How to Save Income Tax India 2026: 15 Legal Ways

How to Save Income Tax India 2026

15 Legal Ways with Section Numbers, Limits and Regime Availability

Part of the Income Tax India 2026 : Income Tax India 2026: Complete Guide

Most Indians stop at Section 123 when thinking about tax saving. They invest Rs 1.5 lakh, file ITR, and think they have done everything possible.

They have not. There are at least 14 more legal deductions and exemptions available — each with its own section number, limit, and eligibility condition. Used together, they can reduce your taxable income by Rs 3 lakh to Rs 5 lakh or more, depending on your situation.

This article covers all 15 ways to legally reduce your income tax in 2026 — with the exact section, the maximum deduction allowed, whether it is available in the new regime or only old, and who should use it.

15 Ways Legal deductions and exemptions covered

Rs 3L-5L Potential taxable income reduction for home loan + NPS + Sec.123 holders

Old Regime Most deductions available only in old tax regime

2 Ways Available in BOTH old and new regime

Deductions Table — All 15 Ways at a Glance

Every legal deduction and exemption available to individual taxpayers in 2026, with section number, maximum limit, and regime availability.

No.	Section	Deduction / Exemption	Maximum Limit	Regime
1	123	ELSS, PPF, EPF, LIC, NSC, 5-yr FD, home loan principal, tution fees	Rs 1,50,000	Old only
2	123	Pension fund contribution (LIC Jeevan Suraksha etc.)	Rs 1,50,000 (within 123 limit)	Old only
3	124	NPS employee additional contribution	Rs 50,000 extra (above Rs 1.5L limit)	Old only
4	124	Employer NPS contribution to employee account	Up to 14% (govt) / 10% (private) of salary	BOTH regimes
5	19	Flat deduction for all salaried and pensioners	Rs 75,000 (new regime) / Rs 50,000 (old regime)	BOTH regimes
6	126	Medical insurance premium for self, family and parents	Up to Rs 25,000 self + Rs 25,000 parents (Rs 50,000 if senior citizen)	Old only
7	129	Interest on education loan for higher education	Actual interest paid — no upper limit, for 8 years	Old only
8	Schedule III(11) — HRA	House Rent Allowance exemption	Minimum of 3 conditions (see C10)	Old only
9	Schedule III(8) — LTA	Leave Travel Allowance for domestic travel	Actual travel cost, 2 journeys in a 4-year block	Old only
10	22(2)	Interest on home loan for self-occupied property	Up to Rs 2,00,000 per year	Old only
11	153	Interest on savings account / interest on savings or term deposit account for senior citizens	Rs 10,000 / Rs 50,000 (senior citizens)	Old only
12	133	Donations to approved charitable institutions	50% or 100% of donation (depends on institution)	Old only
13	198– LTCG Exemption	Annual exemption on Long Term Capital Gains from equity MF and stocks	Rs 1,25,000 per year — gains below this are tax-free	BOTH regimes
14	82	Capital gains exemption on sale of residential property (reinvested in new house property)	Full exemption if entire capital gain reinvested for purchase within 2 years or construction within 3 years	BOTH regimes
15	132	Interest on electric vehicle loan	Up to Rs 1,50,000 (for loans sanctioned by March 31, 2023)	Old only

The 2 Deductions Available in BOTH Regimes

Most deductions are old regime only. But these two apply regardless of which regime you have chosen.

Standard Deduction — Rs 75,000 (New) / Rs 50,000 (Old)

Standard deduction is a flat deduction available to all salaried employees and pensioners — no investment needed, no proof required. The new regime gives Rs 75,000 (increased from Rs 50,000 via Finance Act 2024). The old regime gives Rs 50,000.

This is automatically applied when your employer computes TDS on salary. When filing ITR, it is auto-populated. Nothing extra to do.

Employer NPS Contribution — Section 124

If your employer contributes to your NPS (National Pension System), that amount is deductible from your taxable income under Section 124. Crucially, this deduction is available in BOTH old and new regimes — making it the only major tax-saving vehicle in the new regime beyond standard deduction.

Category	Deduction Limit
Government employees (Central / State)	Up to 14% of salary (Basic + DA)
Private sector employees	Up to 10% of salary (Basic + DA)
No monetary ceiling	No upper cap in rupees — only percentage limit

Tax Planning : Ask your HR if your employer contributes to NPS on your behalf. If not, you can request them to restructure your CTC to include employer NPS — it saves tax for both you and your employer (employer NPS is also exempt from employer’s payroll tax under certain conditions).

For the complete NPS tax guide, see: NPS Tax Benefit 2026

3. Key Old Regime Deductions Explained

Section 126 — Medical Insurance: Up to Rs 1,00,000

Section 126 allows deduction for health insurance premium paid for yourself, your spouse, dependent children, and your parents. The deduction is separate for your family and your parents.

Who is Insured	Deduction Limit (non-senior citizen)	Deduction Limit (senior citizen — 60+ yrs)
Self + Spouse + Dependent Children	Up to Rs 25,000	Up to Rs 50,000
Parents (additional deduction)	Up to Rs 25,000	Up to Rs 50,000
Maximum total deduction	Rs 50,000 (if all non-senior citizen)	Rs 1,00,000 (if both self and parents are senior citizens)

Preventive health check-up: up to Rs 5,000 (within overall 126 limit) can be claimed for preventive health check-ups. Payment can be in cash (unlike other 126 payments which must be non-cash).

Section 124 — NPS Extra Rs 50,000

Over and above the Rs 1.5 lakh combined 123 limit, you can claim an additional Rs 50,000 deduction under Section 124 for your own NPS contribution. This is in old regime only — but it is the most powerful additional deduction available after 123.

At 30% tax bracket: Rs 50,000 deduction saves Rs 15,600 in tax (Rs 50,000 x 30% + 4% cess). This extra deduction is specifically designed to encourage retirement savings beyond the basic 123 limit.

Section 129 — Education Loan Interest: No Upper Limit

If you took an education loan for yourself, your spouse, or your children for full-time higher education, the entire interest paid qualifies for Section 129 deduction — with no upper limit on the amount. The deduction is available for 8 consecutive years starting from the year you begin repaying the loan.

Only the interest portion qualifies — not the principal repayment. The loan must be from a financial institution or approved charitable institution. Applicable for both Indian and foreign courses.

Section 22 — Home Loan Interest: Up to Rs 2,00,000

Interest paid on a home loan for a self-occupied property qualifies for deduction up to Rs 2,00,000 per year under Section 22. For a let-out property, there is no upper limit on the interest deduction — but the total loss from house property that can be set off against salary income is capped at Rs 2,00,000.

Combined with 123 (principal repayment) and potentially 131 (additional Rs 1.5L for first-time buyers), a home loan can generate substantial tax savings in the old regime. This is one of the main reasons home loan holders prefer the old regime.

For the complete guide, see: Home Loan Tax Benefits 2026

Section 198– LTCG Rs 1.25 Lakh Annual Exemption (Both Regimes)

Long Term Capital Gains (LTCG) from equity mutual funds and listed shares are tax-free up to Rs 1,25,000 per financial year under Section 198. Above Rs 1.25 lakh, LTCG is taxed at 12.5%. This exemption is available in both new and old regimes.

Tax Harvesting Strategy: if your unrealised LTCG in equity MFs is approaching or exceeds Rs 1.25 lakh, you can redeem units and immediately reinvest — resetting your cost price and locking in the tax-free gain. Doing this every year systematically over a long investment horizon can save significant tax.

For the complete LTCG guide, see: LTCG Tax on Mutual Funds 2026

Frequently Asked Questions

Conclusion

Tax saving beyond Section 123 is where most taxpayers leave money on the table. The 15 deductions in this article can collectively reduce your taxable income by Rs 3 lakh to Rs 6 lakh or more, depending on your situation.

The most valuable combination for salaried home loan holders in old regime: 123 (Rs 1.5L) + 124 NPS (Rs 50K) + 126 (Rs 50K) + Section 22 home loan interest (Rs 2L) + HRA (varies) = Rs 4.5 lakh to Rs 6 lakh deductions. At 30% bracket, this saves Rs 1.4 lakh to Rs 1.87 lakh in tax annually.

For those in the new regime: standard deduction (Rs 75K) and employer NPS 124 are your only options. That is why the regime choice matters enormously and you should calculate both before deciding.

For the complete 123 guide: Section 123 Deductions 2026: Complete List of All Options

For NPS tax benefits in detail: NPS Tax Benefit 2026

For ELSS mutual funds (best 123 option): Best ELSS Mutual Funds 2026:

Mutual Funds India 2026: Complete Beginner’s Guide 

Author

CA Ajay Khandelwal is a Chartered Accountant and financial expert with over 21 years of experience in taxation, compliance, and business advisory. As a key expert at AspirixWriters, he provides practical insights on income tax, financial planning, and regulatory matters, helping readers make informed financial decisions.

Author profile CA. Ajay Khandelwal

Disclaimer

This article is for educational and informational purposes only. It is not personal tax advice. Deduction availability and limits are based on the Income Tax Act 2025, Finance Acts, and incometaxindia.gov.in. Individual eligibility depends on income type, residential status, and specific conditions attached to each section. Please consult your Chartered Accountant for personalised tax planning.

References

[1] Income Tax Department — Deductions allowable to taxpayer | Section 123, 126, 129, 133, 153, HRA, LTA, standard deduction details | incometaxindia.gov.in/charts tables/deductions.htm —

[2] Income Tax Act 2025 (Act 30 of 2025), egazette.gov.in | Section 129 (education loan) | Section 22 (home loan interest) | Section 198 (LTCG exemption) | Section 54 (property capital gains exemption) — https://egazette.gov.in

[3] Finance Act 2025 | Standard deduction Rs 75,000 new regime | Section 202 new regime deductions | Finance Act 2024 — LTCG 12.5% rate | incometaxindia.gov.in — https://incometaxindia.gov.in

[4] PFRDA — NPS tax benefits | Section 124 extra Rs 50,000 | Section 124 employer NPS — available in new regime | pfrda.org.in — https://pfrda.org.in