Tax planning is an essential part of financial management for both individuals and businesses. By understanding and utilizing available tax deductions, you can significantly reduce your taxable income and optimize your tax liability. This comprehensive guide explores all major deductions available under the Indian Income Tax Act, 1961, for FY 2025–26.
Introduction to Tax Deductions
A tax deduction is an expense or investment recognized by the Income Tax Department that reduces your total taxable income. Unlike tax credits, which directly reduce tax liability, deductions lower the income base on which tax is calculated. Effective use of deductions can result in substantial savings.
In this guide, we cover:
- Key deductions for salaried individuals
- Deductions for self-employed professionals and business owners
- Deductions under special sections (e.g., 80C, 80D, 80E, 80G)
- Depreciation and asset-related deductions
- Presumptive taxation schemes
- Old vs. new tax regime comparison
- Documentation and compliance tips
- Case studies and examples
- Frequently asked questions (FAQs)
Deductions for Salaried Individuals
Section 80C: Investments up to ₹1.5 Lakh
Under Section 80C, you can claim deductions up to ₹1.5 lakh for investments and payments including:
- Employee Provident Fund (EPF)
- Public Provident Fund (PPF)
- Equity Linked Savings Schemes (ELSS)
- Life insurance premium
- National Savings Certificate (NSC)
- Tax-saving fixed deposits (5-year tenure)
- Principal repayment of home loan
- Tuition fees for children’s education (up to two children)
Example: If you invest ₹1 lakh in PPF and pay ₹50,000 in life insurance premiums, you can claim the full ₹1.5 lakh deduction.
Section 80D: Health Insurance Premium
Section 80D allows deductions on health insurance premiums paid for self, family, and parents:
- Up to ₹25,000 for self, spouse, and children
- Additional ₹25,000 for parents (₹50,000 if parents are senior citizens)
- Preventive health check-up expenses up to ₹5,000 within the above limits
Tip: Premiums paid by pensioners for senior-citizen parents often yield the highest deduction.
Standard Deduction
A standard deduction of ₹50,000 is automatically allowed for salaried individuals and pensioners, covering expenses like transport and medical costs.
House Rent Allowance (HRA)
To claim HRA under Section 10(13A), you need:
- Rent receipts
- Rental agreement
- Your salary details and HRA component
Deduction is the minimum of:
- Actual HRA received
- Rent paid minus 10% of salary
- 50% of salary (metro cities) or 40% (non-metro)
Leave Travel Allowance (LTA)
LTA covers travel expenses for you and your family within India, twice in a block of four years. Documents required:
- Travel tickets
- Boarding passes
- Evidence of travel destination
Deductions for Self-Employed Professionals & Business Owners
Business Expenses (Sections 30–37)
Expenses wholly and exclusively for business are deductible, including:
- Rent and utilities
- Employee salaries
- Office supplies and repairs
- Marketing, travel, and hospitality expenses
- Professional fees (audit, legal, consultancy)
Depreciation on Assets (Section 32)
Depreciation allows you to deduct the cost of fixed assets over their useful life. Key points:
- Block depreciation method
- Rates vary by asset type (e.g., 15% for machinery, 5% for furniture)
- Additional depreciation of 20% for new manufacturing assets
Pre-Operative Expenses (Section 35D)
Expenses incurred before the commencement of business, such as:
- Market research
- Feasibility studies
- Professional fees for incorporation
These can be written off in five equal installments.
Section 80E: Education Loan Interest
Interest on an education loan for higher studies (self, spouse, children) is fully deductible without any upper limit, for a maximum of eight years from the loan start.
Section 80G: Donations to Charitable Institutions
Contributions to approved charities qualify for:
- 100% deduction for donations to central and state government funds
- 50% deduction for certain NGOs, subject to qualifying limits
Receipts and 80G certificates are mandatory.
Presumptive Taxation Schemes
Section 44AD: Small Business Scheme
Eligible businesses (turnover up to ₹2 crore) can declare profit at 8% (6% digital receipts) of turnover, without detailed books of account.
Section 44ADA: Professionals
Professionals (receipts up to ₹50 lakh) can declare 50% of receipts as income, exempt from audit requirements.
Section 44AE: Transporters
Owners of up to 10 goods vehicles can declare ₹7,500 per month per vehicle as income.
Old vs. New Tax Regime Comparison
| Feature | Old Regime | New Regime |
|---|---|---|
| Slab Rates | 5% to 30% | 5% to 30% (more slabs) |
| Deductions Allowed | Sections 80C, 80D, HRA, etc. | Limited (Standard deduction only) |
| Complexity | Higher (multiple claims) | Lower (simplified) |
Choosing between regimes requires evaluating your deduction portfolio. Use an Income Tax Calculator to compare.
Documentation and Compliance Tips
- Maintain digital and physical records of all investments and expenses
- Use accounting software for real-time tracking
- Reconcile bank statements monthly
- File returns before deadlines to avoid penalties
- Retain documents for at least six years
Case Studies
Case Study 1: Maximizing 80C Deductions
A salaried employee invested in ELSS, PPF, and paid tuition fees, reaching the ₹1.5 lakh limit. By planning investments early, tax liability dropped by ₹45,000.
Case Study 2: Benefit of Depreciation for Manufacturers
A small-scale manufacturer purchased new machinery, claimed 20% additional depreciation, reducing taxable profits by ₹2 lakh in the first year.
Frequently Asked Questions (FAQs)
Which deductions can I claim under both old and new regimes?
Under the new regime, only the standard deduction (₹50,000) is allowed. The old regime allows multiple deductions including 80C and 80D.
Can I claim home loan interest if the property is rented?
Yes, Section 24 allows interest deduction even if the property is let out, subject to a maximum of ₹2 lakh.
Are health check-up expenses deductible?
Yes, up to ₹5,000 under Section 80D within the overall health insurance premium limit.
Is life insurance premium deductible?
Yes, under Section 80C within the ₹1.5 lakh limit.
Conclusion
Effective tax planning through strategic use of deductions can lead to significant savings. Whether you’re a salaried individual, professional, or business owner, this Tax Deduction Guide for FY 2025–26 equips you with the knowledge to maximize your benefits and stay compliant.
Consult a qualified tax advisor for personalized planning and make the most of available deductions this year.
