The New Tax Regime turns out to be the preferred tax system for many salaried individuals after the government introduced lower tax rates and simplified tax structures. However, a common concern among the taxpayers is the limited availability of deductions and exemptions as compared to the old tax regime.
Under the Old Tax Regime, individuals could reduce their taxable income by claiming benefits such as Investments under Section 80C, House Rent Allowance (HRA), medical insurance premiums under Section 80D, Housing Loan Interest and several other deductions. Under the New Tax Regime, most of the deductions are either unavailable or limited.
This article explores the approaches on how the salaried employees under the new tax regime can save taxes:
1. Claim the Standard Deduction
The standard deduction continues under the new regime. Salaried employees and pensioners can claim a standard deduction of Rs 75,000 from their salary/pension income without submitting any proof or supporting documents.
2. Opting for Employer Contribution to National Pension System (NPS)
Under the New Tax Regime, the employer’s Contribution to NPS is allowed as a deduction from taxable income subject to the prescribed limit i.e upto 10% of the salary (Basic Salary + Dearness Allowances)
However, the employees own contribution to NPS does not qualify for deduction under the new tax regime.
3. Opting for Employer's Contribution to EPF
Employer’s Contribution to EPF also continue to be exempted under the new tax regime. However, where the aggregate contribution to the Recognized Provident Fund (RPF), NPS and Approved Super Annuation Fund exceeds Rs. 7,50,000 during a year, the excess amount becomes taxable and is treated as a perquisite to an employee.
4. Interest on Home Loan Interest for Let-Out Property
The new tax regime does not allow taxpayers to claim a deduction for interest paid on housing loan in case of self-occupied property. However, taxpayers earning rental income from a let-out property continues to claim the deduction.
However, the deduction can be utilised only against the income from a let -out property and any resulting loss cannot be adjusted against under any other head of income.
5. Rebate Available
Under the new tax regime, resident individual taxpayers are eligible for a rebate of upto Rs. 60,000 provided their taxable income does not exceed 12 lakhs.
6. Gifts or Vouchers Provided by Employer
Gifts or vouchers or coupons on ceremonial occasions or otherwise provided by an employer in kind are exempt up to Rs 5,000 per year, beyond which the whole of it would be taxable. The limit has now been increased to Rs. 15,000 for FY 26-27 onwards. However, any gifts in cash or convertible into money are fully taxable in the hands of employee.
7. Tax-Free Employer Perquisites and reimbursements
Under the New Tax Regime, certain employer provided perquisites and reimbursements continue to remain exempt from taxes. Reimbursements such as official telephone, mobile and internet expenses are generally not taxable when they are supported by actual bills and used for work related purposes. Also, employer provided laptops and computers for official use are tax efficient benefits.
8. Meal Card benefits
Under the New Tax Regime, employer-provided meal cards such as Sodexo, Zaggle etc, to help salaried employees reduce their taxable income by treating meal expenses as a tax-free perquisite. Effective from FY 2026-27, the exemption limit has been increased to Rs. 200 per meal from Rs. 50 per meal as earlier, provided these are used for eligible food and meal related expenses in accordance with the prescribed conditions. However, for FY 2025-26, meal card tax benefit is not available under the new tax regime but only for the old tax regime.
Additional benefits for family pension deductions under new tax regime
The New Tax Regime continues to provide tax relief to family pensioners. A deduction can be claimed on family pension received by the legal heir of a deceased employee. The deduction is limited to the lower of one-third of the family pension received or ₹25,000 per annum, thereby reducing the taxable income of the recipient.
To optimize the tax liability, it is important for a taxpayer to understand the areas where income tax can be saved in the new regime. While the regime limits deductions offering a simpler tax structure, taxpayers can still reduce their tax burden by taking advantage of the remaining exemptions and benefits available as discussed above.
The author can be reached at cashubhikhandelwal@gmail.com
Disclaimer: This document is intended for knowledge sharing purpose only. The information contained in this article is published for the knowledge of the recipient but is not to be relied upon as authoritative or taken in substitution for the exercise of judgment by any recipient. Whilst due care has been taken in the preparation of this article and information contained herein, the author will not be responsible for any errors that may have crept in inadvertently and do not accept any liability whatsoever, for any direct or consequential loss howsoever arising from any use of this article or its contents or otherwise arising in connection herewith.
CAclubindia
