Maximise Your Savings: The 2026 Guide to Income Tax Deductions & Exemptions

Maximise Your Savings: The 2026 Guide to Income Tax Deductions & Exemptions

Understanding income tax deductions and exemptions is essential to maximising your savings and minimising your taxable income. This 2026 guide breaks down the latest rules, eligible deductions under various sections, and key exemptions you can claim, helping you plan your finances better and make the most of every rupee earned.

Why Understanding Income Tax Deductions & Exemptions Matters

Knowing how income tax deductions and exemptions work can significantly impact your financial health. They reduce your taxable income, lower your overall tax liability, and enable more strategic allocation of earnings. By understanding the latest provisions and limits, you can plan investments better, claim rightful benefits, and achieve greater tax efficiency every year.

Choosing Between Old vs New Tax Regime: Impact on Deductions

When filing taxes, selecting between the old and new regimes directly affects the deductions and exemptions you can claim. The old regime allows multiple deductions under sections like 80C, 80D, and HRA, but comes with higher tax slabs. The new regime, on the other hand, offers lower tax rates but fewer deductions. Your choice depends on income, investments, and eligible claims.

Section 80C – Income Tax Deduction for Life Insurance Premiums

Under Section 80C of the Income Tax Act, taxpayers can claim deductions of up to ₹1.5 lakh annually for life insurance premiums paid for themselves, their spouse, or children. This helps reduce taxable income while encouraging long-term financial protection. Eligible policies include term insurance, ULIPs, and endowment plans.

Key highlights:

• Maximum deduction limit: ₹1.5 lakh per financial year.
• Premium must not exceed 10% of the sum assured (20% for policies issued before 2012).
• Policies must be held for at least 2 years; early surrender cancels the deduction.
• Available to both individual taxpayers and HUFs.
• Applicable for policies from IRDAI-approved insurers only.

Section 80D – Additional Deduction for Health Riders

Apart from 80C, Section 80D allows extra deductions for health insurance premiums and medical riders attached to life policies. These deductions promote financial preparedness for medical emergencies.

Highlights:

• Deduction up to ₹25,000 for self, spouse, and children.
• An additional ₹50,000 is available for parents aged 60 or above.
• Preventive health check-up: up to ₹5,000 within the overall limit.
• Payment must be made through non-cash modes (digital/bank).

Section 10(10D) – Tax Exemption on Insurance Payouts

Section 10(10D) provides complete tax exemption on maturity proceeds, death benefits, or bonuses received from a life insurance policy, subject to specific conditions. This ensures that policyholders or nominees receive the entire payout without any tax deduction.

For example, the premium should not exceed 10% of the sum assured, and the policy must meet prescribed holding conditions. However, ULIP gains from high-value policies (premium above ₹2.5 lakh annually) may be taxable as capital gains from FY 2021–22 onwards.

NRI Tax Benefits – Insurance Deduction & Exemption

Non-Resident Indians (NRIs) are also eligible for tax deductions and exemptions on life insurance policies purchased in India. They can claim benefits under Sections 80C, 80D, and 10(10D), similar to residents. Premiums must be paid in Indian currency via NRE/NRO accounts.

Additionally, the maturity amount from eligible policies remains tax-free under Section 10(10D), provided the policy complies with standard guidelines and is issued by an Indian insurer registered under IRDAI.

Common Mistakes to Avoid While Claiming Deductions & Exemptions

Even small errors while claiming deductions can lead to disallowed benefits or notices from the Income Tax Department. Being aware of these pitfalls ensures you make the most of your eligible savings and stay compliant.

Avoid these common mistakes:

• Claiming deductions for lapsed or inactive policies.
• Paying premiums in cash (disallowed under 80C/80D).
• Overlooking holding period rules before surrendering policies.
• Confusing tax deduction (reduces income) with exemption (tax-free income).
• Missing proof submission deadlines to employers or tax authorities.
• Ignoring differences between old and new tax regimes before filing.

All in all, little diligence goes a long way. Cross-check your documents, payment modes, and regime choice before filing; it’s the simplest way to safeguard your tax savings and avoid unnecessary scrutiny.

How to File Claims & Documents Required for Tax Benefits

Proper documentation is key to claiming tax deductions smoothly. The Income Tax Department verifies claims based on the records you submit, so maintaining accuracy and completeness is essential.

Follow these steps and the checklist:

• Keep copies of premium receipts, policy documents, and payment proofs.
• Collect Form 16 or salary slips showing deductions, if applicable.
• Ensure the insurer’s name, policy number, and payment mode are clearly mentioned.
• Submit documents to the employer before the financial year-end.
• Maintain digital records for ITR filing and future verification.
• File under the correct section (80C/80D/10(10D)) while e-filing returns.

Timely submission and well-organised paperwork can help you claim eligible tax benefits without hassle. Staying systematic not only saves time but also ensures every deduction you deserve is rightfully yours.

AN Nov 51/25