Income Tax Saving: The new tax regime does not have many options to save tax like the old tax system. Still, salaried employees can reduce their tax liability in 5 ways. Read this news for full details.
ITR Filing 2025: In the new tax system, many deductions of the old tax system have been abolished. But, this does not mean that the ways to save tax are closed. Salaried employees who choose the new system in the financial year 2025-26 still have some smart options. Know in which 5 ways you can reduce your tax liability.
Design your CTC smartly
The new tax system provides exemption on certain expenses. This includes things like books and magazines, learning and skill courses, mobile-broadband for office, company car lease and meal vouchers. To avail the benefit of reimbursement of these expenses, it is necessary to give the correct bill to the employees. If these expenses are already included in your employer’s policy, then this is a direct way for you to save tax.
Take advantage of NPS
The employer’s contribution to NPS (National Pension System) is tax-free under section 80CCD (2) in the new tax system. According to the rule, the employer can put up to 14% of the basic salary in the NPS account. At the age of 60, 60% of the NPS amount can be withdrawn tax-free and the remaining 40% has to be used to buy an annuity.
Additional contribution to EPF and VPF
The employer’s contribution to the Employees’ Provident Fund (EPF) is tax-free. If the employee wishes, he can also increase his contribution through Voluntary Provident Fund (VPF).
Keep in mind that the total contribution of the employer to NPS and EPF should not exceed Rs 7.5 lakh annually. At the same time, the limit of the employee’s own EPF contribution is Rs 2.5 lakh. If it is more than this, the benefit of tax exemption will not be available.
Arbitrage funds and capital gain harvesting
Investing in arbitrage funds instead of fixed deposits (FDs) can be considered. These funds give returns similar to FDs, but the tax treatment is different. Interest on FDs is taxable as per your income slab, while long-term gains from arbitrage funds after one year are taxed at 12.5%.
Salaried employees can optimize tax by booking long-term gains of up to Rs 1.25 lakh annually and reinvesting them.
Tax savings from rented property
The new tax regime has removed the exemption on house rent allowance (HRA) and home loan interest. But if you have rented out a property, you can still get the benefit of tax exemption on it.
If the property is let-out, then the interest on the home loan taken on it can be deducted. However, this exemption is available only to the extent of the annual income from rent.
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