How to Save Tax Under the New Regime FY 2025-26
The Union Budget 2024 made the new tax regime even more attractive for salaried individuals across India. With a higher standard deduction, revised tax slabs, and select deductions still available, the new regime is now the default choice for millions of taxpayers. In this comprehensive guide, we break down exactly how you can save tax under the new regime for FY 2025-26 (AY 2026-27) and help you decide whether it is the right option for you.
New Tax Regime Slabs for FY 2025-26
The government restructured the income tax slabs under the new regime starting FY 2024-25, and these continue into FY 2025-26. Here are the current slabs:
| Income Slab | Tax Rate |
|---|---|
| Up to ₹3,00,000 | Nil |
| ₹3,00,001 to ₹7,00,000 | 5% |
| ₹7,00,001 to ₹10,00,000 | 10% |
| ₹10,00,001 to ₹12,00,000 | 15% |
| ₹12,00,001 to ₹15,00,000 | 20% |
| Above ₹15,00,000 | 30% |
A key benefit is the tax rebate under Section 87A, which makes income up to ₹7,00,000 effectively tax-free under the new regime. This means that individuals earning up to ₹7 lakh pay zero tax, a significant advantage for middle-income earners.
Standard Deduction of ₹75,000
One of the biggest enhancements in the new regime is the increased standard deduction. Previously set at ₹50,000, the standard deduction has been raised to ₹75,000 for salaried individuals and pensioners under the new regime. This is automatically applied to your gross salary, requiring no investment or proof of expenditure.
For someone in the 30% tax bracket, this additional ₹25,000 deduction translates to a direct tax saving of approximately ₹7,500 plus applicable cess. Over a career spanning 25 to 30 years, this incremental benefit compounds into a meaningful sum.
NPS Employer Contribution Under Section 80CCD(2)
While most deductions under Chapter VI-A (like 80C, 80D, and 80E) are not available in the new regime, there is one powerful exception: Section 80CCD(2). This allows you to claim a deduction for your employer's contribution to the National Pension System (NPS).
Under this section, your employer can contribute up to 14% of your basic salary (for central government employees) or 10% of basic salary (for private sector employees) towards your NPS account, and this amount is fully deductible from your taxable income under the new regime.
For example, if your basic salary is ₹8,00,000 per annum and your employer contributes 10% (₹80,000) to NPS, you can claim a deduction of ₹80,000 even under the new regime. If you are in the 20% slab, this saves you ₹16,000 in taxes. If you are in the 30% slab, the saving is ₹24,000 plus cess.
This makes NPS an excellent retirement tool for new regime taxpayers. Talk to your HR department about structuring your CTC to include an employer NPS contribution.
Old Regime vs New Regime: A Detailed Comparison
Choosing between the old and new regime depends on how many deductions and exemptions you can actually claim. Here is a side-by-side comparison for an individual with a gross salary of ₹12,00,000:
| Parameter | Old Regime | New Regime |
|---|---|---|
| Gross Salary | ₹12,00,000 | ₹12,00,000 |
| Standard Deduction | ₹50,000 | ₹75,000 |
| Section 80C (PPF, ELSS, etc.) | ₹1,50,000 | Not Available |
| Section 80D (Health Insurance) | ₹25,000 | Not Available |
| HRA Exemption | ₹1,80,000 | Not Available |
| NPS 80CCD(2) Employer (10%) | ₹80,000 | ₹80,000 |
| Taxable Income | ₹7,15,000 | ₹11,25,000 |
| Tax Payable (approx.) | ₹62,400 | ₹71,500 |
In this scenario, the old regime is slightly better because the individual claims substantial HRA, 80C, and 80D benefits. However, if you live in your own house (no HRA), do not invest the full ₹1,50,000 in 80C instruments, and have limited medical insurance premiums, the new regime often wins.
Who Benefits Most from the New Regime?
The new regime is particularly advantageous for the following categories of taxpayers:
- Young professionals who have fewer investments and live in their own accommodation or with parents, thus claiming no HRA.
- Individuals earning up to ₹7,00,000 who pay zero tax under the new regime thanks to the Section 87A rebate.
- High-income earners above ₹15,00,000 who do not have enough deductions to bring their taxable income down significantly under the old regime.
- Employees whose employers contribute to NPS, as they can claim 80CCD(2) in the new regime.
- Freelancers and professionals who do not receive HRA or have structured salary components.
Practical Tips to Maximise Savings Under the New Regime
- Restructure your CTC: Ask your employer to include an NPS contribution as part of your salary. The 80CCD(2) deduction is the single most powerful tool available under the new regime.
- Utilise the standard deduction: The ₹75,000 standard deduction is automatic, but make sure your employer applies it correctly in your Form 16.
- Claim the Section 87A rebate: If your net taxable income is at or near ₹7,00,000, ensure the rebate is applied. You could even consider timing certain income components to stay within the threshold.
- Consider the Agniveer fund: Under Section 80CCH, contributions to the Agniveer Corpus Fund are deductible under the new regime as well.
- Compare every year: Salaried taxpayers can switch between old and new regimes each financial year. Use a tax calculator to compare your liability under both regimes before filing your ITR.
Conclusion
The new tax regime for FY 2025-26 offers simplicity, a generous standard deduction of ₹75,000, and zero tax on income up to ₹7 lakh. While it removes most traditional deductions, the NPS employer benefit under Section 80CCD(2) provides a meaningful tax-saving avenue. Before making your choice, calculate your exact tax liability under both regimes using our Income Tax Calculator. The right regime depends on your individual financial profile, so take the time to compare and choose wisely.