Tax saving tips: How you can reduce tax burden under the new regime

Introduction

India's tax regime has undergone a remarkable shift in the recent past, particularly with the advent of the new tax regime in 2020. This new regime presents taxpayers with an option: continue with the old regime and pay more taxes but with extensive deductions and exemptions, or switch to the new regime and pay lower taxes but without any standard deduction.

This change is an attempt to streamline the tax system and easier to pay taxes. But most people continue to wonder: How do I save tax under the new system? And the reply is yes—even though you can no longer claim traditional deductions under Section 80C or House Rent Allowance (HRA), there are still some smart and legitimate tax-saving options.

This blog will walk you through the best tax-saving options, discuss tax planning strategies 2024-25, and help you decide whether the new tax regime suits your financial profile.

2. Old vs. New Tax Regime:

New Tax Regime (FY 2025-26)

Under the New Tax Regime, the income tax slabs are as follows:

• Income up to ₹4,00,000: Nil
• ₹4,00,001 – ₹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%

Notably, for salaried individuals, a standard deduction of ₹75,000 is available. This means that individuals with a salary income up to ₹12.75 lakh can effectively have zero tax liability under the New Tax Regime.

Old Regime

Individuals less than 60 Years of Age

• Income up to ₹2,50,000: Nil
• ₹2,50,001 – ₹5,00,000: 5% on income above ₹2,50,000
• ₹5,00,001 – ₹10,00,000: ₹12,500 + 20% on income above ₹5,00,000
• Above ₹10,00,000: ₹1,12,500 + 30% on income above ₹10,00,000

Resident Individuals Aged 60–80 Years

• Income up to ₹3,00,000: Nil
• ₹3,00,001 – ₹5,00,000: 5% on income above ₹3,00,000
• ₹5,00,001 – ₹10,00,000: ₹10,000 + 20% on income above ₹5,00,000
• Above ₹10,00,000: ₹1,10,000 + 30% on income above ₹10,00,000

Resident Individuals Aged More than 80 Years

• Income up to ₹5,00,000: Nil
• ₹5,00,001 – ₹10,00,000: 20% on income above ₹5,00,000
• Above ₹10,00,000: ₹1,00,000 + 30% on income above ₹10,00,000

Note:

• Surcharge and cess will be applicable.
• Individuals with net taxable income up to ₹5,00,000 are eligible for rebate under Section 87A. Their tax liability will be Nil under the old regime.

Key Differences

• Deductions and Exemptions: The old regime allows popular tax-saving investments like Section 80c, HRA, and home loan interest. The new tax regime deductions are limited but simplify compliance.
• Simplicity: The new regime eliminates the need to claim deductions and collect receipts.
• Applicability:
• Salaried employees may benefit from tax-free allowances and structured compensation.
• Freelancers and professionals can use presumptive taxation to reduce their tax burden.
• Business owners may prefer based on the income structure..

Who Should Choose the New Regime?

Those with fewer deductions, such as:

• Freshers or early-career professionals
• Freelancers with low business expenses incurred
• Retirees or senior citizens relying on a pension.

3. Can You Still Save Tax Under the New Regime?

Yes, absolutely! Though traditional tax-saving tools are excluded, many hidden ways to save tax still exist. The tax saving under the new regime is possible via:

• Employer-driven tax-free allowances
• Government tax-saving schemes
• Presumptive taxation benefits
• Income tax rebate options, like the Section 87A rebate
• Investment in exempt instruments

4. Tax Saving Tips under both the Regimes

The new regime offers the taxpayers limited deductions as compared to the old regime. A standard deduction of Rs 75,000 can be claimed along with a rebate of RS 25,000 under the new regime.

While the old tax regime offers a standard deduction of and a rebate of

Under the new tax regime, salaried individuals are allowed a standard deduction of Rs. 75,000 compared to 50,000 under the old regime.

Exemption on Family Pension

For the family of a deceased employee (not an ex-serviceman), one-third of the pension received is tax-free, up to ₹25,000 under the new regime and ₹15,000 under the old regime.

Benefits Under the Both the Regime

1.Home Loan Interest (Let Out Property)

There’s no limit on the deduction for home loan interest on rented-out property. This benefit is available under both regimes.

For self-occupied homes, the maximum deduction is ₹2 lakhs—only under the old regime.

2.Employer's NPS Contribution (Section 80CCD(2))

• New regime: Up to 14% of basic salary is tax-free
• Old regime: Limit is 12%

3.3. Agniveer Corpus Fund (Section 80CCH)

If you’re part of the Agnipath Scheme, both your and your employer’s contributions to the Agniveer Fund are tax-deductible.

4. Deduction for Hiring New Employees (Section 80JJAA)

Business owners can claim a deduction of 30% of the salary paid to new employees—if certain conditions are met.

If it’s a new business, you can claim 30% of the total salary expense.

5. Gifts

• Gifts from relatives: Always tax-free
• Gifts on marriage or inheritance: Always tax-free
• Other gifts: Tax-free up to ₹50,000. If value exceeds ₹50,000, the full amount becomes taxable.

If you receive something at a lower price than its value, it’s exempt only if the difference is within ₹50,000.

6. Commuted Pension

Lump-sum pension received on retirement is partially tax-free:

• If gratuity is received: 1/3rd is tax-free
• If no gratuity: 1/2 is tax-free
• For government employees: Entire amount is tax-free

7. Gratuity

Tax exemption depends on whether you are covered under the Gratuity Act:

• If covered: Least of actual gratuity, ₹20 lakhs, or (last salary × 15/26 × years worked). Even part-years are counted.
• If not covered: Least of actual gratuity, ₹20 lakhs, or (last salary ÷ 2 × years worked). Part-years are ignored.
• For govt employees and armed forces: Entire amount is tax-free

8. Leave Encashment

If you encash unused leave at retirement, the tax-free amount is the lowest of:

• ₹25 lakhs
• Actual amount received
• 10 months’ salary
• Cash equivalent of unused leave (max 30 days/year of service)

Note: Leave encashment during service is taxable. Govt employees get full exemption.

9. PF Withdrawal

Entire PF amount is tax-free if:

• You’ve worked for 5+ years
• Or your job ended due to health issues or company shutdown

10. Retrenchment Compensation

Tax-free amount is the lowest of:

• Actual compensation received
• ₹5,00,000
• 15 days’ average pay × completed years of service

This applies when workers are let go due to company downsizing or closure, not because of performance.

Allowances Exempt Under New Regime

• Travel and transfer allowances
• Daily allowance for outstation work
• Reimbursement for travel on official duty
• ₹3,200/month transport allowance for differently-abled employees
• Foreign allowances for government employees

6. When is the New Regime Not Advisable?

You might want to stick to the old regime if:

• Pay home loan interest
• Claim HRA or LTA
• Invest heavily in deductions under Section 80C
• Claim medical expenses under 80D
• Pay for children's education.

Quick Tax Impact Example

Old Regime (FY 2024–25):

• Salary: ₹12 lakh
• Deductions (80C, HRA, etc.): ₹3 lakh
• Taxable Income: ₹9 lakh
• Tax Liability: Approximately ₹1.30 lakh

New Regime (FY 2025–26):

• Salary: ₹12 lakh
• Standard Deduction: ₹75,000
• Taxable Income: ₹11.25 lakh
• Tax Liability: Approximately ₹1.56 lakh

In this scenario, the old regime for FY 2024–25 results in a lower tax liability compared to the new regime for FY 2025–26.

7. How to Switch Between Old and New Regime

Salaried Employees:

• Can choose each year
• Declare a preference at the start of the financial year to the employer.
• Use Form 10-IEA while filing ITR if switching.g

Business/Professionals:

• Once you switch to the new regime, switching back is restricted
• Must file Form 10-IEA while opting in
• Switchback is allowed only once in a lifetime

This flexibility helps with long-term tax planning strategies 2024-25.

8. Pro Tips for Smart Tax Planning

Optimise Employer Structure:

• Include non-taxable reimbursements
• Choose a salary in tax-saving formats.

Invest in Tax-Efficient Instruments:

• Tax-saving mutual funds (ELSS under the old regime)
• Tax-free bonds and pension plans

Advanced Planning:

• Create an HUF for income splitting.
• Use the capital gains exemption.s
• Consider private family trusts for estate planning

Note: These methods are for experienced taxpayers or those with higher incomes—always consult a tax advisor.

9. Common Myths About the New Tax Regime

10. Final Thoughts

The new tax regime is a step toward simplification, but it doesn’t eliminate your ability to save on taxes. By exploring alternative tax-saving schemes, leveraging employer benefits, and applying smart tax planning strategies in 2024-25, you can still reduce your tax burden legally and efficiently.

Key Takeaways:

• Evaluate income and expenses yearly with a new vs old regime calculator.
• Explore available tax-saving investments.
• Consider presumptive taxation if self-employed.
• Consult an expert, such as Mind Your Tax, for customised income tax savings tips.

Remember, choosing a regime is not a one-time affair—your ideal approach evolves with your life stage, investment options, and income profile.