After the 2025 Union Budget, tax planning can look complicated, but there is an organised way for young Indians to approach tax planning that will allow them to maximise available tax-saving opportunities. This is an all-inclusive, deep dive guide for ages 20-32 to get acquainted with the rules, understand how to make regime choices, tax planning for investing purposes, and how to prepare to think ahead for investing and saving for the long term.
How the New Income Tax Slabs Work?
The Budget 2025-26 set a progressive structure with different percentage rates for specified income bands, under the New Tax Regime, which is now the default. This means that if no active choice is made, income tax is calculated using this regime.
Example: Suppose a salaried professional earns a total of ₹10 lakh annually:
- The first ₹4 lakh is entirely tax-free.
- Next ₹4 lakh (up to ₹8 lakh) is taxed at 5% (that’s ₹20,000).
- The remaining ₹2 lakh (up to ₹10 lakh) is taxed at 10% (that’s ₹20,000).
- Total tax would be ₹40,000 (excluding standard deduction and other applicable rebates).
Standard Deduction: A ₹75,000 deduction on salary income is given in the New Regime, reducing the taxable income for most salaried and pensioned individuals. This is significant because other usual deductions from the Old Regime (like HRA, 80C, 80D) are not available.
New vs. Old Regime: Deep Dive
Old Regime: Allows a host of deductions and exemptions—including Section 80C (investments, insurance, tuition, principal repayment), 80D (health insurance), HRA (if living in a rented house), and LTA (travel allowance).
Best For: Those who are actively investing in tax-saving instruments, sponsoring insurance premiums, have either home loans or pay rent or have school fees for their children.
Example: If someone were to total up all their deductions/exemptions and it’s ₹3 lakh, and their income is ₹10 lakh, they would only be liable to pay tax on the income amounting to ₹7 lakh.
New Regime: Ignore complicated paperwork or the need to submit proof of expenses and investments. It’s simple, just salary income, and a standard deduction. It is for people with a lower level of deduction exposure or for new/young professionals starting out in their careers.
Best For: For people who are NOT investing actively in eligible schemes or deductions, or those who simply want to keep it simple and easily accomplished.
Example ( ₹10 lakh salary):
| Example ( ₹10 lakh salary) | Old Regime (with deductions) | New Regime (standard deduction only) |
| Gross Income | ₹10,00,000 | ₹10,00,000 |
| Deductions (80C, etc.) | ₹2,00,000 | ₹75,000 (standard) |
| Taxable Income | ₹8,00,000 | ₹9,25,000 |
| Approx. Tax Payable | ₹62,500 | ₹67,500 |
Note: Numbers are for illustration—actual liability varies by exact income/claim.
Step-by-Step Tax Planning for Young Indians
- Map Income Precisely: Any income from salary, bonuses, freelancing, side gigs, rent, or investments goes in. Lump sums, like a bonus or money earned online, count.
- Assess Your Regime: Use the online tax calculator tools or contact a tax consultant. Run the simulations for both the New Regime and Old Regime. If the use of deductions is really less, the New Regime will appear better. If, on the other hand, maximizing 80C is going on and paying rent, etc., kindly compare it with the Old regime.
Read into Important Sections to Save Taxes (Old Regime):
- 80C: A limit of ₹1.5 lakh is allowed for PPF, EPF, ELSS, NSC, child tuition, principal repayment, Sukanya Samriddhi, and term insurance.
- 80D: Health insurance premium—up to ₹25,000 for self and family, ₹50,000 including senior citizen parents.
- 80CCD(1B): Handy extra ₹50,000 in NPS—boosts old age security, reduces taxable income.
- 80TTA/80TTB: Interest from bank/PO savings, upto ₹10,000 (non-senior) or ₹50,000 (senior).
- HRA: If paying rent, get an exemption if the rent is above 10% of the basic salary.
Selection of Smart Investments:
- Invest in SIPs in ELSS right away.
- Open or contribute to PPF/NPS for a long-term corpus.
- Buy health and term insurance—critical for risk as well as tax benefit.
Keep Documentation Ready: Every eligible investment or insurance premium should have proof, such as bank receipts, account statements, and premium payment slips.
File Returns On Time: If one has little or no taxable income, the timely filing of Income Tax Returns (ITR) would serve the purpose of setting a record, especially for loans, visas, business registration, or government jobs.
Annual Review: Any life change-new job, marriage, home loan, dependent parents- should trigger a review for the given regime and investments.
Planning Beyond Section 80C
- Home Loan: Both principal deduction under 80C, and interest up to ₹2 lakh under Section 24(b).
- Education Loan: Education loan interest is deductible under 80E (for eight consecutive years, with no cap).
- Give Away or Capital Gains: Beware that gifts from non-relatives and the sale of assets may attract tax.
- Freelancers/Side Hustlers: Incurred expenses in earning income are generally deductible (home office, supplies, digital tools).
Budget 2025: Further Incentives for Young Earners
- Digital Upskilling Extended: Recognition of tax benefits for short-term tech and AI certification courses.
- Gig and Freelancer Economy: Faster Compliance Mechanisms for Small Income Earning from Digital/Online Platforms.
- Start-up boost: Simplified procedures for ESOPs and early-stage funding, making equity/advisory payouts more tax-efficient in early years.
Typical Pitfalls and Avoidance
- Not Choosing a Regime Consciously: If you do not opt for the Old Regime, you will be taxed under the New Regime by default—potentially paying more than needed.
- Ignoring Health Cover: Health events are unpredictable; insurance saves both money and taxes.
- Delaying Investments: Investing late may mean fewer returns/growth and missing out on first-mover tax advantages.
- Missing Out on Filing: Even if the tax is nil due to deductions, always file tax returns for official continuity.
Pro Tips on Building a Tax-Smart Portfolio for the Future
- Automate small investments every month, especially in ELSS, NPS or PPF.
- Keep digital/physical files for all receipts and documents in one place.
- Monitor updates from the Income Tax Department regularly.
- Discuss major financial plans—buying a house, moving jobs, getting married—with a professional to utilise new deductions and minimise taxes.
Conclusion
Consistent and disciplined tax planning, year-round attention to investments, and adapting to regime changes and new Budget provisions set a foundation not just for tax savings but also for robust, long-term wealth creation.
Frequently Asked Questions:
There’s no fixed answer; simulate both as everyone’s situation is unique. Use free government or commercial calculators to compare. Revisit regime selection every year as your finances change.
They carry market risk but offer higher potential returns and the shortest lock-in (3 years) among all 80C options—ideal for those with some risk appetite and a long-term perspective.
Definitely not. Its main aim is financial security against medical emergencies. Tax saving is a bonus—a premium also covers parents, and for senior citizens, the deduction is higher.
Keeps finances going for future needs, TDS refunds, and major financial transactions, and is often sought for as proof of income.
Disclaimer: The information provided here is for general awareness after the Union Budget 2025-26 and is not a substitute for professional financial or tax advice. Tax laws may change, and actual liability depends on individual circumstances. Readers are advised to consult a qualified tax advisor or financial planner before making decisions.