How to Save Tax in New Tax Regime FY 2025-26-An Overview
As a result, many taxpayers are left wondering:How can I save tax in the new regime?This comprehensive guide will explain everything you need to know about the new regime. It includes allowed deductions, tax calculation, and strategies for tax saving.
The Indian Income Tax system underwent a significant shift. This change came with the introduction of the New Tax Regime under Section 115BAC of the Income Tax Act. While it offers lower tax rates compared to the old regime, it eliminates several exemptions. It also removes deductions that taxpayers have traditionally relied upon.
What Is the New Tax Regime?
The new tax regime was introduced in Budget 2020. It was revised in Budget 2025. It is a simplified income tax structure with reduced slab rates. The choice between the new and old tax regimes is voluntary. It depends on your income, expenses, and ability to claim deductions.
Revised Slabs Under the New Regime (Effective from FY 2025-26):
Income Slab (₹)
Tax Rate (%)
0 – 4,00,000
0%
400,001 – 8,00,000
5%
8,00,001 – 12,00,000
10%
12,00,001 – 16,00,000
15%
16,00,001 – 20,00,000
20%
20,00,001 – 24,00,000
25%
Above 24,00,000
30%
How to calculate income tax in new regime?
Let’s understand how to calculate income tax in new liability under the new regime:
Calculate GTI: Calculate gross total income from all heads: Salary, house property (if applicable), capital gains, other sources, etc.
Subtract Deductions: Now subtract all allowable deductions (only a few are permitted in the new regime—more on this below).
Apply New Tax Slab: Apply the new tax slab rates to the net taxable income after all deductions.
Education Cess: Finally, add S&H education Cess @ 4% on the total tax amount as derived above.
Example: If your gross total income is ₹15,00,000 and you opt for the new regime:Let’s see what is your total tax liability for FY 2025-26
This is very unfortunate. The new tax regime emphasises reducing your tax liability. Still, it completely ignores the basic deductions. Indian taxpayers have been accustomed to these deductions from time immemorial.
One of the biggest changes in the new tax regime is the removal of most exemptions and deductions. But not all is lost—some benefits are still available.
Which Deductions are Allowed in New Tax Regime?
The following deductions are allowed in new tax regime:
Standard Deduction: ₹75,000 (As per Budget 2025 for salaried and pensioners);
Employer Contributionto NPS: Up to 14% of basic salary under Section 80CCD(2);
Gratuity: Still tax-exempt as per limits under existing provisions;
Leave Encashment: It is exempt up to Rs. 25,00,000/- for non-government employees U/S 10(10AA)(ii) and for Govt. employees it is fully tax exempt;
Interest on Home Loan for Let-Out Property: Interest payment on housing loan is allowed as a deduction U/S 24(b) not for self-occupied property, but only for a let-out property;
Is 80TTA applicable in new tax regime?
No, the deduction for savings account interest under Section 80TTA (up to ₹10,000) is not allowed in the new regime. This applies to taxpayers below 60 years. Thus, section 80TTA deduction is applicable only under the old tax regime.
Is 80TTB applicable in new tax regime?
No, the deduction for savings account interest under Section 80TTB (up to ₹50,000) is not allowed in the new regime. This applies to taxpayers above 60 years. Thus, section 80TTB deduction is applicable only under the old tax regime.
How Can I Save Tax in the New Regime?
Even with fewer deductions, there are still legal and strategic ways to save tax in the new regime:
Utilize Standard Deduction: The ₹75,000 standard deduction is automatically available to salaried employees and pensioners.
NPS Employer Contribution: Ask your employer to contribute to your NPS account instead of providing you with cash perks. This amount is non-taxable up to 14% of your salary.
Leave Travel Allowance (LTA) and Conveyance Allowance: If structured right, these can still offer tax-free benefits under specific conditions.
Tax-Free Perquisites: Some perks, like meal coupons and company car use, can be structured as non-taxable. Interest-free loans within certain limits also fall under this category.
Tax-Free Retirement Benefits: Gratuity, leave encashment, and commutation of pension still retain their tax benefits.
HRA exemption is gone, but rent-free housing can help: HRA exemption is disallowed. Nonetheless, receiving rent-free accommodation, valued as per the rules, is tax-efficient if offered by the employer.
At What Salary Is the New Tax Regime Beneficial?
Just check below the tax liability under both regimes at different income levels, and the winner:
Gross Total Income (₹)
Old Regime Tax Liability (₹)
New Regime Tax Liability (₹)
Tax Regime to Choose
7,50,000
–
–
Both Equal
10,00,000
33,301
–
New Tax Regime
12,00,000
74,901
–
New Tax Regime
14,00,000
1,16,501
81,900
New Tax Regime
15,00,000
1,47,451
97,500
New Tax Regime
16,00,000
1,78,651
1,13,100
New Tax Regime
18,00,000
2,41,051
1,50,800
New Tax Regime
20,00,000
3,03,451
1,92,400
New Tax Regime
22,00,000
3,65,851
2,40,500
New Tax Regime
24,00,000
4,28,251
2,92,500
New Tax Regime
25,00,000
4,59,451
3,19,800
New Tax Regime
30,00,000
6,15,451
4,75,800
New Tax Regime
35,00,000
7,71,451
6,31,800
New Tax Regime
40,00,000
9,27,451
7,87,800
New Tax Regime
45,00,000
10,83,451
9,43,800
New Tax Regime
50,00,000
12,39,451
10,99,800
New Tax Regime
At What Salary Is the New Tax Regime Beneficial? Obviously the New Regime: Check below
You can see from the above chart that tax liability is lesser under the new tax regime. This applies to all the income levels shown in the table. So, the new tax regime is a clear winner here for the FY 2025-26.
As a rule of thumb:
Even if you invest much in 80C/80D/NPS/etc., and max deduction is Rs. 3.50 Lakh, still the new regime is beneficial.
This is because the gap in tax slabs and rate of taxes in both regimes have become much wider.
Can I Get a Tax Refund in the New Tax Regime?
Yes! You can get a refund absolutely if the following conditions are satisfied:
TDS deducted by the employer is more than your final tax liability.
You overpaid advance tax.
You qualify for a rebate under Section 87A.
Thus, the refund of your tax does not depend on the tax regime you have chosen. It is simply the excess tax paid over your final tax liability.
Section 87A Rebate: If your taxable income is up to ₹12,00,000 under the new regime, you get a full rebate. The rebate amount is ₹75,000. This makes your net tax liability zero.
Comparison: Old vs New Tax Regime: How to Save Tax in New Tax Regime
Criteria
Old Regime
New Regime
Standard Deduction
₹50,000
₹75,000 (As per Budget 2025)
Section 80C
Up to ₹1.5 lakh
Not Allowed
HRA/Leave Travel/Other Perks
Allowed
Not Allowed
Lower Tax Rates
No
Yes
Simplicity
Complex
Simple
Refund Possibility
Yes
Yes
Basic exemption limit
₹3,00,000
₹4,00,000
No. of Tax slabs
3(5%, 20% & 30%)
6(5%,10%,15%,20%, 25%,30%)
FAQs on How to Save Tax in New Tax Regime FY 2025-26
Can I claim 80C in new tax regime?
Unfortunately, no. Section 80C deductions (including LIC, PPF, ELSS, principal repayment of home loan, etc.) are not availablein the new regime. The government is more committed now to gradually abolishing all the available deductions. They also aim to enhance the income tax slabs. We have observed this change in Budget 2025 as well.
Can I switch between regimes every year?
Yes, salaried individuals can switch their regimes once every financial year. The default tax regime is now the new tax regime. However, if you want to switch to the old tax regime, you must submit an application to the employer. Alternatively, you can declare your income as per the old tax regime.
You can change the tax regime at the time of filing your income tax return. This is true even after your employer deducts tax under the new or old tax regime, or vice versa. So there are no such restrictions imposed by the government as of now.
However, the answer is no, for those with business/professional income. Unlike the salaried persons, they can not change the tax regimes every year. You can switch only once, and after switching, it can not be reverted unless you discontinue your business.
Can I still invest in PPF or ELSS under the new regime?
Yes, why not? You can invest in PPF or ELSS/LIC anytime you want. However, you won’t get tax benefits under Section 80C if you’ve opted for the new tax regime. But it does not let you stop investing even under the new tax regime.
Investment is always welcome under any tax regime. Choose your investments wisely in line with your investment objectives. Do not choose them only for the sake of availing of income tax deductions.
What happens if I don’t choose a regime?
Starting FY 2023-24, the new tax regime is the default option. If you want to choose the old regime, you must inform explicitly while filing your return. Alternatively, you can do so with your employer at the beginning of the financial year.
Final Thoughts on How to Save Tax in New Tax Regime FY 2025-26:
The new tax regime is designed to offer simplicity and lower tax rates. However, it requires letting go of popular deductions. It’s best for a person who: Doesn’t claim many deductions and enjoys a high salary with few exemptions.
Also, it is said to be a hassle-free and less compliant system. Nonetheless, it is gaining huge popularity due to higher tax-free income up to Rs. 12.75 Lakh from FY 2025-26 & AY 2026-27.
