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.
Every year, the Union Budget draws significant attention from taxpayers, especially regarding changes to income tax slabs. When the Budget 2026 was presented on 01 February 2026, many individuals hoped for an increase in slab limits that could help reduce their tax burden. A revision in income thresholds often allows taxpayers to keep more of their income, which is why such announcements are closely watched during the Budget speech.
However, for the Financial Year 2026–27, the government decided not to alter the income tax slabs under either the old tax regime or the new tax regime. As a result, taxpayers will continue to follow the same slab structure that was already in place earlier, without any modification in tax rates or income limits.
Under the new tax regime applicable for FY 2025–26 (Assessment Year 2026–27) and continuing into FY 2026–27, tax planning works differently from the traditional approach. Instead of relying on multiple deductions and exemptions, taxpayers mainly benefit from lower slab rates and an increased rebate threshold. While many popular deductions such as those under Sections 80C and 80D are not available, a few permitted deductions can still help reduce taxable income. Understanding these provisions can help individuals learn how to save income tax in the new tax regime in 2026.
New tax regime income tax slabs
The new tax regime follows a simplified slab structure with relatively lower tax rates across different income brackets. These slabs determine how much tax an individual needs to pay depending on their taxable income during the financial year.
Taxable income |
Tax rate |
Up 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% |
One of the major advantages of the new tax regime is the higher rebate available under Section 87A of the Income Tax Act, 1961. Individuals with taxable income up to Rs. 12 lakh in a financial year may receive a rebate of up to Rs. 60,000, which effectively reduces their tax liability to zero.
Additionally, salaried individuals and pensioners benefit from a standard deduction of Rs. 75,000. Because of this deduction, salary income up to Rs. 12.75 lakh may become tax-free after considering the rebate limit. This combination of lower slab rates and rebate benefits makes the new tax regime attractive for many taxpayers who do not rely heavily on traditional deductions.
Key relief measures for FY 2026-27 (AY 2027-28)
For FY 2026–27, several provisions in the tax system aim to provide relief and simplify taxation for individuals under the new regime. Some of the important measures include:
- Effective zero tax liability: Individuals with taxable income up to Rs. 12 lakh can benefit from a rebate of up to Rs. 60,000 under Section 87A, resulting in no tax payable.
- Higher tax-free threshold for salaried taxpayers: With the standard deduction of Rs. 75,000, salaried employees and pensioners can effectively have income up to Rs. 12.75 lakh without paying tax.
- Higher deduction limit for senior citizens: The deduction cap for senior citizens has been raised from Rs. 50,000 to Rs. 1 lakh, providing additional relief to older taxpayers.
- Lower surcharge ceiling: The maximum surcharge for individuals earning more than Rs. 5 crore continues to be limited to 25% under the new tax regime, compared to 37% in the old regime.
Major compliance and procedural changes for FY 2026-27 (AY 2027-28)
Along with tax slab provisions, the government has introduced several procedural updates aimed at improving compliance and making the tax system easier to follow.
- Introduction of the Income Tax Act, 2025: A revised and simplified tax framework will replace the older 1961 legislation from 01 April 2026, using clearer language and aiming to reduce disputes.
- Extended timeline for revised returns: Taxpayers will now be able to submit revised or belated income tax returns up to 31 March following the end of the tax year, although a small fee of up to Rs. 5,000 may apply.
- Reduction in TCS rates: Tax Collected at Source on overseas tour packages and certain remittances for education or medical purposes abroad has been reduced to a flat 2%.
- Higher TDS thresholds: The government has increased certain Tax Deducted at Source thresholds, such as the rent limit rising to Rs. 6 lakh, which helps reduce compliance requirements.
What remains disallowed for FY 2026-27 (AY 2027-28)
Although the new tax regime provides lower tax rates, many commonly used deductions and exemptions remain unavailable. Taxpayers who choose this regime should be aware of these restrictions.
- Section 80C deductions: Investments in instruments such as Public Provident Fund (PPF), Life Insurance policies, and Equity Linked Savings Schemes (ELSS) do not qualify for tax deductions.
- Section 80D benefits: Premiums paid for health insurance policies cannot be claimed as a deduction.
- House Rent Allowance (HRA): Salaried individuals cannot claim HRA exemption under the new regime.
- Home loan interest deduction: Interest paid on home loans for self-occupied residential properties under Section 24(b) is generally not allowed as a deduction.
How to save income tax in the new tax regime (FY 2026–27)
The new tax regime changes the approach to tax planning. Earlier, many taxpayers reduced their tax liability by investing in specific schemes or claiming exemptions. In the current system, the focus has shifted towards managing income effectively and using the limited benefits available.
For salaried individuals, professionals, and business owners in FY 2026–27, tax optimisation depends more on income structuring, proper planning, and understanding the rules of the new regime. Knowing the applicable slab rates, rebates, and deductions can help taxpayers reduce unnecessary tax outflow and manage their finances more efficiently.
Understand new tax slabs and Section 87A rebate
The first step in planning taxes is understanding the slab system and rebate provisions under the new regime. Many individuals may already qualify for zero tax liability because of the rebate available under Section 87A.
The tax slabs in the new regime are designed to be wider and simpler. Salaried employees and pensioners also benefit from the standard deduction. If taxable income falls within the eligible range, the rebate can reduce the tax payable to zero.
Before making investments solely for tax purposes, it is important to calculate taxable income accurately. After adjusting the standard deduction and checking rebate eligibility, many taxpayers may realise that their tax liability is already minimal or nil.
Use standard deduction effectively (salaried and pensioners)
The standard deduction remains one of the most useful tax benefits available in the new regime for salaried individuals and pensioners.
Unlike deductions that require investments, the standard deduction is applied automatically and directly reduces gross salary while calculating taxable income. This simplifies the process and eliminates the need to purchase financial products only for tax purposes.
Understanding the difference between gross salary, taxable salary, and applicable deductions helps individuals estimate their tax liability correctly. It also ensures that the correct amount of tax is deducted through TDS during the year.
Optimise employer contributions to NPS and EPF
Employer contributions to retirement schemes can still provide tax advantages under the new regime. These contributions are considered beneficial within specified limits.
Two key schemes include the National Pension System (NPS) and the Employees’ Provident Fund (EPF). Contributions made by the employer to these schemes can improve retirement savings while also helping in tax planning.
Employees working in corporate or managerial positions may consider discussing salary structures with their employers. Adjusting certain components of compensation can increase long-term retirement savings while also keeping tax liability lower.
Smart salary structuring instead of investment-based planning
In the new tax regime, efficient salary structuring plays a larger role than investment-driven deductions.
Taxpayers should review different components of their salary package, such as allowances, bonuses, special payments, and flexible benefit plans if available. Analysing these elements can help in understanding how each component affects taxable income.
Instead of purchasing insurance policies or mutual funds purely for tax benefits, individuals should focus on financial planning that supports long-term wealth creation and financial stability.
Capital gains planning for investors
Investors can manage their tax liability by planning capital gains carefully. Since traditional deductions are limited, investment strategies become more important in reducing taxes.
Factors such as the holding period of assets, the timing of selling investments, and the difference between short-term and long-term capital gains tax rates should be considered.
Planning asset sales properly and using strategies such as tax-loss harvesting can help reduce the overall tax impact on investments like shares, mutual funds, or property.
Business expense optimization for professionals and business owners
Self-employed professionals and business owners can manage taxes by carefully tracking and claiming legitimate business expenses.
Operational costs, depreciation on assets, and other genuine expenses reduce the total profit reported for tax purposes. Lower taxable profit results in reduced tax liability under the slab system.
Maintaining organised accounting records and following proper compliance procedures is essential for making the most of these allowable deductions.
Consider presumptive taxation (if eligible)
Some small businesses and professionals may choose presumptive taxation schemes if they meet the eligibility criteria.
Under this system, income is calculated as a fixed percentage of total turnover instead of maintaining detailed expense records. This approach simplifies tax compliance and reduces administrative work.
For individuals with moderate turnover, presumptive taxation can make tax filing easier while also providing predictable tax calculations.
Plan family-level income structuring (where legally permitted)
Another method of managing taxes is to distribute investments across eligible family members. This can help utilise multiple tax slabs within the family.
In certain cases, structures such as a Hindu Undivided Family (HUF) may be used to manage income and investments separately. This allows income to be spread across different taxpayers rather than being concentrated under one person.
However, such arrangements must follow all legal provisions and anti-clubbing rules to ensure full compliance with tax laws.
Avoid common mistakes in the new tax regime
Many taxpayers still misunderstand the differences between the old and new tax regimes. This often leads to incorrect financial decisions.
Common mistakes include investing in Section 80C products assuming the deduction still applies, buying insurance policies only for tax benefits, or ignoring rebate eligibility. Some individuals also fail to compare the tax payable under both regimes before selecting one.
Understanding the rules of the chosen regime before making financial commitments can help taxpayers avoid unnecessary expenses and manage their taxes more effectively.
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 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.
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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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