Ever since the new tax regime was introduced in FY 2020-21, many salaried taxpayers have one common complaint that they are left with limited options to avail the benefits of deductions and many exemptions that are available under the Old Tax Regime.
Here are the 5 ways, through which taxpayers can maximise their tax savings under the new tax regime for FY 2025-26 (AY 2026-27).
Ever since the new tax regime was introduced in FY 2020-21, many salaried taxpayers have one common complaint that they are left with limited options to avail the benefits of deductions and many exemptions that are available under the Old Tax Regime. But then that was the objective of the government to encourage you to choose a regime that is less complex and compensates for the loss of deduction benefits through wider tax slabs and lower tax rates compared to the Old Tax Regime.
Some of the popular deductions and exemptions that are available under the old regime and absent under the new regime include Section 80C, Section 80D, Section 24(b), House Rent Allowance (HRA), Leave Travel Allowance (LTA), deduction for professional tax, Section 80TTA/80TTB and several other allowances.
In Budget 2025, the Centre gave a much-needed relief to the taxpayers by freeing income up to Rs 12.75 lakh from income tax, resulting in significant savings in tax for middle-class taxpayers.
This apart as a salaried taxpayer, you can avail more benefits and maximise tax gains under the new tax regime, but for that, you must shift your strategy from investment-heavy deductions to smart salary structuring and utilising the limited allowable deductions. Because the new regime doesn’t allow most traditional deductions and exemptions, you can focus on these specific, highly effective avenues.
Strategies to maximise tax savings under the new tax regime
Deepashree Shetty, Partner, Global Mobility Services, Tax & Regulatory Advisory at BDO India, has suggested these 5 ways, through which taxpayers can maximise their tax savings under the new tax regime for FY 2025-26 (AY 2026-27).
- Opt for meal vouchers if provided by the employer as part of the salary structure
- Consider structural investment in NPS, along with the employer’s contributions, to help further reduce the tax burden
- Compare tax liability under both the old and new tax regimes before making the choice of regime
- Inform the regime selection to the employer at the start of the tax year or upon joining new employment
- Re-calculate tax liability under both tax regimes for an optimal tax outcome before filing the ITR.
Benefits available under the new tax regime
Below are the key benefits that continue to remain available under the new tax regime:
- A flat standard deduction of Rs 75,000 for salaried individuals and pensioners.
- Deduction under Section 80CCD(2) for the employer’s contribution to NPS.
- Deduction for employment of new employees under Section 80JJAA in eligible business cases.
- Family pension deduction under Section 57(iia).
- Leave encashment under section 10(10AA)
- Certain transport and conveyance allowances for specially-abled employees.
- Deduction under Section 24(b) from income from house property on interest paid on housing loan.
- Gratuity received at the time of retirement or resignation continues to remain tax-exempt up to Rs 20 lakh under Section 10(10).
- Compensation received up to Rs 5 lakhs under a Voluntary Retirement Scheme (VRS) continues to remain tax-exempt under Section 10(10C).
- Gifts received up to Rs 50,000 in a financial year continue to enjoy tax-exempt treatment under section 56(2)(x) of the Income Tax Act.
What should taxpayers do?
The new tax regime encourages transparency and simplicity. While it offers fewer deductions, it shifts the focus from tax-saving investments to disciplined income structuring.
Under the current tax framework, select benefits such as employer contributions to the National Pension System and certain structured allowances like meal vouchers continue to remain tax-efficient under the New tax regime, making salary design a key planning aspect.
There is no one-size-fits-all choice between the old and new tax regimes. Taxpayers should evaluate their position annually, in line with evolving income levels and financial commitments.
A key point to note is that taxpayers are responsible for complete and correct disclosure, regardless of the use of pre-fill ITR. Hence, all necessary caution must be exercised to ensure proper submission of the ITR form.
How can taxpayers identify whether the old or new tax regime is more beneficial before filing?
Compute total taxable income under both regimes and calculate tax separately. For the old regime, include all eligible exemptions (HRA, LTA) and deductions (80C, 80D, interest on housing loan, etc.). For the default new regime, most deductions are excluded, but the standard deduction and the employer NPS contribution (if applicable) are available. Choose the regime with the lower final tax liability, not just lower taxable income.
Disclaimer: This article is for informational purposes only and does not constitute professional tax advice. Tax laws and regimes are subject to frequent changes by the government. Readers should verify details with official Income Tax Department notifications or consult a Chartered Accountant before making any financial decisions.
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