Build Wealth With Unique Income Tax-Saving Options in 2025
Introduction
A financial management journey is the product of varied aspects such as savings, investments, taxation, analysis and so on. One of these aspects which is most affected by the external environment is the taxation of investments and income earned.
The direct tax can significantly affect the wealth-building journey for an individual. Therefore, exploring income tax-saving options is crucial to maximise the savings. This blog explores unique investment options, exemptions and deductions, that can reduce the overall tax liability.
Income Tax Slabs And Rates
The tax charged directly on the total income earned under different heads is known as income tax. In India, it is regulated by the Income Tax Act, 1961, which was recently proposed for revision in February 2025. The revision aimed to simplify the structure and mechanism of this act.
The Act mentions different provisions, regimes, regulations, income tax slabs, rates, exemptions and deductions. Among these, the aspects significantly helping save income tax are:
1. Exemptions: These are incomes exempted from the calculation of gross taxable income.
2. Deductions: These are contributions or expenditures that can help reduce the tax liability through different sections.
Based on the selection of income tax regime, these exemptions, deductions, income tax slabs, and their rates will differ.
New Tax Regime (Default Regime)
It was first introduced in the Union Budget 2020-21 to simplify the tax structure and was made the default regime in FY 2023-24. The regime provides significant relief with its wide income tax slabs and low rates.
In this regime from FY 2025-26, after the application of rebate under section 87A, the tax liability up to INR 12 lakhs is nil. The slabs for individuals below age 60 are as follows.
Tax Slabs (in INR) FY 2024-25 | Tax Rates FY 2024-25 | Tax Slabs (in INR) FY 2025-2 | Tax Rates FY 2025-2 |
0 - 3 lakhs | Nil | 0 - 4 lakhs | Nil |
3 lakhs - 7 lakhs | 5% | 4 lakhs - 8 lakhs | 5% |
7 lakhs - 10 lakhs | 10% | 8 lakhs - 12 lakhs | 10% |
10 lakhs - 12 lakhs | 15% | 12 lakhs - 16 lakhs | 15% |
12 lakhs - 15 lakhs | 20% | 16 lakhs - 20 lakhs | 20% |
Above 15 lakhs | 30% | 20 lakhs - 24 lakhs | 25% |
Above 24 lakhs | 30% |
Source: Union Budget 20251
Data suggests that nearly 73% of the taxpayers already opt for the new tax regime. However, other than the following specifications, taxpayers cannot claim any exemptions or deductions under the new tax regime:
1. Contribution by employer towards National Pension System.
2. Income earned from Agnipath scheme.
3. Rebate under section 87A up to INR 60,000.
4. Salaried employees can get a standard deduction of INR 75,000.
Old Tax Regime
This regime can be one of the excellent income tax-saving options for the investors with different deductible expenses. Due to rebate under 87A, there is no tax for income up to INR 5 lakhs. The income tax slabs are as follows:
Taxpayers below 60 years | Taxpayers in 60-80 years | Taxpayers above 80 years | |||
Tax Slabs (in INR) | Tax Rates | Tax Slabs (in INR) | Tax Rates | Tax Slabs (in INR) | Tax Rates |
0 - 2.5 lakhs | Nil | 0 - 3 lakhs | Nil | 0 - 5 lakhs | Nil |
2.5 lakhs - 5 lakhs | 5% | 3 lakhs - 5 lakhs | 5% | 5 lakhs - 10 lakhs | 20% |
5 lakhs - 10 lakhs | 20% | 5 lakhs - 10 lakhs | 20% | Above 10 lakhs | 30% |
Above 10 lakhs | 30% | Above 10 lakhs | 30% | ||
Source: Union Budget 20252
Investors opting for the old tax regime can get deductions under 80C for some investments and options for income tax savings other than 80C. The blog discusses all the key income tax-saving options through exemptions and deductions to reduce the overall tax liability.
10 Income Tax Savings Options
Some crucial expenses can be claimed as a deduction for reducing the overall tax liability under the following sections.
1. Save Tax under 80C
The investment or contribution towards some of the below-listed investments can be deducted up to an aggregate of INR 1.5 lakhs3.
Investment Instrument | Description |
Equity-Linked Savings Scheme (ELSS Fund) | This equity fund investment has a lock-in period of 3 years and can provide desired market exposure4. The investments in ELSS can be claimed as deduction under section 80C of the Income Tax Act within an aggregate limit of INR 1.5 lakhs. |
National Pension Scheme and NPS Vatsalya | This pension product allows investors to get defined benefits during retirement with regular contributions. A deduction is allowed to the parent/guardian for a maximum deposit of INR 50,000 in the account of a minor, as mandated under sub-section (1B) of section 80CCD5. |
Life Insurance premium | The premium paid by an individual for life insurance policy can be claimed as an exemption. |
Tax-Saving FDs | The amount invested in this type of FD can be claimed as a deduction up to an aggregate limit of INR 1.5 lakhs. This FD has a lock-in period of 5 years6. |
Public Provident Fund (PPF) | It is the sovereign product allowing investment in lump sum or instalments. It can be withdrawn for 15 years, which can help in income tax savings for senior citizens with long-term vision. The interest on this investment is 7.1% as for Q4 FY 20257. |
Senior Citizen Savings Scheme (SCSS) | It is a crucial tool for income tax savings for senior citizens. The prevalent rate of interest is 8.2% as for Q4 FY 2025 for SCSS. |
National Savings Certificate (NSC) | The instrument has a 5-year lock-in and can also be used as collateral for availing loan. The current interest rate for this asset is 7.7% for Q4 FY 2025. |
Sukanya Samriddhi Yojana | It is an investment account opened for girls below age 10 by their guardians. The prevalent rate on this scheme is 8.2% for Q4 FY 2025. |
The above-mentioned investment can provide a clear tax deduction up to a limit. However, investments like corporate bonds can be used for efficient tax planning with a long-term approach. There are different types of corporate bonds to suit the varying aspirations of the investor. Moreover, interest income and long-term maturity of some corporate bonds also make them a suitable option for income tax savings for senior citizens. They can provide tax benefits in mainly two ways:
A. Tax-Saving Bonds: Corporate bonds like zero-coupon bonds like zero-coupon bonds can be used to save Tax Deducted at Source (TDS) on interest income.
B. Long-Term Investment: During the sale or redemption of corporate bonds, capital gains tax is charged. However, in the long-term holding, this tax rate is reduced, and investors can also earn potential market returns due to corporate exposure. The tax structure for these corporate bonds is as follows:
Particulars | Short-Term Tax | Long-Term Tax |
Listed Corporate Bonds | Income Tax Slab rate (held for less than 12 months) | 12.5% (held for 12 or more months |
Unlisted Corporate Bonds | Income Tax Slab rate (held for less than 24 months) | 12.5% (held for 24 or more months |
Therefore, investing in schemes like PPF, NSC, NPS and so on can help investors reduce their tax liability. Moreover, strategic investments like corporate bonds can also be used for long-term tax benefits8.
2. Save Tax under 80D
There are varied opportunities for income tax savings other than 80C. The premium paid for the health insurance of self or close family members like spouse, children and parents. It can be availed under section 80D, and the prescribed limits are as follows:
3. House Rent Payment
Salaried employees without HRA benefits or self-employed individuals can claim a deduction of rental payment as follows:
Moreover, as per the Budget 2025 announcement, the threshold for TDS is also increased to INR 6 lakhs per annum from April 1, 2025. It will help reduce the overall tax liability11.
4. Home Loan Interest Payment
Section 24 (B) allows the borrower to claim deduction of interest on loan taken for purchase, construction, repair, or reconstruction of a let-out or self-occupied property. In case of let-out property, there is no limit on the maximum interest amount for deduction. However, in self-occupied property, the limit is INR 2 lakhs or INR 30,000 as per the case.
Moreover, if a borrower has availed a loan for the first time in FY 2017, they can claim a deduction of INR 50,000 for a loan amount up to INR 35 lakhs. Home loan interest is a significant obligation, and deductions can be a relief for the borrowers.
5. Educational Loan Interest Payment
Under Section 80E, the total amount of interest paid on the high-education loan can be claimed as a deduction12.
6. Child Education Allowance
Up to 2 surviving children, an individual can get an allowance of INR 1200 per annum per child under section 10 (14). Hostel allowance can be INR 3,600 per annum per child. Such allowances can be unique income tax savings options13.
7. Leave Travel Allowance
You can claim LTA under Section 10(5) twice in four financial years. This can be during domestic travel during your leave for yourself or your family members, including your dependent parents, spouse, children, and siblings14.
8. Section 44ADA
50% of the income earned from profit and gains of the business/profession by self-employed individuals can be claimed as deduction. These are presumptive taxation norms. However, the cash receipts in the total income should not exceed 5%.
9. Section 80TTA
Individuals, less than 60 years old, can claim a deduction of up to INR 10,000 for interest received on their bank savings account15.
10. Donations
Any donations by the taxpayer towards the betterment of society is available for deduction. It can be made to charitable trusts, funds or institutions and the deduction can be claimed under section 80G. The rate applicable for deduction is as follows:
Conclusion
Managing taxation to income tax savings options can help investors retain a significant amount of their earnings. Moreover, some deductions also encourage investors to invest in specific assets or for a long duration. It eventually helps establish financial stability. Taxpayers can explore different income tax savings options to manage their overall tax liability for the upcoming financial year.
Planning to invest in corporate bonds? Log in to Grip Invest and explore a wide variety to suit your investment objectives.
Frequently Asked Questions On Ways To Save Taxes In FY 23-24
1. How can I save taxes under Section 80c of the Income Tax Act 1961?
Certain investment contributions like life insurance premiums, PPF, National Savings Certificate, or National Pension System can be claimed as a deduction under section 80C. However, their total amount can be INR 1.5 lakhs.
2. How can I claim insurance premiums paid to avail of a tax deduction?
Taxpayers can claim an insurance premium of INR 25,000 for the insurance premium under Section 80 D. This limit increased to INR 50,000 for senior citizens. Moreover, one can also claim insurance premiums paid for family members. They can mention the same during tax calculations under the old regime.
3. How can I benefit from tax planning while purchasing a home?
House purchases can be a highly expensive decision. Therefore, the loan availed for this purchase can help in tax planning. Taxpayers can claim interest amounts and principal amounts and even get the benefit of a first-time home loan borrower for reducing the overall tax liability.
References
1. India Budget, accessed from: https://www.indiabudget.gov.in/doc/memo.pdf
2. India Budget, accessed from: https://www.indiabudget.gov.in/doc/memo.pdf
3. Income Tax Department, accessed from: https://www.incometax.gov.in/iec/foportal/help/individual/return-applicable-1
4. Association Of Mutual Funds In India, accessed from: https://www.amfiindia.com/investor-corner/knowledge-center/equity-funds.html
5. India Budget, accessed from: https://www.indiabudget.gov.in/doc/memo.pdf#page=44
6. CNBC, accessed from: https://www.cnbctv18.com/personal-finance/how-fixed-deposits-help-in-tax-saving-heres-what-experts-say-budget-2025-19529299.htm
7. National Savings Institue, accessed from: https://www.nsiindia.gov.in/(S(im5wgt55inntvvms3fw2ro45))/InternalPage.aspx?Id_Pk=132
8. Business Standard, accessed from: https://www.business-standard.com/finance/personal-finance/budget-2024-all-the-key-changes-to-capital-gains-tax-explained-124072500330_1.html
9. Income Tax Department, accessed from: https://www.incometax.gov.in/iec/foportal/help/individual/return-applicable-1
10. Income Tax Department, accessed from: https://www.incometax.gov.in/iec/foportal/help/individual/return-applicable-1
11. India Budget, accessed from: https://www.indiabudget.gov.in/doc/memo.pdf#page=28
12. Income Tax Department, accessed from: https://www.incometax.gov.in/iec/foportal/help/individual/return-applicable-1
13. Income Tax Department, accessed from: https://incometaxindia.gov.in/_layouts/15/dit/pages/viewer.aspx?grp=rule&cname=cmsid&cval=103120000000006985
14. Income Tax Department, accessed from: https://incometaxindia.gov.in/Rules/Income-Tax%20Rules/103120000000006903.htm
15. Income Tax Department, accessed from: https://www.incometax.gov.in/iec/foportal/help/individual/return-applicable-1
16. https://www.incometax.gov.in/iec/foportal/help/individual/return-applicable-1
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