First, Choose Your Tax Regime
Before diving into investments, the most crucial decision for the financial year 2026-27 is choosing between the old and new tax regimes. The new regime is the default option and offers lower tax rates but does not allow most popular deductions like those
under Section 80C. The old regime has higher rates but allows you to lower your taxable income through various investments and expenses. Generally, the old regime is beneficial if you have significant deductions from a home loan, high rent payments, or plan to fully utilize investment-linked deductions. Assess your potential deductions to see which path saves you more money.
The Foundation: Section 80C
For those opting for the old tax regime, Section 80C is the cornerstone of tax planning, offering a deduction of up to ₹1.5 lakh from your taxable income. This section covers a wide range of investments. The Employee Provident Fund (EPF) is a mandatory contribution for most salaried individuals that automatically counts towards this limit. The Public Provident Fund (PPF) is a popular government-backed scheme offering tax-free interest and maturity amounts, though it has a 15-year lock-in. Equity Linked Savings Schemes (ELSS) are mutual funds with a shorter three-year lock-in period and the potential for higher, market-linked returns. Other options include life insurance premiums, tax-saver Fixed Deposits (FDs) with a five-year tenure, the National Savings Certificate (NSC), and contributions to the Sukanya Samriddhi Yojana for a girl child.
An Extra Deduction: National Pension System (NPS)
The National Pension System (NPS) is a powerful tool for retirement planning that also offers a unique tax advantage. Under Section 80CCD(1B), you can claim an additional deduction of up to ₹50,000 for your contribution to an NPS Tier-I account. This is over and above the ₹1.5 lakh limit of Section 80C, effectively allowing a total deduction of up to ₹2 lakh for those using both sections. This makes NPS an attractive option for anyone looking to maximize their tax savings while building a long-term retirement corpus. This extra deduction is available only under the old tax regime.
Health is Wealth: Section 80D
Protecting your health and saving tax go hand-in-hand with Section 80D, which provides deductions for health insurance premiums. You can claim up to ₹25,000 for premiums paid for yourself, your spouse, and dependent children. An additional deduction is available for premiums paid for your parents—up to ₹25,000 if they are non-senior citizens and up to ₹50,000 if they are senior citizens (aged 60 or above). If you are a senior citizen yourself, your own limit also increases to ₹50,000. This means a person can claim a maximum deduction of up to ₹1 lakh under this section. A deduction of up to ₹5,000 for preventive health check-ups is also included within these overall limits.
Other Avenues for Tax Saving
Beyond the major investment sections, several other expenses can reduce your tax liability under the old regime. If you have a home loan, the interest paid on it is deductible up to ₹2 lakh per year under Section 24(b), while the principal repayment is covered under Section 80C. Salaried employees receiving House Rent Allowance (HRA) can claim an exemption for rent paid, provided they live in a rented house. Furthermore, interest paid on an education loan for higher studies is eligible for deduction under Section 80E for up to eight years, with no upper limit on the amount. Donations made to specified charitable institutions can also be claimed as a deduction under Section 80G.
