Salaried Employees, Rejoice! 5 Smart Ways to Save Tax Under New Regime in FY 2025-26

The new tax regime introduced for the financial year 2025–26 may have done away with many traditional deductions, but salaried individuals still have several effective ways to save on income tax. While the updated structure offers limited exemptions, strategic financial planning can still help reduce your tax burden significantly. Here are five practical and legal methods you can adopt to maximize your tax savings—even under the new regime.

1. Tax-Free Employer Contribution to NPS (National Pension System)

Although the new tax regime doesn’t allow personal deductions under Section 80CCD(1), you can still benefit if your employer contributes to your NPS account. Under Section 80CCD(2):

• Up to 14% of your basic salary contributed by your employer is tax-free.

• At retirement, 60% of the NPS corpus can be withdrawn tax-free, while the remaining 40% must be used to purchase an annuity.

• NPS remains one of the most tax-efficient retirement tools even under the new system.

Tip: Encourage your employer to contribute to your NPS account as part of your salary package.

2. Boost EPF and VPF Contributions for Greater Tax Relief

The Employees’ Provident Fund (EPF) remains a tax-free component when contributed by your employer. Additionally:

• Employees typically contribute 12% of basic salary to EPF.

• You can voluntarily enhance this through the Voluntary Provident Fund (VPF).

• Your own contribution to EPF is tax-free up to ₹2.5 lakh per year.

• Employer contributions to EPF and NPS combined must not exceed ₹7.5 lakh annually to remain exempt.

Why it matters: This is especially beneficial for high-income earners looking to minimize tax liabilities without risking their investments.

3. Opt for Arbitrage Funds Over Fixed Deposits

If you rely on fixed deposits, the interest earned is fully taxable based on your income slab. Consider switching to arbitrage mutual funds, which offer:

• Comparable returns to FDs with lower tax liabilities.

• Long-term capital gains (after one year) are taxed at only 10% above ₹1 lakh.

• Annual profits of up to ₹1.25 lakh can be tax-free if you book gains smartly and reinvest them, a technique known as “gain harvesting.”

Benefit: Low-risk and more tax-efficient, making arbitrage funds an excellent alternative for conservative investors.

4. Optimize Your Salary Structure for Tax-Free Reimbursements

One of the most underrated strategies is restructuring your salary (CTC) to include tax-exempt components through reimbursements. These can include:

• Books & Periodicals related to your profession.

• Professional courses or certifications.

• Mobile and internet bills used for office work.

• Meal vouchers and company car lease options.

How it works: Submit relevant bills to your employer for reimbursement. Many organizations already offer these exemptions by default. This method allows you to save on taxes without investing any extra money.

5. Claim Interest Deduction on Rented Property

The new regime doesn’t allow deductions for HRA or home loan interest on self-occupied properties. However, if you own a house that is rented out, you can:

• Deduct home loan interest up to the rental income earned.

• For example, if you receive ₹2 lakh as annual rent, you can claim up to ₹2 lakh as interest deduction on your loan.

Best suited for: Individuals owning multiple properties or who rent out a second house while living in company accommodation or a different city.

Conclusion:
While the new tax regime may seem restrictive at first glance, salaried employees still have multiple legal avenues to reduce their tax burden. From optimizing retirement contributions through NPS and EPF, to smart investing and salary structuring, these five methods can provide significant savings. The key is to plan proactively and make the most of the exemptions still available within the framework of the new system.