Hidden Legal Ways to Save Tax in FY 2025‑26: Beyond Section 80C & Standard Tips

Most salaried individuals in India are familiar with Section 80C of the Income Tax Act, 1961, which allows deductions of up to ₹1.5 lakh. Popular investments like PPF, ELSS, and life insurance premiums are often the first go-to options. However, there are hidden ways to save tax that many taxpayers miss. These are perfectly legal, recognized by the Income Tax Act, and can help you maximize savings in FY 2025-26.

This guide highlights lesser-known but effective options such as HUF tax benefits, leave encashment, NPS, ELSS vs ULIP tax advantages, and certain exemptions on medical and education expenses.

Disclaimer: Tax benefits are subject to provisions of the Income Tax Act, 1961, and amendments from time to time. Please consult a qualified tax advisor before making financial decisions.

Tax Saving Tip #1: Hindu Undivided Family (HUF) Benefits

Forming a Hindu Undivided Family (HUF) can be one of the most effective but underutilized tax-saving strategies.

• HUF is recognized as a separate legal entity under Indian tax law.
• Income earned through business, ancestral property, or investments can be assessed under the HUF instead of being taxed in an individual’s hands.
• This allows the HUF to claim deductions under Sections like 80C (up to ₹1.5 lakh), 80D, and others, similar to an individual, providing a parallel tax-saving avenue. For example, an HUF can invest in instruments like PPF in its name. Note that HUFs cannot claim certain individual-specific exemptions like HRA or standard deduction, and tax authorities may scrutinize artificial income splitting.

Thus, HUF can serve as an additional route for tax saving other than 80C.

Thus, HUF can serve as an additional route for tax saving other than 80C.

Employees often accumulate leave during their tenure, and upon retirement or resignation, they may receive a payout for unused leave.

• This amount is known as leave encashment.
• For government employees, leave encashment is fully exempt from tax.
• For non-government employees, exemption is available under Section 10(10AA) up to a maximum of ₹25 lakh (as amended in Budget 2023, effective AY 2024-25 onwards), subject to the least of: actual amount received, 10 months’ average salary, ₹25 lakh, or cash equivalent of unavailed leave (based on 30 days per year of service).

By planning your leave encashment wisely, you can unlock another hidden way to save tax that many overlook.

Note: Earlier, this exemption limit was ₹3 lakh, but it was increased to ₹25 lakh to align with rising salaries.

Tax Saving Tip #3: NPS (National Pension System) Benefits

The National Pension System (NPS) is not just a retirement planning tool but also a powerful tax-saving instrument. It provides flexibility for investors across income brackets to reduce taxable income while creating long-term security.

The National Pension System (NPS) offers tax-saving opportunities beyond 80C.

• Under Section 80CCD(1B), you can claim an additional deduction of ₹50,000 over and above the ₹1.5 lakh under Section 80C.
• Employer contributions to NPS under Section 80CCD(2) are also tax-exempt up to 14% of salary (basic + DA)
• This makes NPS one of the best ways to save tax for salaried individuals.
• Contributions also help build a retirement corpus while offering market-linked returns.

This option is especially useful for taxpayers in higher income brackets who have already exhausted their 80C limit. Apart from tax savings, NPS has the added advantage of disciplined savings and partial liquidity in specific circumstances like higher education or medical emergencies.

Tax Saving Tip #4: ELSS vs ULIP – Choosing Smartly

Investment-linked tax-saving instruments can get confusing, especially when comparing Equity Linked Savings Schemes (ELSS) with Unit Linked Insurance Plans (ULIPs). Both fall under Section 80C but differ in lock-in, risk profile, and tax treatment at maturity.

• ELSS is more suited for those with a higher risk appetite and shorter lock-in preference.
• ULIPs combine investment with life insurance, making them eligible for tax exemption on maturity proceeds under Section 10(10D) if the annual premium is up to ₹2.5 lakh and the sum assured is at least 10 times the premium.

Important update: From 1 February 2021, ULIPs issued with an annual premium exceeding ₹2.5 lakh are treated like mutual funds for tax purposes (capital gains taxed at 12.5% if gains exceed ₹2.5 lakh annually). Only policies with premiums up to ₹2.5 lakh retain full tax exemption under Section 10(10D).

Thus, choosing between ELSS and ULIP depends on your risk appetite, financial goals, and whether you need insurance coverage along with investment growth.

Related reading: Taxation on ULIP Plans - What You Should Know.

Tax Saving Tip #5: Medical & Education Expense Exemptions

While investments usually grab the spotlight, certain expense-related exemptions also provide opportunities for savings. These benefits, though small in some cases, can still reduce taxable income when combined strategically.

• Medical Expenses:
  Employers reimbursing medical expenses up to specified limits used to provide exemptions. However, post Budget 2018, this was replaced with a standard deduction for salaried employees (₹50,000 under the old regime, increased to ₹75,000 under the new regime for FY 2025-26).
• Preventive health check-ups and health insurance premiums are eligible for deductions under Section 80D. Limits are:
  • ₹25,000 (for individuals below 60 years)
  • ₹50,000 (for senior citizens)
  • Related read: Section 80D: Maximize Tax Benefits and Deductions on Health Insurance.
• Education Expenses:
  • Children’s education allowance: ₹100 per month per child, up to 2 children, exempt under Section 10(14) if provided by the employer as part of salary.
  • Hostel allowance: ₹300 per month per child, up to 2 children, exempt under Section 10(14) if provided by the employer as part of salary.
  • While these exemptions are small in quantum, they still contribute to incremental tax savings and are often overlooked. Parents with young children should ensure they claim these allowances to maximize every possible deduction.

Action Plan Checklist

Here’s a quick checklist to ensure you explore all possible hidden tax-saving options in FY 2025-26:

• Evaluate forming an HUF to separate family and personal income.
• Plan for leave encashment exemptions during job switch or retirement.
• Contribute to NPS for the extra ₹50,000 deduction.
• Compare ELSS vs ULIP for long-term tax-efficient investments.
• Claim exemptions for health insurance premiums under Section 80D and education allowances under Section 10(14).
• Revisit insurance: Term Insurance Remains Favourable Tax Saving Instrument in 2025.

Quick Comparison Table – Hidden Tax-Saving Options

Secure Your Savings While Planning Taxes

Maximizing tax benefits is not just about deductions — it’s about making smart financial choices that safeguard your present and secure your future.

At PNB MetLife, we help you go beyond Section 80C with tailored insurance and financial solutions. By combining tax-saving instruments like life insurance and ULIP plans, you can reduce your taxable income while protecting your loved ones.

👉 Try our Income Tax Calculator to see how much you can save in FY 2025-26 with hidden provisions like HUF benefits, NPS contributions, and education allowances.

👉 Explore PNB MetLife’s life insurance plans to add tax-efficient protection to your portfolio.

Take the next step — because smart tax planning today means stronger financial freedom tomorrow.