What is the story about?
New tax regime: Many salaried taxpayers today are switching to the new tax regime as it offers no income tax on salary income up to Rs 12.75 lakh, but
they often think that it means zero tax-saving options. However, this is not the case. There are still some smart ways a salaried individual can opt to reduce tax liability when filing ITR for AY 2026-27.
Standard Deduction Under New Tax Regime
A salaried individual choosing the new tax regime can claim a standard deduction of Rs 75,000 while filing their tax return.This increased standard deduction (from Rs 50,000 to Rs 75,000) was introduced in the Union Budget 2024 to increase disposable income for salaried taxpayers under the new regime.
Employer’s Contribution to NPS
The new tax regime also allows a deduction for contributions made by an employer to an employee's National Pension System (NPS) account under Section 80CCD(2).Employees can claim a deduction of up to 14 per cent of their salary for the employer's contribution. This benefit is available regardless of whether the employer is from the government or private sector.
For those whose companies offer NPS contributions as part of their compensation package, this can provide a meaningful tax advantage.
Tax Deduction on Family Pension
Individuals receiving a family pension are also eligible for tax relief under the new tax regime.
They can claim a deduction of Rs 25,000 or one-third of the pension received, whichever is lower.
This provision helps reduce the taxable income of family pension recipients and remains available even after shifting to the new tax structure.
Retirement-related Benefits
Several retirement-related exemptions have been retained under the new tax regime.These include exemptions on gratuity under Section 10(10), leave encashment under Section 10(10AA), and compensation received under a Voluntary Retirement Scheme (VRS) under Section 10(10C), subject to prescribed conditions and limits.
Interest on Home Loan for Let-Out Property
While deduction for home loan interest on self-occupied property is not available under the new tax regime, taxpayers can still claim a deduction on interest paid on let-out property.The new tax regime may offer fewer deductions than the old system, but it does not eliminate tax benefits altogether. From the Rs 75,000 standard deduction to NPS contributions, family pension relief and retirement-related exemptions, taxpayers still have a few opportunities to reduce their taxable income.
Features of New Tax Regime
Following are the features of the new tax regime for individual taxpayers:
a) New tax regime is the default tax regime. An individual has option to opt for the old tax regime in any financial year, provided there is no business income
b) The basic exemption limit is Rs 4 lakh.
c) Tax rebate under Section 87A makes zero tax payable for taxable incomes up to Rs 12.75 lakh for salaried individuals and Rs 12 lakh others.
