Maximizing Your Savings Under the New Tax Regime (FY 2025-26)

The New Tax Regime is now the default option for most taxpayers in India. Many believe it does not allow any deductions, but that is not fully true. There are still useful ways to reduce taxable income. If you want to aim for a tax-free income of up to ₹12.75 Lakh, here is what you should know.

1. Direct Deductions You Can Still Claim

These deductions reduce your taxable salary without conditions.

Standard Deduction (₹75,000):

Available to all salaried employees and pensioners. Increased from ₹50,000 for extra relief.

NPS (Employer Contribution):

If your employer contributes to NPS, that amount is deductible up to 14% of Basic + DA.

Family Pension Deduction:

If you receive family pension, you can deduct the lower of ₹25,000 or one-third of the pension received.

2. Tax-Free Employer Benefits

Some benefits from your employer remain tax-free, mostly linked to retirement or official work.

Gratuity:

Tax-free up to ₹20 Lakh (lifetime limit).

Leave Encashment:

Tax-free up to ₹25 Lakh at retirement.

VRS Payment:

Tax-free up to ₹5 Lakh.

Official Expenses:

Reimbursements for mobile, internet, travel, and uniform are tax-free when used for work.

3. Housing and Capital Gains: What Has Changed

This is a frequent confusion point. Here is the simple version:

Self-Occupied House:

No deduction for home loan interest or principal repayment.

Rented House:

Interest on home loan is allowed only against rental income. You cannot use property loss to reduce salary income.

Capital Gains Relief:

Sections 54, 54EC, and 54F still apply. If you sell a house or asset and reinvest in another house or specific bonds, you can reduce taxes.

4. Benefits You Must Give Up

To get lower slab rates, you lose popular deductions:

• Section 80C (PF, PPF, ELSS, LIC, School Fees)
• Section 80D (Health Insurance)
• HRA and LTA
• Extra NPS deduction of ₹50,000 (80CCD(1B))

Quick Summary

The New Tax Regime keeps things simple. Even though you lose popular deductions like 80C, the higher standard deduction and the tax rebate under Section 87A (making income up to ₹12 Lakh tax-free) often increase take-home pay for salaried middle-income taxpayers.