 

National Pension System (NPS)

The National Pension System (NPS) is a government-backed retirement plan that provides returns linked to the market. You can enjoy tax deductions on investments up to Rs 2 lakh each financial year. Additionally, you can withdraw 60% of your total corpus as a lump sum upon maturity, which is tax-free. The remaining funds must be used to purchase an annuity for a steady income.

Equity-Linked Savings Scheme (ELSS)

Equity-linked savings schemes (ELSS) are essentially mutual funds that offer tax benefits under section 80C. They come with a lock-in period of just 3 years, making them quicker than many other tax-saving options.

Tax-Saving Fixed Deposit (Tax Saving FD)

Tax-saving fixed deposits (FDs) also provide tax advantages under Section 80C, although the interest earned is subject to tax. These deposits have a lock-in period of 5 years.

Home Loan Principal
If you have a home loan, you can claim tax benefits on the principal portion of your EMI under Section 80C.

Tax benefits on home loan interest

According to Section 24(b) of the Income Tax Act, you can claim tax deductions on home loan interest payments up to Rs 2 lakh in a financial year.

Tax benefits on education loan

If you’ve taken an education loan for yourself, your spouse, children, or legal wards, you can claim a full deduction on the interest paid under Section 80E of the Income Tax Act. This benefit is available for a maximum of 8 years or until the interest is fully repaid, whichever comes first.

Tax benefits on insurance premium

Under Section 80C, premiums paid for life insurance policies qualify for tax deductions up to a total of Rs 1.5 lakh.