Opting for the Old Tax Regime? Here Are the Best Tax-Saving Investments

Ideally, tax-saving investments should be planned at the beginning of the financial year to maximise benefits. However, if you have fallen behind the wagon, there are still some last-minute tax-saving investment ideas that could help lower your tax liability for FY 2024-25.

[Read: Union Budget 2025-26: Here is What Changed for Your Personal Finance and Income Tax]

Traditionally, selecting the right tax-saving investment involved assessing factors such as risk tolerance, investment horizon, and financial goals.

However, in recent years, an additional and crucial factor has come into play - choosing between the Old and New Tax Regimes. This decision has a significant impact on overall tax liability and requires careful consideration.

As you may know, in the Union Budget 2025-26, Finance Minister Ms Nirmala Sitharaman announced significant revisions to the income tax slabs under the default New Tax Regime.

These changes aim to increase disposable income in the hands of individuals, with one of the most notable highlights being the increase in the rebate limit under Section 87A, making income up to Rs 12 lakh effectively tax-free.

Despite these revisions, the New Tax Regime leaves you, the assessee, devoid of several crucial deductions that are available under the Old Tax Regime, such as Sections 80C, 80D, 80E, and 24(b). This simplified structure appeals to taxpayers seeking hassle-free filing and lower tax outflows.

[Read: Union Budget 2025: Is the New Tax Regime Really Beneficial for You]

However, the old tax regime continues to be beneficial for individuals who have investments in tax-saving instruments like PPF, ELSS, and NPS, as they offer deductions and exemptions. For those holding such investments, the old tax regime provides significant tax benefits. As a result, it remains the preferred choice for individuals with insurance policies, home loans, or those who are currently benefiting from substantial deductions.

If you too are leaning towards the Old Tax Regime for planning your investments strategically to maximise tax savings, this article will explore the numerous tax-saving investment options you can consider.

1. Tax-Saving Investments Under Section 80C

One of the most valuable deductions available under the Old Tax Regime is Section 80C, which allows taxpayers to claim deductions of up to Rs 1.5 lakh per financial year. This provision covers a range of investments and expenses including:

• Employee Provident Fund (EPF): A mandatory savings scheme for salaried employees, where both the employee and employer contribute a portion of the salary. The employee's contribution qualifies for a deduction under Section 80C, while the employer's contribution is exempt from tax.

• Public Provident Fund (PPF): A government-backed long-term investment scheme offering attractive interest rates (currently 7.10%). PPF provides tax-free returns and is an excellent option for retirement planning and wealth accumulation.

• Sukanya Samriddhi Yojana (SSY): A high-interest savings scheme (currently 8.20%) designed for the financial security of a girl child under 10 years. While the scheme has a long lock-in period, it is an attractive option for securing a girl child's future owing to the tax benefits on contributions and interest earned.

• Senior Citizen Savings Scheme (SCSS): Exclusively for individuals aged 60 and above, SCSS offers a competitive interest rate (currently 8.20%). It provides a secure investment option with tax exemptions on interest earned up to Rs 1.5 lakh.

• National Pension System (NPS): A government-regulated retirement savings scheme that provides market-linked returns, with tax benefits on contributions, investment income, and maturity amount. It is a viable option for long-term financial security and retirement planning.

• Equity-Linked Savings Scheme (ELSS): A type of mutual fund that offers dual benefits - tax deductions under Section 80C and the potential for wealth creation through equity investments. ELSS funds also have a relatively short lock-in period of three years compared to other tax-saving options.

• Tax-Saving Fixed Deposits (FDs): Fixed deposits with a lock-in period of five years qualify for tax deductions under Section 80C. While they are considered a safe investment option with guaranteed returns, the interest earned is taxable.

If you are planning to buy a house with a loan, the principal component of your EMI qualifies for deduction under Section 80C. This can help significantly reduce your taxable income while helping you invest in a valuable asset.

Additionally, if you purchase a new property, you can claim a deduction on stamp duty and registration charges, provided these are paid within the same financial year and the property value does not exceed Rs 45 lakh.

Note that tax benefits under Section 80C apply only to home loans taken for purchasing or constructing a self-occupied residential property. Loans for second homes or rented properties do not qualify.

Moreover, to claim the full deduction on the principal amount, the property must be held for at least five years after possession.

2. Tax Benefits on Interest Paid on Home Loans

Under Section 24(b), you can claim a deduction of up to Rs 2 lakh per financial year on the interest paid towards a home loan. If you rent out the new property, the entire interest component is exempt from annual income tax calculations.

[Read: Will Home Loan Rates Go Down in the New Year 2025? Here's What to Expect]

If you have taken a home loan between April 01, 2019, and March 31, 2022 and the stamp duty value of the property does not exceed Rs 45 lakhs, you can claim an additional deduction of up to Rs 1.5 lakh under the interest component of the loan.

PersonalFN's Home Loan EMI Calculator

3. Tax Benefits on Education Loan

If you have taken an education loan (for self, spouse, children, or a legal ward), the interest paid is fully deductible under Section 80E of the Income Tax Act.

The deduction can be claimed by an individual (not a HUF or any other kind of taxpayer) for a maximum of eight years from the year of repayment commencement. Additionally, under Section 10(16), any scholarship received to support educational expenses is exempt from income tax.

4. Tax Benefits on Insurance Premiums

An adequate life and health insurance coverage is not only a necessity but also a smart way to save on taxes. Premiums paid for life insurance policies can be claimed under Section 80C, subject to the overall limit of Rs 1.5 lakh.

Under Section 10(10D), the maturity amount is entirely exempt from income tax, provided the annual premium does not exceed 10% of the sum assured (for policies purchased after April 1, 2012).

[Read: How ULIPs Will Be Taxed After the Union Budget 2025-26]

Under Section 80D, individuals can claim deductions on premiums paid for health insurance policies:

• Up to Rs 25,000 per year for self, spouse, and children (Rs 50,000 if the insured is a senior citizen).

• Additional Rs 50,000 per year for health insurance premiums paid for parents aged 60 and above.

5. Tax Benefits on Charity Donations

Under Section 80G of the Income Tax Act, donations made to specific relief funds and charitable organisations qualify for a tax deduction.

The deduction amount varies based on the recipient and the type of the donation.

For instance, contributions to the Prime Minister's Relief Fund, National Disaster Relief Fund, and certain charitable institutions engaged in scientific research or rural development are eligible for a 100% deduction, subject to certain conditions.

To claim this deduction, always ensure you obtain a receipt from the designated institution.

House Rent Allowance (HRA) - Exemption for Salaried Renters

HRA is a valuable deduction in the Old Tax Regime, helping salaried individuals reduce their taxable income.

Since HRA is a part of your salary, it is initially considered taxable. However, if you reside in rented accommodation, you can claim a partial or full tax exemption under Section 10(13A) of the Income Tax Act.

The HRA exemption is calculated as the lowest of the following:

• Actual HRA received

• 50% of (Basic Salary + DA) for those residing in metro cities (Delhi, Kolkata, Mumbai, or Chennai)

• 40% of (Basic Salary + DA) for those living in non-metro cities

• Actual rent paid minus 10% of (Basic Salary + DA)

If you do not receive HRA but pay rent, you can claim a deduction under Section 80GG, subject to conditions.

To Conclude...

Like any other investment, tax-efficient investment avenues do not follow a one-size-fits-all approach. Tailor your strategies to your specific income, expenses, financial goals, and risk tolerance.

Don't hesitate to seek advice from a professional financial advisor when necessary.

Happy investing!

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MITALI DHOKE is a Research Analyst at PersonalFN. She is an MBA (Finance) and a post-graduate in commerce (M. Com). She focuses primarily on covering articles around mutual funds including NFOs, financial planning and fixed-income products. Mitali holds an overall experience of 4 years in the financial services industry.
She also actively contributes towards content creation for PersonalFN’s social media platforms in the endeavour to educate investors and enhance their financial knowledge.
 

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.