The new income tax regime, introduced under Section 115BAC of the Income Tax Act, offers reduced tax rates across slabs but limits the number of exemptions and deductions taxpayers can claim. As more individuals shift toward this simplified structure, a common question arises: How can you still save tax under the new regime?
Let’s explore legitimate ways to minimize your tax outgo while staying compliant under the new regime.
Understanding the New Tax Regime
The revised tax slabs under the new regime are:
| Annual Income (₹) | Tax Rate |
|---|---|
| 0 – 3,00,000 | Nil |
| 3,00,001 – 6,00,000 | 5% |
| 6,00,001 – 9,00,000 | 10% |
| 9,00,001 – 12,00,000 | 15% |
| 12,00,001 – 15,00,000 | 20% |
| Above 15,00,000 | 30% |
Note: A standard deduction of ₹50,000 is now available even under the new regime, along with a few other benefits.
How to Save Tax Under the New Regime
While traditional deductions like Section 80C (LIC, PPF, ELSS) are not allowed, the new regime still permits certain benefits. Here’s how you can reduce your tax burden:
1. Standard Deduction (₹50,000)
All salaried individuals and pensioners can claim a flat ₹50,000 deduction—this was reintroduced in Budget 2023 to benefit middle-income earners even under the new structure.
2. Employer’s Contribution to NPS
If your employer contributes to your National Pension System (NPS) account (up to 10% of your salary), this amount is not taxable under the new regime.
3. EPF and Gratuity
Interest earned on Employee Provident Fund (EPF) up to ₹2.5 lakh per annum (if no employer contribution) is exempt. Gratuity, leave encashment, and retirement benefits continue to enjoy tax-free status up to specific limits.
4. Tax Rebate under Section 87A
Individuals earning up to ₹7 lakh per year are eligible for a full tax rebate under Section 87A—meaning zero tax liability.
5. Interest on Home Loan (for let-out property)
If you own a let-out property (not self-occupied), the interest paid on the housing loan can still be claimed as a deduction under Section 24(b) even in the new regime. Self-occupied home loan interest is not allowed.
6. Voluntary Retirement Scheme (VRS) Benefits
Payments received under a legitimate VRS scheme are tax-exempt up to ₹5 lakh, and this benefit continues under the new regime.
7. Life Insurance Maturity (Tax-Free under Section 10(10D))
While premiums may not be deductible, the maturity proceeds of qualifying life insurance policies remain tax-free, subject to certain limits and conditions.
Who Should Choose the New Regime?
You may benefit more from the new regime if:
- You do not have significant tax-saving investments or deductions (e.g. no home loan, no 80C investments)
- Your income falls in the lower or middle slab range
- You prefer a simplified tax structure without managing multiple claims
Final Thoughts
The new tax regime is designed to offer simplicity and transparency, but it requires smart planning to optimize your benefits. By leveraging the permitted exemptions and planning your income streams efficiently, you can legally reduce your tax liability without relying on heavy documentation or long-term lock-ins.
If you’re unsure which regime is better suited for you, consult a qualified tax advisor to evaluate your specific financial profile and make an informed choice before filing your return.
