While the New Tax Regime (default under Section 115BAC) removes popular deductions like Section 80C (PPF, ELSS), Section 80D (Health Insurance), and HRA, it offers lower tax slab rates and a higher basic exemption limit. For Assessment Year 2026–27 (FY 2025–26), taxable income up to ₹12 Lakh is effectively tax-free due to a enhanced rebate under Section 87A of up to ₹60,000.
Salaried employees can still use 7 smart ways to reduce taxable income and lower tax liability under the New Tax Regime:
1. Utilize the Enhanced Standard Deduction (₹75,000)
How it works: Under the New Tax Regime, all salaried employees and pensioners receive an automatic, hassle-free Standard Deduction of ₹75,000 without submitting any bills or investment proofs.
Impact: This brings the total tax-free threshold for salaried individuals up to ₹12.75 Lakh (₹12 Lakh taxable income limit + ₹75,000 standard deduction).
2. Maximize Employer Contribution to NPS (Section 80CCD(2))
How it works: While self-contributions to NPS (Section 80CCD(1B)) are disallowed under the New Regime, employer contributions to your National Pension System (NPS) remain tax-exempt.
Limit: Private and public sector employers can contribute up to 14% of basic salary + DA tax-free under Section 80CCD(2).
Action Item: Ask your HR to restructure your salary CTC to include or increase the employer’s NPS contribution component.
3. Leverage Specific Official Duty Allowances (Section 10(14))
Most personal allowances (HRA, LTA, Children Education Allowance) are revoked, but duty-related allowances spent for official work can still be claimed tax-free:
Conveyance/Transport Allowance: Expenses incurred for official local travel.
Daily Allowance: Per-diem expenses incurred when away from the usual place of duty.
Travel/Tour Allowance: Cost of travel for official transfers or business tours.
Helper Allowance: Spent on maintaining an assistant required for official duties.
4. Exclude Employer Voluntary Retirement / Gratuity Exemptions
Retirement and severance benefits continue to enjoy tax exemptions under the New Tax Regime:
Gratuity: Exempt up to ₹20 Lakh for non-government employees (fully exempt for government employees).
Leave Encashment: Exempt up to ₹25 Lakh upon retirement/resignation for private-sector employees.
Voluntary Retirement Scheme (VRS): Exempt up to ₹5 Lakh under Section 10(10C).
5. Claim Transport Allowance for Specially-Abled Employees
How it works: Specially-abled employees (physically challenged, blind, orthopedically impaired, or deaf and dumb) can claim a transport allowance exemption of ₹3,200 per month (₹38,400 per year) under Section 10(14) to meet commuter expenses.
6. Claim Deduction for Agniveer Corpus Fund (Section 80CCH)
How it works: If you or an immediate family member serve under the Agnipath Scheme, contributions made by the employee or the Central Government to the Agniveer Corpus Fund are 100% tax-deductible under Section 80CCH(2) in the New Tax Regime.
7. Offset Home Loan Interest on Let-Out (Rented) Property
How it works: While interest on a home loan for a self-occupied house property is not deductible under the New Regime, interest paid on a loan for a rented (let-out) property can be adjusted against rental income received under Section 24(b).
Note: Any loss generated under the head "Income from House Property" cannot be set off against your salary income in the New Regime, but it can be set off up to the amount of rental income earned.
Quick Summary Table (AY 2026–27 Tax Slabs)
| Taxable Income Slab | New Tax Regime Rate |
| Up to ₹4,000,00 (₹4 Lakh) | Nil |
| ₹4,000,01 to ₹8,000,00 | 5% |
| ₹8,000,01 to ₹12,000,00 | 10% (Rebate u/s 87A makes tax zero up to ₹12L) |
| ₹12,000,01 to ₹16,000,00 | 15% |
| ₹16,000,01 to ₹20,000,00 | 20% |
| ₹20,000,01 to ₹24,000,00 | 25% |
| Above ₹24,000,00 | 30% |
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