Navigating the ever-changing financial landscape in India can be challenging, especially when it comes to taxes. The new tax regime introduced by the government offers a simplified structure with fewer deductions and exemptions. But this doesn't mean you can't optimize your tax savings! This guide explores effective strategies to save tax under the new regime for the financial year 2025-26 and the corresponding assessment year 2026-2027. We'll delve into the regime's features, eligibility criteria, available deductions, and valuable tips to minimize your tax burden. Additionally, we'll discuss how platforms like Bajaj Finserv can streamline your tax-saving journey, making it easier and more convenient.
What is the new tax regime for FY 2025-26 and AY 2026-2027?
Under the new income tax regime, individuals with an annual income of up to Rs 12 lakh are not liable to pay any tax, thanks to tax rebate provisions and marginal relief. Those with income between Rs 12 lakh and Rs 12.75 lakh may also receive marginal relief to avoid a sudden spike in tax liability.
If your annual income crosses Rs 12.75 lakh, taxation will apply based on the revised slab structure as shown below:
Tax slabs under the new regime
Income (Rs) |
Tax rate (%) |
Up to Rs 4 lakh |
0% |
Rs 4 – 8 lakh |
5% |
Rs 8 – 12 lakh |
10% |
Rs 12 – 16 lakh |
15% |
Rs 16 – 20 lakh |
20% |
Rs 20 – 24 lakh |
25% |
Above Rs 24 lakh |
30% |
Additional benefits under this regime include:
A tax rebate under Section 87A for income up to Rs 12 lakh.
A standard deduction of Rs 75,000.
These features make the new regime attractive for many taxpayers. However, it comes with a trade-off—most deductions and exemptions under the old regime, such as those under Sections 80C, 80D, 80E, and 80G, are no longer applicable.
New Regime Exclusive Benefits
Standard deduction
Under the revised income tax regime, salaried individuals can now claim a standard deduction of Rs.75,000. This is a notable increase from the Rs.50,000 deduction that was available under the old tax regime.
Exemption on family pension
In the case of pensions received by the family members of deceased employees (excluding ex-servicemen), one-third of the pension amount or a maximum of Rs.25,000—whichever is lower—is exempt from tax under the new regime. Under the previous tax regime, the maximum exemption limit for such family pensions was capped at Rs.15,000.
Major highlights of new tax regime as compared to old tax regime
Covering how to save income tax in the new regime, this regime introduces an additional low rate of tax, virtually removes most exemptions and deductions and aims to simplify the computation of taxes. Here are the key highlights:
Lower tax rates
The new income tax regime features reduced tax rates compared to the old one. For instance, income between Rs 5 lakh and Rs 7 lakh, which attracted a 20% tax under the old regime, is now taxed at just 5% under the new system.
Standard deductions
Prior to Budget 2023, standard deduction was a benefit available only under the old tax regime. However, the new regime now allows salaried taxpayers to claim a standard deduction of up to Rs 75,000, providing additional relief.
Deductions and exemptions
While the old regime offered a wide range of deductions and exemptions under sections like 80C, 80D, 80E, and 80G, the new regime is more restrictive. It allows select deductions, such as employer contributions to PF and NPS, interest on home loans for let-out properties, and specific employer reimbursements.
Simplicity
The primary advantage of the new tax regime lies in its simplified structure. By minimising the number of deductions and required documentation, it makes tax filing easier. In contrast, the old regime, though offering more tax-saving opportunities, involves detailed paperwork and multiple claims.
Who is eligible for new tax regime u/s 115BAC?
Individual taxpayers and Hindu Undivided Families(HUF) can opt for the new tax regime as per Section 115BAC of the Income Tax Act. Though it is open to all taxpayers irrespective of their income levels, those who do not have high investments in tax-saving instruments get the maximum benefit. After opting for the new regime, a taxpayer can switch back to the old regime in subsequent years, provided they are not engaged with a business or a profession. If an individual only has a business or professional source of income, the option to revert to the old regime isn’t available, the individual has to pay tax under the new regime.
Exemptions and deductions available under new tax regime
Even though most traditional deductions and exemptions have been eliminated in the new tax regime, there are a few exceptions that taxpayers can still reap the benefits of. These are:
Employer’s contribution to the PF and NPS
Most salaried employees contribute 12% of their basic salary to their provident fund (PF), and the employer matches this contribution. For example, if your basic pay is Rs 20,000 per month, both you and your employer contribute Rs 2,400 each.
Under both the old and new tax regimes, the employer’s contribution of up to Rs 7.5 lakh per year across EPF, NPS, and superannuation is tax-exempt. This means that while the contribution is included in your cost-to-company (CTC), it does not count as taxable income.
However, your own 12% contribution is included in your taxable income. In the old regime, this amount is deductible under Section 80C. In the new regime, this deduction is not available.
Similarly, employers can contribute up to 14% of your basic salary to the National Pension System (NPS) under Section 80CCD(2), and this contribution is tax-free up to the combined limit of Rs 7.5 lakh per year under both regimes.
If your employer doesn't already contribute to NPS, you can request HR to begin contributions from the next financial year under Section 80CCD(2).
Interest on home loan for a let-out property
Interest paid on a home loan for a let-out property is deductible under Section 24(b) of the Income Tax Act in both old and new tax regimes. This means your net taxable rental income goes down, reducing your overall tax burden.
Home loan EMIs include principal and interest. The principal component is deductible under Section 80C (only under the old regime). But the interest part is treated separately, and the deduction depends on whether the property is self-occupied or let out.
For a self-occupied house, the interest deduction limit is Rs 2 lakh per year. After Budget 2025, you can claim this benefit for up to two self-occupied homes.
In case of let-out property, the interest is fully deductible from rental income under both tax regimes. For example, if your annual rental income is Rs 3 lakh and you paid Rs 2 lakh in loan interest, you can deduct it, along with a 30% standard deduction on the net rental value (after municipal taxes), leaving you with a very small taxable rental income.
Here’s a sample calculation:
Component |
Amount (Rs) |
Gross annual value |
3,00,000 |
Municipal tax |
-10,000 |
Net annual value |
2,90,000 |
Standard deduction (30%) |
-87,000 |
Interest on home loan |
-2,00,000 |
Taxable rental income |
3,000 |
So, you will be taxed on only Rs 3,000.
However, under the new regime, if you report a loss on this property (due to deductions exceeding income), you cannot adjust it against your other income or carry it forward.
If the house is vacant and not self-occupied, the law allows you to declare “nil” annual value for up to two such properties. But for a third vacant property, you must calculate and declare “deemed rent” based on the market rent and pay tax accordingly—even if no actual rent is received.
Given these nuances, it is advisable to consult a tax expert to ensure accurate calculations.
Reimbursements from the employer
Employer reimbursements for expenses like phone bills, internet charges or any other similar office-related expense one might incur would also qualify as tax-free under this new regime. Since these are reimbursements, they do not increase the taxable income of employees and provide a way to get tax savings without making any additional investments. This exemption is easy to understand and thus an attractive choice for salaried persons.
Buy a health insurance policy
Section 80D Deduction Limits
Particular |
Amount |
Medical Insurance for Self and Family |
Rs. 25,000 (Rs. 50,000 for senior citizens) |
Medical Insurance for Parents |
Rs. 25,000 (Rs. 50,000 for senior citizens) |
Preventive Health Checkup |
Rs. 5,000 per year |
Medical Expenditure for Parents (Senior Citizens) without Health Insurance |
Rs. 50,000 |
Park your money in government schemes
Numerous government-backed schemes offer attractive returns and tax benefits. Individuals can claim tax deductions of up to Rs. 1.5 lakh on investments in these schemes under Section 80C of the Income Tax Act.
Tax-Saving Investment Options:
- Senior Citizen Savings Scheme (SCSS)
- Sukanya Samriddhi Yojana (SSY)
- National Pension Scheme (NPS)
- Public Provident Fund (PPF)
Buy life insurance plans
Section 80C of the Income Tax Act provides tax deductions for premiums paid towards life insurance policies. Section 10(10D) provides tax benefits for the sum assured received upon maturity or in case of the insured's death.
Tax benefits on Life Insurance Premiums:
- Policies purchased after April 1, 2012: Tax deductions up to Rs. 1.5 lakh can be claimed under Section 80C if the annual premium is less than 10% of the sum assured.
- Policies purchased before April 1, 2012: Tax deductions under Section 80C can be claimed if the total premium payments do not exceed 20% of the sum assured.
Exemptions for sum assured (Section 10(10D)):
- Unit Linked Insurance Plans (ULIPs): Exemption is applicable only if the annual premium is less than Rs. 2,50,000 (as per Finance Act 2021).
- Other insurance policies: Exemption is applicable only if the annual premium is less than Rs. 5,00,000 (as per Finance Act 2023).
Additional tax benefits:
- Section 80CCC: Tax deductions up to Rs. 1.5 lakh are available for acquisition or renewal of life insurance coverage and annuity payments made through monthly salary.
- Section 80CCD(1): Tax deductions up to Rs. 1.5 lakh are available for contributions to certain pension funds under Section 23AAB.
Investment options under section 80C
Section 80C of the Income Tax Act offers a deduction of up to Rs. 1.5 lakh per year on various investments and expenses. This section provides an avenue for taxpayers to reduce their taxable income and save on taxes.
Here's a table summarizing some popular tax-saving options under Section 80C:
Investment Option |
Estimated Returns |
Lock-in Period |
5-Year Bank Fixed Deposit |
6% to 7% |
5 years |
Public Provident Fund (PPF) |
7% to 8% |
15 years |
National Savings Certificate |
7% to 8% |
5 years |
National Pension System (NPS) |
12% to 14% |
Till Retirement1 |
Equity Linked Savings Schemes (ELSS) |
15% to 18% |
3 years |
Unit Linked Insurance Plan (ULIP) |
Varies with Plan Chosen |
5 years |
Sukanya Samriddhi Yojana (SSY) |
8.20% |
N/A (for girls) |
Senior Citizen Savings Scheme (SCSS) |
8.20% |
5 years |
Other tax-saving avenues in the new regime
While there may be fewer options for tax savings in the new regime, some methods are still available:
- Standard deduction: A flat deduction available to all salaried individuals.
- Employer’s contribution to NPS: Contributions made by the employer towards the employee’s NPS account.
- Transport allowance for differently-abled individuals: A specific exemption for those with disabilities.
- Interest on home loan for let-out property: As discussed earlier, interest paid on loans for let-out properties can be deducted.
Exemptions and deductions not available under new tax regime
The following deductions and exemptions are not available under the new tax regime:
- Section 80C: Investments in LIC, PPF, NSC, etc.
- Section 80D: Health insurance premiums
- House Rent Allowance (HRA)
- Leave Travel Allowance (LTA)
- Interest on housing loan (for self-occupied property)
- Standard deduction for Income from house property
Comparison of Deductions under Old Regime vs. New Regime for FY 2024-25
The following table compares the available deductions under the old and new tax regimes for the financial year 2024-25:
Available Exemptions/Deductions |
Old Tax Regime |
New Tax Regime |
Standard deduction (including Section 80TTB Deduction) |
YES (Deductions of Rs. 50,000) |
YES (Deductions of Rs. 75,000 as per Union Budget in July 2024) |
Employment/Professional tax (u/s 10(5)) |
YES |
NO |
House Rent Allowance (HRA) (u/s 10(13A)) |
YES |
NO |
Exemptions for free food & beverages through vouchers/food coupons |
YES |
NO |
Deductions of Up to Rs. 1.5 lakhs under Chapter VIA (towards investments like u/s 80C, 80CCC, 80CCD, 80DD, 80DDB, 80E, 80EE, 80EEA, 80G, etc.) |
YES |
NO |
Deductions u/s 80CCD(2) for employer's contribution to employee nps accounts |
YES |
YES |
Deductions u/s 80CCD(1B) of Up to Rs. 50,000 |
YES |
NO |
Medical insurance premium u/s 80D |
YES |
NO |
Interest on home loan for self-occupied/vacant property |
YES |
NO |
Tax calculation under new tax regime
Let's illustrate how income tax is calculated under the new tax regime using a hypothetical scenario of CTC Rs.12,00,000
Description |
Amount |
Annual Salary Income |
Rs. 12,00,000 |
Less: Standard Deduction |
Rs. 75,000 |
Net Salary Income / Gross Taxable Income |
Rs. 11,50,000 |
Less: Deductions |
|
Employer Contribution u/s 80CCD(2) |
Rs. 50,000 |
Interest on Home Loan u/s 24b |
Rs. 2,00,000 |
Net Taxable Income |
Rs. 8,75,000 |
Tax Payable |
Rs. 37,500 |
Health and Education Cess (4%) |
Rs. 1,500 |
Total Tax Liability |
Rs. 39,000 |
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How to plan your tax-saving investments in 2025
Procrastination is a common pitfall when it comes to tax-saving investments. Instead of waiting until the last minute, start planning at the beginning of the financial year. This allows your investments to grow over time and helps you achieve long-term financial goals. Remember, tax savings should be a bonus, not the primary goal.
Here are some pointers to help you plan your tax-saving strategy:
- Assess Existing Expenses: Identify tax-deductible expenses you've already incurred, such as insurance premiums, children's tuition fees, EPF contributions, and home loan repayments.
- Choose the Right Tax Regime: Determine whether the New Tax Regime or the Old Tax Regime is more beneficial for you. Use a tax calculator to compare both options based on your income and deductions.
- Calculate Investment Needs: Deduct the total amount of your existing tax-saving expenses from the maximum deduction limit (currently Rs. 1.5 lakh). This will determine how much more you need to invest to maximize your tax savings.
- Select Suitable Investments: Choose investment options that align with your financial goals and risk tolerance. Popular options include Equity Linked Savings Schemes (ELSS), Public Provident Fund (PPF), National Pension System (NPS), and fixed deposits.
- Time Your Investments: Start investing early in the financial year to spread out your investments and avoid a last-minute rush. This also allows you to make informed decisions without feeling pressured.
By following these tips, you can effectively plan your tax-saving investments and maximize your returns while staying within the tax deduction limits.
Key changes in Union Budget 2025 for the FY 2025-26
In the Union Budget for 2025, the government introduced several updates aimed at offering relief to taxpayers for assessment year 2026–27. Below are some of the important changes that apply to the financial year 2025–26:
Income up to Rs 12 lakh is now tax-free – The basic exemption limit has been increased, offering significant relief to many taxpayers under the new tax regime.
Updated tax slabs – The income tax slabs have been revised to make the system more simplified and taxpayer-friendly.
Old tax regime
Income slab |
Tax rate |
Up to Rs 2.5 lakh |
0% |
Rs 2.5 lakh – Rs 5 lakh |
5% |
Rs 5 lakh – Rs 10 lakh |
20% |
Above Rs 10 lakh |
30% |
New tax regime
Income slab |
Tax rate |
Up to Rs 4 lakh |
0% |
Rs 4 lakh – Rs 8 lakh |
5% |
Rs 8 lakh – Rs 12 lakh |
10% |
Rs 12 lakh – Rs 16 lakh |
15% |
Rs 16 lakh – Rs 20 lakh |
20% |
Rs 20 lakh – Rs 24 lakh |
25% |
Above Rs 24 lakh |
30% |
Deduction for two self-occupied houses – Homeowners can now claim interest deductions on housing loans for up to two self-occupied properties, expanding the benefit beyond just one home.
Conclusion
To optimise tax liability, it is imperative for a taxpayer to understand how income tax can be saved in the new regime. The new regime limits deductions and exemptions while offering a simpler structure. Significant tax savings can still be achieved by taking advantage of the remaining exemptions, such as the employer’s contributions to PF and NPS or the interest on home loans for let-out properties, as gone over in this article, providing guidelines in how to save income tax in the new regime.
Bajaj Finserv is a platform that can provide keen insights and guidance to navigate the complexities of tax calculations to maximise savings. In this regard, they offer smart tools and resources to monitor your tax savings. The platform provides a range of financial services and also helps you find your own income tax slabs.
Based on your financial goals, you can choose from a plethora of mutual fund schemes and use their resources that make investing in mutual funds easy and hassle-free.
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