Navigating the ever-changing financial landscape in India can be challenging, especially when it comes to taxes. The new tax regime introduced by the government offers a simplified structure with fewer deductions and exemptions. But this doesn't mean you can't optimize your tax savings! This guide explores effective strategies to save tax under the new regime for the financial year 2023-24 and the corresponding assessment year 2024-2025. We'll delve into the regime's features, eligibility criteria, available deductions, and valuable tips to minimize your tax burden. Additionally, we'll discuss how platforms like Bajaj Finserv can streamline your tax-saving journey, making it easier and more convenient.
What is the new tax regime for FY 2024-25 and AY 2025-2026?
In FY 2024-25, the new tax regime has become the default option for individual taxpayers. However, since eligible taxpayers can still opt for the old tax regime instead, it's crucial to compare the two to make an informed decision.
Comparing the new tax regime slab rates for FY 2024-25 (AY 2025-26) with those in FY 2023-24 (AY 2024-25) reveals that the former offers additional tax relief for most taxpayers, making the new tax regime even more attractive.
Here's a breakdown of the Income Tax slab rates for individual taxpayers opting for the new tax regime in FY 2024-25 vs. FY 2023-24:
Annual Taxable Income Slabs |
New Tax Regime Slab Rates FY 24-25 (AY 25-26) |
New Tax Regime Slab Rates FY 23-24 (AY 24-25) |
Up to Rs. 3,00,000 |
Nil |
Nil |
From Rs. 3,00,001 to Rs. 6,00,000 |
5% on income exceeding Rs. 3,00,000 |
5% on income exceeding Rs. 3,00,000 |
From Rs. 6,00,001 to Rs. 7,00,000 |
5% on income exceeding Rs. 3,00,000 |
15,000 + 10% on income exceeding Rs. 6,00,000 |
From Rs. 7,00,001 to Rs. 9,00,000 |
20,000 + 10% on income exceeding Rs. 7,00,000 |
25,000 + 10% on income exceeding Rs. 7,00,000 |
From Rs. 9,00,001 to Rs. 12,00,000 |
40,000 + 10% on income exceeding Rs. 9,00,000 |
45,000 + 10% on income exceeding Rs. 9,00,000 |
From Rs. 12,00,001 to Rs. 15,00,000 |
80,000 + 20% on income exceeding Rs. 12,00,000 |
90,000 + 20% on income exceeding Rs. 12,00,000 |
Above Rs. 15,00,000 |
140,000 + 30% on income exceeding Rs. 15,00,000 |
150,000 + 30% on income exceeding Rs. 15,00,000 |
Major highlights of new tax regime as compared to old tax regime
Covering how to save income tax in the new regime, this regime introduces an additional low rate of tax, virtually removes most exemptions and deductions and aims to simplify the computation of taxes. Here are the key highlights:
Lower tax rates
The biggest advantage of the new tax regime is lower taxes for different income slabs. Individuals with higher incomes who may not rely on numerous deductions and exemptions will find this most beneficial. The reduced rates are meant to deliver instant tax cuts without the requirement of sophisticated investment decision-making.
Standard deductions
Under the new regime, a salaried individual can claim standard deduction without making any investments in specified instruments. Through this deduction you can lower your taxable income, thus decreasing the overall tax liability. This is a straightforward benefit which will make tax filing simpler for the taxpayers adopting the new regime.
Deductions and exemptions
The new regime has done away with most of the benefits which were allowed as deductions and exemptions under various sections like 80C, 80D, among others, of the old regime. That being said, there are still some exemptions and deductions which we will touch on later in this article.
Simplicity
It stresses a simplified tax regime. Tighter caps on tax deductions and the elimination of many exemptions make it easier for taxpayers to calculate their taxes simplistically. The simplicity is especially beneficial for those who want their taxes done faster.
Who is eligible for new tax regime u/s 115BAC?
Individual taxpayers and Hindu Undivided Families(HUF) can opt for the new tax regime as per Section 115BAC of the Income Tax Act. Though it is open to all taxpayers irrespective of their income levels, those who do not have high investments in tax-saving instruments get the maximum benefit. After opting for the new regime, a taxpayer can switch back to the old regime in subsequent years, provided they are not engaged with a business or a profession. If an individual only has a business or professional source of income, the option to revert to the old regime isn’t available, the individual has to pay tax under the new regime.
Exemptions and deductions available under new tax regime for FY 2024-25
Even though most traditional deductions and exemptions have been eliminated in the new tax regime, there are a few exceptions that taxpayers can still reap the benefits of. These are:
Employer’s contribution to the PF and NPS
The new regime provides tax breaks on the employer’s contribution to the Provident Fund (PF) to the extent it does not exceed a specified limit, and this amount is not added to the employee’s taxable income. Consequently, the employer’s contribution does not form part of the employee’s total income and hence, does not attract tax. It helps to reduce the simultaneous tax liability of a salaried person. Moreover, the employee’s contribution to the National Pension Scheme (NPS) also qualifies for a deduction under Section 80CCD(2) of the Income Tax Act.
Interest on home loan for a let-out property
Interest paid on a home loan in the case of a let-out property would be allowed as a deduction under the new tax regime. This deduction is allowed under Section 24(b) of the Income Tax Act. This means that the interest paid on the loan is tax deductible, which in turn reduces the total taxable income.
Below is an illustration of how this works:
| Scenario | Income/Expenditure (Rs.) |
| Rental income | Rs. 2,00,000 |
| Interest on home loan paid | Rs. 1,50,000 |
| Taxable income after deduction | Rs. 50,000 |
Under the new regime, this deduction helps property owners reduce their taxable income, which makes it a highly valuable tax-saving tool.
Reimbursements from the employer
Employer reimbursements for expenses like phone bills, internet charges or any other similar office-related expense one might incur would also qualify as tax-free under this new regime. Since these are reimbursements, they do not increase the taxable income of employees and provide a way to get tax savings without making any additional investments. This exemption is easy to understand and thus an attractive choice for salaried persons.
Buy a health insurance policy
Section 80D Deduction Limits
Particular |
Amount |
Medical Insurance for Self and Family |
Rs. 25,000 (Rs. 50,000 for senior citizens) |
Medical Insurance for Parents |
Rs. 25,000 (Rs. 50,000 for senior citizens) |
Preventive Health Checkup |
Rs. 5,000 per year |
Medical Expenditure for Parents (Senior Citizens) without Health Insurance |
Rs. 50,000 |
Park your money in government schemes
Numerous government-backed schemes offer attractive returns and tax benefits. Individuals can claim tax deductions of up to Rs. 1.5 lakh on investments in these schemes under Section 80C of the Income Tax Act.
Tax-Saving Investment Options:
- Senior Citizen Savings Scheme (SCSS)
- Sukanya Samriddhi Yojana (SSY)
- National Pension Scheme (NPS)
- Public Provident Fund (PPF)
Buy life insurance plans
Section 80C of the Income Tax Act provides tax deductions for premiums paid towards life insurance policies. Section 10(10D) provides tax benefits for the sum assured received upon maturity or in case of the insured's death.
Tax benefits on Life Insurance Premiums:
- Policies purchased after April 1, 2012: Tax deductions up to Rs. 1.5 lakh can be claimed under Section 80C if the annual premium is less than 10% of the sum assured.
- Policies purchased before April 1, 2012: Tax deductions under Section 80C can be claimed if the total premium payments do not exceed 20% of the sum assured.
Exemptions for sum assured (Section 10(10D)):
- Unit Linked Insurance Plans (ULIPs): Exemption is applicable only if the annual premium is less than Rs. 2,50,000 (as per Finance Act 2021).
- Other insurance policies: Exemption is applicable only if the annual premium is less than Rs. 5,00,000 (as per Finance Act 2023).
Additional tax benefits:
- Section 80CCC: Tax deductions up to Rs. 1.5 lakh are available for acquisition or renewal of life insurance coverage and annuity payments made through monthly salary.
- Section 80CCD(1): Tax deductions up to Rs. 1.5 lakh are available for contributions to certain pension funds under Section 23AAB.
Investment options under section 80C
Section 80C of the Income Tax Act offers a deduction of up to Rs. 1.5 lakh per year on various investments and expenses. This section provides an avenue for taxpayers to reduce their taxable income and save on taxes.
Here's a table summarizing some popular tax-saving options under Section 80C:
Investment Option |
Estimated Returns |
Lock-in Period |
5-Year Bank Fixed Deposit |
6% to 7% |
5 years |
Public Provident Fund (PPF) |
7% to 8% |
15 years |
National Savings Certificate |
7% to 8% |
5 years |
National Pension System (NPS) |
12% to 14% |
Till Retirement1 |
Equity Linked Savings Schemes (ELSS) |
15% to 18% |
3 years |
Unit Linked Insurance Plan (ULIP) |
Varies with Plan Chosen |
5 years |
Sukanya Samriddhi Yojana (SSY) |
8.20% |
N/A (for girls) |
Senior Citizen Savings Scheme (SCSS) |
8.20% |
5 years |
Other tax-saving avenues in the new regime
While there may be fewer options for tax savings in the new regime, some methods are still available:
- Standard deduction: A flat deduction available to all salaried individuals.
- Employer’s contribution to NPS: Contributions made by the employer towards the employee’s NPS account.
- Transport allowance for differently-abled individuals: A specific exemption for those with disabilities.
- Interest on home loan for let-out property: As discussed earlier, interest paid on loans for let-out properties can be deducted.
Exemptions and deductions not available under new tax regime FY 2024-25
The following deductions and exemptions are not available under the new tax regime:
- Section 80C: Investments in LIC, PPF, NSC, etc.
- Section 80D: Health insurance premiums
- House Rent Allowance (HRA)
- Leave Travel Allowance (LTA)
- Interest on housing loan (for self-occupied property)
- Standard deduction for Income from house property
Comparison of Deductions under Old Regime vs. New Regime for FY 2024-25
The following table compares the available deductions under the old and new tax regimes for the financial year 2024-25:
Available Exemptions/Deductions |
Old Tax Regime |
New Tax Regime |
Standard deduction (including Section 80TTB Deduction) |
YES (Deductions of Rs. 50,000) |
YES (Deductions of Rs. 75,000 as per Union Budget in July 2024) |
Employment/Professional tax (u/s 10(5)) |
YES |
NO |
House Rent Allowance (HRA) (u/s 10(13A)) |
YES |
NO |
Exemptions for free food & beverages through vouchers/food coupons |
YES |
NO |
Deductions of Up to Rs. 1.5 lakhs under Chapter VIA (towards investments like u/s 80C, 80CCC, 80CCD, 80DD, 80DDB, 80E, 80EE, 80EEA, 80G, etc.) |
YES |
NO |
Deductions u/s 80CCD(2) for employer's contribution to employee nps accounts |
YES |
YES |
Deductions u/s 80CCD(1B) of Up to Rs. 50,000 |
YES |
NO |
Medical insurance premium u/s 80D |
YES |
NO |
Interest on home loan for self-occupied/vacant property |
YES |
NO |
Tax calculation under new tax regime
Let's illustrate how income tax is calculated under the new tax regime using a hypothetical scenario of CTC Rs.12,00,000
Description |
Amount |
Annual Salary Income |
Rs. 12,00,000 |
Less: Standard Deduction |
Rs. 75,000 |
Net Salary Income / Gross Taxable Income |
Rs. 11,50,000 |
Less: Deductions |
|
Employer Contribution u/s 80CCD(2) |
Rs. 50,000 |
Interest on Home Loan u/s 24b |
Rs. 2,00,000 |
Net Taxable Income |
Rs. 8,75,000 |
Tax Payable |
Rs. 37,500 |
Health and Education Cess (4%) |
Rs. 1,500 |
Total Tax Liability |
Rs. 39,000 |
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How to plan your tax-saving investments in 2025
Procrastination is a common pitfall when it comes to tax-saving investments. Instead of waiting until the last minute, start planning at the beginning of the financial year. This allows your investments to grow over time and helps you achieve long-term financial goals. Remember, tax savings should be a bonus, not the primary goal.
Here are some pointers to help you plan your tax-saving strategy:
- Assess Existing Expenses: Identify tax-deductible expenses you've already incurred, such as insurance premiums, children's tuition fees, EPF contributions, and home loan repayments.
- Choose the Right Tax Regime: Determine whether the New Tax Regime or the Old Tax Regime is more beneficial for you. Use a tax calculator to compare both options based on your income and deductions.
- Calculate Investment Needs: Deduct the total amount of your existing tax-saving expenses from the maximum deduction limit (currently Rs. 1.5 lakh). This will determine how much more you need to invest to maximize your tax savings.
- Select Suitable Investments: Choose investment options that align with your financial goals and risk tolerance. Popular options include Equity Linked Savings Schemes (ELSS), Public Provident Fund (PPF), National Pension System (NPS), and fixed deposits.
- Time Your Investments: Start investing early in the financial year to spread out your investments and avoid a last-minute rush. This also allows you to make informed decisions without feeling pressured.
By following these tips, you can effectively plan your tax-saving investments and maximize your returns while staying within the tax deduction limits.
Key highlights of the new tax regime for FY 2024-25
The Indian government has introduced a more streamlined and taxpayer-friendly income tax structure for FY 2024-25 under the new tax regime. These changes aim to simplify tax compliance and provide higher take-home income for salaried and middle-income groups. Below are the key highlights:
Revised income tax slabs
The new regime offers lower tax rates across various income slabs:
- Income up to Rs. 3,00,000 – No tax
- Rs. 3,00,001 to Rs. 7,00,000 – 5%
- Rs. 7,00,001 to Rs. 10,00,000 – Rs. 20,000 + 10% on income above Rs. 7 lakh
- Rs. 10,00,001 to Rs. 12,00,000 – Rs. 50,000 + 15% on income above Rs. 10 lakh
- Rs. 12,00,001 to Rs. 15,00,000 – Rs. 80,000 + 20% on income above Rs. 12 lakh
- Above Rs. 15,00,000 – Rs. 1,40,000 + 30% on income above Rs. 15 lakh
Standard deduction increased
Salaried individuals and pensioners can now claim a standard deduction of Rs. 75,000 under the new tax regime, up from the previous Rs. 50,000.
Higher rebate under Section 87A
Individuals with income up to Rs. 7,00,000 are eligible for a full tax rebate under Section 87A, making their tax liability zero under the new regime.
Tax savings for higher earners
Those with an income of Rs. 15,00,000 will now pay Rs. 1,40,000 in tax under the new regime, compared to Rs. 2,62,500 under the old regime—a tax saving of Rs. 1,22,500.
Optional regime for all taxpayers
Taxpayers can continue with the old regime if they have deductions to claim or switch to the new regime for simplified compliance and lower tax rates.
Conclusion
To optimise tax liability, it is imperative for a taxpayer to understand how income tax can be saved in the new regime. The new regime limits deductions and exemptions while offering a simpler structure. Significant tax savings can still be achieved by taking advantage of the remaining exemptions, such as the employer’s contributions to PF and NPS or the interest on home loans for let-out properties, as gone over in this article, providing guidelines in how to save income tax in the new regime.
Bajaj Finserv is a platform that can provide keen insights and guidance to navigate the complexities of tax calculations to maximise savings. In this regard, they offer smart tools and resources to monitor your tax savings. The platform provides a range of financial services and also helps you find your own income tax slabs.
Based on your financial goals, you can choose from a plethora of mutual fund schemes and use their resources that make investing in mutual funds easy and hassle-free.
Essential mutual fund investment calculators to estimate potential earnings |
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