New Tax Regime Deductions - How To Save Taxes Under The New Regime FY 2025-26?

The new tax regime offers concessional slab rates and limited deductions, compared to old tax regime. Whereas, standard deduction of Rs.75,000, deduction under section 80CCD(2), and rebate of Rs.60,000 can be claimed under the new regime. 

Ways to Save Tax under New Tax Regime FY 2025-26

1.  Employer's contribution to NPS - up to 14% of the basic pay can be claimed. 
2. Interest on home loan for let out property - entire interest can be claimed against rental income.
3. Higher standard deduction  - Rs. 75,000 for salaried employees.

New tax Regime Slab Rates

Under the new tax regime, taxes are automatically saved because of relaxed slab rates. The slab rates under the new tax regime for FY 2025-26 are as follows:

New Regime Exclusive Benefits

Standard Deduction

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

Employer’s Contribution to Pension Scheme

• Under section 80CCD(2), the employer’s contribution to the National Pension System is exempt up to 14% of basic pay under the new regime. 
• This limit is 10% of basic pay under the old regime.

Exemption on Family Pension 

• Pension received by the family of deceased employees other than ex-servicemen: One-third is exempt up to a maximum of Rs.25,000. 
• The maximum limit is Rs.15,000 under the old regime.

Benefits Under Both Regimes

Home Loan Interest on Let-Out Property

• As per section 24(b), interest paid for a home loan can be claimed as a deduction without limits against rent from let-out property. This deduction can be claimed irrespective of the regime chosen.
• The deduction for self-occupied property is capped at a maximum of Rs.2 lakhs and is available only under the old regime.

Allowances Exempt Under New Regime

The following allowances are exempt under the new tax regime:

• Allowances to meet the cost of the tour and transfer.
• Daily allowances when the taxpayer is outstation for business purposes.
• Conveyance allowance as reimbursement on official duty.
• Transport allowance provided for the journey between residence and place of work only in case of differently abled employees. (Rs. 3,200 per month)
• Allowances granted to government employees outside India. (e.g., foreign diplomats)

Perquisites Exempt Under New Regime

Perquisite is any non-cash benefit the employer provides employees, ideally included in the salary.

Perquisites can be chosen so that the salary structure allows the maximum advantage to the taxpayer. The following perquisites are exempt from salary computation under new and old regimes.

• Telephone provided by the employer for the employee’s residence.
• Transport facility provided to employees through rail or airways to employees, either free or at a concessional rate.
• Payment of insurance premium by employer on staff group insurance scheme.
• Personal accident policy (usually employers take policies in business interest only. Therefore, it does not need to be included in the salary of the employee)
• Recreational facility provided by the employer. - e.g., club membership
• Reimbursement of medical expenses for specified diseases
• Reimbursement or payment of health insurance premium (eligible for deduction under section 80D)
• The following perquisites are taxable only for employees who are directors or employees holding more than 20% of beneficial interest in the company.
  • Sweeper and gardener provided by the employer.
  • Free concessional tickets.
  • Use of motor car.
  • Gas, electricity and water supplied by the employer.
  • Free or concessional education facilities provided to employees and their families.

Exemption on Gifts

• Gifts received in cash or kind from relatives are always tax-exempt.
• Gifts received at special occasions like weddings and inheritances are also always tax-exempt.
• Gifts received in any other situation than specified above are totally exempt when they are up to Rs.50,000. Gifts received above the limit are fully taxable.
• Gifts can be received in cash or in kind. If an asset is received in a concessional amount, the concession would be exempt if its value does not exceed Rs.50,000.

Leave Encashment

Least of the following is exempt

• Rs.25 lakhs
• Leave encashment amount received
• Last 10 months salary
• Cash equivalent of unavailed leave based on average salary of past 10 months (cannot exceed 30 days per year of service)

Note: 

1. Leave encashment received during service is fully taxable. 
2. If government employees receive leave encashment, it is fully exempt.

Withdrawal of PF

• If an employee has reached 5 years of service and withdraws his balance in the PF account, the whole amount withdrawn is exempt.
• Even if he has not completed 5 years of service, it is exempt if the employment got terminated for reasons beyond his control (e.g., ill health, termination of employer’s business)

Retirement Benefits

Various retirement benefits such as gratuity, leave encashment, retrenchment compensation, and pension withdrawals are exempt irrespective of the regime chosen. 

Final Word

The primary objective of the new tax regime is to simplify taxation by offering lower tax rates with minimal deductions. However, it still provides tax-saving opportunities. On the other hand, the old tax regime offers a wide range of deductions and exemptions, although the tax slabs are relatively higher. 

To take the best advantage of the available benefits, taxpayers need to have a good understanding of the deductions under both regimes. The beneficial regime for a taxpayer depends on one’s income level and the extent of tax-saving investments made.

Also read - How to Save Tax for Senior Citizens 2026