Tax-saving options in the new tax regime
Updated 11 October 2026
The new regime, now the default, removes most deductions: 80C, 80D, HRA, LTA and home loan interest on a house you live in are gone. What remains is still worth using: the ₹75,000 standard deduction, the employer's NPS contribution up to 14% of basic + DA, the family pension deduction, retirement exemptions and some tax-free perquisites. Together with the rebate that makes income up to ₹12 lakh tax-free, these are the levers you have.
What the new regime does not allow
- Section 80C (PPF, ELSS, life insurance, tuition fees, home loan principal), 80CCD(1B) (your own extra ₹50,000 in NPS), 80D (health insurance), 80E (education loan interest), 80G (donations), 80TTA and 80TTB (interest).
- HRA, leave travel allowance, children education allowance and professional tax.
- Interest on a home loan for a house you live in.
If these add up to a lot for you, the old regime may still be cheaper. See old vs new regime.
What still works in the new regime
| Item | Limit or rule | Who gains |
|---|---|---|
| Standard deduction | ₹75,000 | Salaried people and pensioners |
| Rebate (section 156, old 87A) | Up to ₹60,000 when total income is up to ₹12 lakh, with marginal relief just above | Resident individuals |
| Employer's NPS contribution (section 124, old 80CCD(2)) | Up to 14% of basic + DA, for government and private employers | Employees whose employer offers NPS |
| Family pension deduction | One-third of family pension, up to ₹25,000 | Family pensioners |
| Retirement exemptions | Gratuity, leave encashment at retirement, commuted pension, VRS and retrenchment compensation, within their limits | Retiring employees |
| Agniveer Corpus Fund | Contributions are deductible | Agniveers |
| Allowances for official duty | Travel on tour or transfer, daily allowance on tour, conveyance for official work; transport allowance for employees with disabilities | Employees who travel for work |
| Gifts and meals from the employer | Gifts and vouchers up to ₹15,000 a year; meals up to ₹200 per meal (Income-tax Rules, 2026) | Employees whose employer offers them |
| Loan interest on a let-out property | Deductible from that property's rent, but a loss cannot be set off against other income | Landlords |
Gifts and meals are valued under the perquisite rules, which apply in both regimes. For retirement lump sums, see tax on gratuity, leave encashment and commuted pension; for rent, tax on rental income.
Employer NPS: the biggest lever
Ask your employer to pay part of your existing salary into your NPS account as the employer's contribution. Up to 14% of basic + DA is deductible in the new regime, for private and government employers alike. Your cost to company stays the same; only the taxable part shrinks. The catch is that NPS money is locked until retirement, apart from limited partial withdrawals (see NPS withdrawal rules). Also, employer contributions to EPF, NPS and superannuation together above ₹7.5 lakh a year are taxable. More in NPS tax benefits.
Before: taxable income ₹18,00,000 − ₹75,000 = ₹17,25,000. Tax: ₹20,000 + ₹40,000 + ₹60,000 + 20% of ₹1,25,000 (₹25,000) = ₹1,45,000, plus cess = ₹1,50,800.
After: taxable income ₹17,25,000 − ₹1,00,800 = ₹16,24,200. Tax: ₹20,000 + ₹40,000 + ₹60,000 + 20% of ₹24,200 (₹4,840) = ₹1,24,840, plus cess = ₹1,29,834.
He saves ₹20,966 a year in tax, and ₹1,00,800 a year builds up in his NPS account. Project the corpus with the NPS calculator.
Planning around the ₹12 lakh line
Because of the rebate, total income up to ₹12 lakh (a salary of ₹12.75 lakh after the standard deduction) is tax-free. Just above that line, marginal relief keeps the tax from exceeding the income above ₹12 lakh, until total income reaches about ₹12.7 lakh. On a salary of ₹13 lakh, for example, total income is ₹12,25,000 and the tax is ₹25,000 after marginal relief, plus cess = ₹26,000. An employer NPS contribution of ₹25,000 brings total income down to ₹12 lakh and the tax to nil. See the rebate and tax on a ₹13 lakh salary.
Tax-free income stays tax-free
Some income is exempt in both regimes, so it costs nothing in tax whichever you choose:
- PPF and Sukanya Samriddhi interest and maturity; in the new regime you lose only the 80C deduction on what you put in.
- EPF interest, within the limits for large contributions (see EPF explained).
- Life insurance maturity proceeds, subject to the premium conditions.
- Gifts from relatives (see tax on gifts) and agricultural income.
- Long-term capital gains on listed shares and equity funds up to ₹1.25 lakh a year, though the rebate does not apply to special-rate gains (see capital gains tax).
Before choosing, run your numbers in the income tax calculator, which also shows the deductions at which the old regime would break even.