The new tax regime for FY 2025–26 is designed for taxpayers who prefer a straightforward tax structure with lower slab rates and fewer deductions. Unlike the old regime, it removes most investment-linked exemptions but compensates with relaxed tax slabs and selected benefits. This regime is especially suitable for individuals who do not make large tax-saving investments. Understanding what deductions and exemptions are still allowed is essential before choosing this option. While flexibility is limited, certain benefits continue to reduce the overall tax burden for salaried taxpayers and pensioners.
Key features of the new tax regime include:
- Higher standard deduction of Rs. 75,000
- Deduction for employer’s NPS contribution under Section 80CCD(2)
- Tax rebate of up to Rs. 60,000
- Lower and simplified income tax slabs
How to save tax in India? 10 Smart and legal ways for FY 2025-26
Reducing tax legally is an important part of financial planning for salaried individuals, professionals, and business owners. The Income Tax Act offers several provisions that help taxpayers lower their tax liability through deductions, exemptions, and structured investments. While the new tax regime limits many traditional benefits, understanding all available options allows you to choose the most cost-effective approach. Below are ten practical and lawful ways to save tax in India for FY 2025–26.
1. Use Section 80C to save up to Rs.1.5 lakh
Section 80C allows deductions for specified investments and expenses such as PPF, EPF, ELSS funds, life insurance premiums, NSC, children’s tuition fees, and home loan principal repayment. The total deduction is capped at Rs. 1.5 lakh per year and is available only under the old tax regime.
Strategic tax planning extends beyond annual investments. For those planning to purchase property, understanding home loan benefits is equally important. A home loan offers significant tax advantages under Section 24(b) and Section 80C, making homeownership more affordable. Check your home loan eligibility with Bajaj Finserv today. You may already be eligible, find out by entering your mobile number and OTP.
2. Invest in National Pension System (NPS) – Section 80CCD(1B)
An additional deduction of up to Rs. 50,000 is available for personal contributions to NPS. This benefit is over and above the Section 80C limit and supports long-term retirement planning. It applies only if you opt for the old tax regime.
3. Claim house rent allowance (HRA)
Salaried individuals living in rented accommodation can claim HRA exemption based on salary, rent paid, and city of residence. Rent receipts and landlord PAN may be required, depending on the rent amount.
4. Interest on home loan – Section 24(b)
Taxpayers can claim up to Rs. 2 lakh on interest paid for a self-occupied property. For rented properties, the full interest amount is deductible. This benefit is partially restricted under the new regime.
Beyond tax savings, a home loan helps you build long-term wealth through property ownership. With interest rates starting at 7.15%* p.a and loan amounts up to Rs. 15 Crore*, Bajaj Finserv makes homeownership accessible. Check your loan offers to see how much you can save. You may already be eligible, find out by entering your mobile number and OTP.
5. Tax benefits on education loan – Section 80E
Interest paid on loans taken for higher education is fully deductible for up to eight years starting from the year of repayment. There is no upper limit on the deduction amount.
6. Save tax via health insurance – Section 80D
Premiums paid for health insurance offer deductions of up to Rs.25,000 for self and family, and an additional Rs. 25,000 for parents. Higher limits apply if the insured persons are senior citizens.
7. Donations to charities – Section 80G
Donations made to approved funds and institutions qualify for deductions of 50% or 100%, subject to conditions and limits.
8. Claim LTA (Leave Travel Allowance)
LTA exemption is available for domestic travel expenses incurred during leave, subject to prescribed rules and frequency.
9. Opt for the new tax regime if it saves more
Comparing both regimes using a tax calculator helps determine which option results in lower tax based on income and deductions.
10. Use tax-free allowances and reimbursements
Certain reimbursements and allowances, such as meal benefits and communication expenses, can reduce taxable salary when structured properly.
Tax laws change frequently, so consulting a tax professional is advisable before finalising your tax strategy.
New tax regime slab rates for FY 2025-26 (AY 2026-27)
Taxes are automatically saved under the new tax regime due to relaxed slab rates, as outlined in the table below:
Income tax slabs |
Income tax rates |
Rs. 0 to Rs. 4 lakh |
Nil |
Rs. 4 lakh to Rs. 8 lakh |
5% |
Rs. 8 lakh to Rs. 12 lakh |
10% |
Rs. 12 lakh to Rs. 16 lakh |
15% |
Rs. 16 lakh to Rs. 20 lakh |
20% |
Rs. 20 lakh to Rs. 24 lakh |
25% |
Above Rs. 24 lakh |
30% |
New regime exclusive benefits
The new tax regime offers select benefits that are not equally available under the old structure. A major advantage is the higher standard deduction, which directly reduces taxable salary without requiring investments or proofs. Additionally, family pension recipients receive a larger exemption compared to the old regime, providing relief to dependants of deceased employees. These exclusive provisions make the new regime appealing for taxpayers who prefer simplicity and predictable tax savings without long-term financial commitments.
Benefits under both regimes
Both the old and new tax regimes allow certain deductions and exemptions that remain unaffected by the choice of regime. Understanding these shared benefits helps taxpayers maximise savings regardless of the option selected.
1. Home loan interest on let-out property
Interest paid on a housing loan for a rented property is fully deductible under Section 24(b). There is no upper limit for this deduction, and it applies under both regimes.
2. Employer’s contribution to pension scheme
Employer contributions to NPS are deductible under Section 80CCD(2). The allowable limit is up to 14% of basic salary under the new regime and 10% under the old regime.
3. Allowances exempt under new regime
Certain official allowances remain exempt, including tour and transfer allowances, daily allowances for official travel, conveyance reimbursement, transport allowance for differently-abled employees (Rs. 3,200 per month), and allowances for government employees posted abroad.
4. Perquisites exempt under new regime
Non-cash benefits such as employer-provided telephone, transport facilities, group insurance premiums, personal accident policies, recreational facilities, and specified medical reimbursements are excluded from taxable salary. Some perquisites are taxable only for directors or employees with significant ownership.
5. Exemption on gifts
Gifts received from relatives, on marriage, or through inheritance are fully exempt. Other gifts are exempt up to Rs. 50,000 per year; amounts beyond this limit are taxable.
6. Leave encashment
Exemption is allowed based on the least of prescribed limits, including Rs. 25 lakh, actual amount received, or salary-based calculations. Government employees receive full exemption on leave encashment.
7. Withdrawal of PF
PF withdrawals are fully exempt after five years of continuous service. Early withdrawals are also exempt if termination occurs due to reasons beyond the employee’s control.
8. Retirement benefits
Benefits such as gratuity, pension commutation, retrenchment compensation, and voluntary retirement proceeds remain exempt up to specified limits under both regimes.
Conclusion
The new tax regime aims to make income tax simpler by offering lower slab rates with minimal deductions. While it removes many traditional tax-saving options, it still provides meaningful relief through standard deduction, rebates, and selected exemptions. The old regime, though more complex, remains beneficial for taxpayers who invest heavily in tax-saving instruments. Choosing the right regime depends on income structure, investment habits, and long-term financial goals. A clear comparison of both regimes ensures optimal tax planning and prevents unnecessary tax outflow.
As you optimise your tax strategy, consider how property ownership fits into your long-term financial goals. A home loan not only provides tax benefits but also helps you invest in an appreciating asset. With competitive interest rates and quick approvals, Bajaj Finserv makes the home-buying process smooth and affordable. Check your home loan eligibility with Bajaj Finserv now. You may already be eligible, find out by entering your mobile number and OTP.
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