India operates a progressive tax system — you pay higher rates only on income above each threshold, not on your entire income. Understanding the slabs helps you see exactly how much tax each extra rupee of income costs you, and motivates targeted deduction planning.

New Tax Regime Slabs (Default from FY 2024–25)

Old Tax Regime Slabs

Since FY 2023–24, the new tax regime is the default. You must actively opt in to the old regime each year. The choice depends entirely on your level of deductions and exemptions — there is no universally correct answer.

Section 80C is the most widely used tax deduction in India. It allows you to reduce your taxable income by up to ₹1,50,000 per financial year by investing in or paying for qualifying instruments. At the 30% slab, this alone saves ₹46,800 in tax annually.

Best 80C Options Compared

Section 80C gets all the attention, but there are several other powerful deductions that add significant savings — especially for those already maxing out 80C.

If you live in rented accommodation and your employer provides House Rent Allowance (HRA) as part of your CTC, you can claim a significant exemption on it. The HRA exemption is one of the most valuable tax benefits for urban salaried employees — and one of the most misclaimed.

How HRA Exemption Is Calculated

The HRA exemption is the lowest of the following three amounts:

• Actual HRA received from employer
• Actual rent paid minus 10% of basic salary
• 50% of basic salary (metro cities: Delhi, Mumbai, Chennai, Kolkata) or 40% (non-metro)

Important HRA Rules

• Rent paid must be to a person other than your spouse
• If annual rent exceeds ₹1 lakh, you must provide landlord's PAN
• You can claim HRA exemption even if you don't submit rent receipts to your employer — declare it yourself while filing ITR
• HRA exemption is only available under the old tax regime
• Self-employed individuals cannot claim HRA, but can claim rent deduction under Section 80GG (up to ₹60,000/year)

When you sell an investment for more than you paid, the profit is called a capital gain. India taxes capital gains differently depending on the asset type and how long you held it.

LTCG Harvesting — A Free Tax Trick

India gives you a free ₹1.25 lakh of long-term equity capital gains each year before taxing you. Most investors don't use this. Every year in February or March, you can sell equity holdings that have unrealised LTCG up to ₹1.25L and immediately repurchase them. This resets your cost basis higher — so when you sell permanently in the future, your taxable gain is lower. Done every year, this compounds into a significant tax saving with zero real portfolio disruption.

Two investors with identical portfolios can end up with very different after-tax returns depending on how those portfolios are structured. Tax efficiency is the art of maximising your post-tax return for a given pre-tax return.

Tax Efficiency by Investment Type

The Tax-Efficient Portfolio Order

• Fill EPF first — forced saving, 8.25%, tax-free (happens automatically for salaried)
• Max out PPF ₹1.5L/year — EEE status, government guarantee, perfect for debt allocation
• ELSS SIP up to the 80C remaining balance — equity returns + tax deduction
• Add NPS ₹50,000 under 80CCD(1B) if on old regime — extra deduction + retirement corpus
• Nifty 50 Index Fund SIP for remaining equity target — low cost, long-term compounding
• Sovereign Gold Bonds for gold allocation — 2.5% interest + tax-free capital gain at maturity
• Avoid FDs for long-term goals — put long-term debt money in PPF instead

• Investing in LIC endowments for 80C: Returns of 4–5% over 20 years. You save tax now and lose far more in opportunity cost. Use ELSS instead.
• Not comparing regimes annually: Your income, HRA, and deductions change every year. Run the comparison every April — defaulting to old or new regime without checking costs money.
• Missing the March 31 deadline: All 80C investments must be made before March 31 for that financial year. Many people scramble in the last week and make poor choices under pressure. Invest via SIP throughout the year instead.
• Ignoring 80D: Health insurance premiums qualify for up to ₹1 lakh in deductions (₹25K self + ₹50K senior citizen parents + ₹5K preventive checkup). Most people skip this.
• Not claiming HRA correctly: Many renters either don't claim HRA or claim the wrong amount. If your employer doesn't process it, declare it yourself in ITR — it's your legal right.
• Selling equity within 12 months: STCG is taxed at 20%. Waiting even one day past a year converts it to LTCG at 12.5%. A few extra days' patience saves significant tax on large gains.
• Not doing LTCG harvesting: The ₹1.25L annual LTCG exemption is "use it or lose it" — you cannot carry it forward. Millions of rupees of free tax headroom go unused every year.
• Choosing ULIP for "tax-free" returns: ULIPs charge 2–3% in fees annually and mix insurance with investment poorly. After charges, the "tax-free" return is often lower than a regular taxed mutual fund.

Tax planning is most effective when spread across the year — not crammed into February and March. Here's what to do each quarter.

Quick Pre-March 31 Checklist

• 80C limit (₹1.5L) fully utilised — ELSS, PPF, or EPF contribution confirmed
• NPS ₹50,000 additional contribution done (old regime only)
• Health insurance premium for self and parents paid (80D claim ready)
• LTCG harvesting done — equity gains up to ₹1.25L booked and rebought
• HRA rent receipts collected and ready for ITR
• Home loan interest certificate obtained from bank (for Section 24 claim)
• Education loan interest statement from lender (for Section 80E)
• Donation receipts collected with charity PAN (for Section 80G)