How to reduce your tax legally in FY 2026–27 under the Income-tax Act, 2025 — the two regimes compared, the slab table under section 202, the deductions that survive, and why the old section 80C playbook no longer suits most taxpayers.
Most tax-saving advice written before 2026 assumes you are in the regime with deductions and that the job is to fill up a one-and-a-half lakh rupee bucket. Under the Income-tax Act, 2025 that assumption is wrong for a large share of taxpayers. The concessional regime in section 202 is now the default, and in that regime almost none of the familiar deductions apply. The first decision is not which investment to make. It is which regime you are in.
The Two Regimes, Side by Side
| Feature | Concessional regime (s.202) — the default | Regime with deductions |
|---|---|---|
| Slab rates | Lower, see the table below | Higher |
| Standard deduction from salary (s.19) | ₹75,000 | ₹50,000 |
| Deduction for investments and premia (s.123, the old 80C) | Not available | Available |
| House rent allowance exemption | Not available | Available |
| Interest on a self-occupied house | Not available | Available |
| Rebate (s.156) | ₹60,000 where total income does not exceed ₹12,00,000 | ₹12,500 where total income does not exceed ₹5,00,000 |
| How you get into it | Automatic — it applies unless you opt out | You must opt out of s.202 |
Slab Rates Under Section 202
| Total income | Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 to ₹8,00,000 | 5% |
| ₹8,00,001 to ₹12,00,000 | 10% |
| ₹12,00,001 to ₹16,00,000 | 15% |
| ₹16,00,001 to ₹20,00,000 | 20% |
| ₹20,00,001 to ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
The rebate under section 156 does the heavy lifting at the lower end. A salaried taxpayer in the concessional regime with total income of ₹12,00,000 pays tax of ₹60,000 on the slab table, and the rebate is ₹60,000. The liability is nil. Add the ₹75,000 standard deduction and a gross salary of around ₹12,75,000 can carry no tax at all — without a single rupee of investment.
Which Regime Suits You
The arithmetic is simple. The concessional regime gives you lower rates. The other regime gives you deductions. Whichever produces the smaller number wins, and the answer depends almost entirely on how much you can genuinely deduct.
Worked comparison. Salary ₹18,00,000, with a housing loan interest of ₹2,00,000 and ₹1,50,000 of qualifying investments.
Concessional regime: income after the ₹75,000 standard deduction is ₹17,25,000. Tax on the slab table is ₹20,000 at 5%, ₹40,000 at 10%, ₹60,000 at 15%, and ₹25,000 at 20% on the ₹1,25,000 above ₹16,00,000 — ₹1,45,000 before cess.
Regime with deductions: income after a ₹50,000 standard deduction, ₹2,00,000 of interest and ₹1,50,000 of investment is ₹14,00,000, taxed at the higher rates that apply in that regime.
The comparison turns on the total of your deductions. As a rough guide, you need deductions somewhere in the region of ₹4,00,000 to ₹4,50,000 before the older regime starts to win at this income level. Below that, the concessional regime is better and no investment will change that.
What Still Reduces Tax in the Concessional Regime
Opting into section 202 does not leave you with nothing. These still work.
- The standard deduction of ₹75,000 under section 19, which is larger than in the other regime.
- Employer contribution to a pension scheme, which is a deduction in computing salary rather than a chapter deduction — one of the few planning levers that survives.
- Business expenditure. If you have business or professional income, every genuine expense laid out for the business is deductible in computing that income, in either regime.
- Depreciation on business assets.
- Set-off and carry-forward of losses, subject to the rules on each head.
- The rebate under section 156, at ₹60,000, which is far more generous than the ₹12,500 available in the other regime.
What Only Works If You Opt Out
- Deduction for life insurance premia, provident fund and the other section 123 items, formerly section 80C.
- House rent allowance exemption.
- Interest on a loan for a self-occupied house.
- Health insurance premium relief.
- Deduction for interest on an education loan.
- Deduction for donations.
Planning for Business and Professional Income
For a business, the meaningful choices sit in how income is computed, not in personal investments.
- Presumptive taxation under section 58. Income is deemed at 6% of receipts through banking channels and 8% of other receipts. The turnover ceiling is ₹3 crore, up from ₹2 crore, where cash receipts stay within 5% of the total. For professions under section 61, income is deemed at 50% and the ceiling is ₹75 lakh, up from ₹50 lakh.
- Staying under the audit threshold. Section 63 requires audit above ₹1 crore of turnover, but that rises to ₹10 crore where cash receipts and cash payments each stay within 5% of the total. Moving your business to banking channels is worth more than most deductions.
- Timing. Expenditure is deductible in the year it is incurred. Revenue expenditure brought forward into the current year reduces this year's income.
Do not buy an investment in March to save tax you were not going to pay. Under the concessional regime a taxpayer with total income up to ₹12,00,000 has no liability after the section 156 rebate. Locking money into a five-year instrument to protect a nil liability is a real cost with no return. Compute first, invest second.