As the new financial year 2024-25 begins, taxpayers across India are getting ready to file their Income Tax Returns (ITR). With the option to choose between the old and the new tax regimes, many are wondering which one will help them save more tax based on their salary and investments.
The new tax regime, introduced as a simpler alternative to the old regime, offers lower tax rates but fewer exemptions. Despite this, there are still some effective ways to reduce your tax burden under the new system. If you have limited investments or prefer not to claim many deductions, the new regime might work better for you.
Here are six practical and legal ways to save more income tax under the new tax regime in FY 2024-25 (Assessment Year 2025-26).
1. Standard Deduction Increased to ₹75,000 for Salaried Taxpayers
One of the major announcements in Budget 2025 was the increase in standard deduction under the new tax regime. From the financial year 2024-25 onwards, salaried employees and pensioners can now claim a flat standard deduction of Rs.75,000, up from the earlier ₹50,000.
This deduction applies directly to your gross income, reducing your taxable income without the need for any proof of investment or expenses. It’s especially beneficial for those who do not invest heavily in traditional tax-saving instruments.
2. Tax Benefit on Employer’s Contribution to NPS (Section 80CCD (2))
The National Pension System (NPS) remains one of the most useful tools to save tax under the new tax regime, but only for salaried individuals. If your employer contributes to your NPS account, that amount is eligible for tax deduction:
- For central and state government employees, the deduction is allowed up to 14% of the basic salary plus dearness allowance.
- For private-sector employees, the deduction is allowed up to 10%.
Note that this benefit is over and above the standard deduction and can significantly reduce your taxable income if your employer makes NPS contributions.
3. Deduction for Agniveer Corpus Fund Contribution (Section 80CCH)
Under the Agneepath scheme, both the Agniveer and the government contribute to the Agniveer Corpus Fund. These contributions are deductible under Section 80CCH.
This is a specific benefit available only to individuals enrolled in the Agneepath scheme and helps reduce their taxable income. Also, any payout received under this scheme, either by the Agniveer or their nominee, is tax-free.
This exemption is valid under both the old and new tax regimes, ensuring fairness to participants of the scheme.
4. Family Pension Exemption under Section 57(iia)
If someone receives the family pension after the death of a government or private sector employee, they are eligible to claim a fixed deduction.
Under Section 57(iia), 1/3rd of the family pension received or ₹15,000 – whichever is lower – is exempt from tax. This benefit is also applicable under the new tax regime.
So, if you are receiving the family pension, don’t forget to claim this deduction while filing your ITR.
5. Transport Allowance and Conveyance Reimbursement for Specific Employees
While the new tax regime does not allow many exemptions for salaried individuals, there are still some allowances that continue to be tax-free:
- Transport Allowance for Disabled Employees: Disabled employees can claim a transport allowance of up to Rs. 3,200 per month tax-free, which equals ₹38,400 annually.
- Conveyance Reimbursement: If your employer reimburses expenses incurred during office-related travel (not commuting), those amounts can be claimed as tax-free reimbursements, based on actual bills.
These small allowances can add up and help reduce overall tax liability under the new regime.
6. Select Tax-Free Payments Under Section 10 Are Still Valid
Some payments under Section 10, previously assumed to be exclusive to the old regime, are now included under the new tax regime too. These include:
- Gratuity: Fully tax-free for government employees. For private-sector employees, the exemption limit depends on the company’s gratuity policy and years of service.
- Leave Encashment: Tax-free up to ₹25 lakh for non-government employees upon retirement or resignation.
- Voluntary Retirement (VRS) Amount: Tax-free up to ₹5 lakh for those opting for early retirement.
These exemptions are useful, especially for employees nearing retirement or resigning after long service. It helps them plan their tax and avoid sudden tax burdens on large lump-sum payments.
Who Should Choose the New Tax Regime?
The new tax regime is designed for simplicity and lower rates. It is best suited for:
- Individuals with fewer investments
- Those who don’t want to manage multiple proofs for deductions
- Salaried employees with basic allowances
- Young earners who are not into long-term savings yet
If your focus is on lower rates and hassle-free filing, the new tax regime can save both time and money. However, if you make heavy use of deductions under Sections 80C, 80D, home loan interest, etc., the old regime may still save more.
So, the choice depends on your income structure and financial planning style. Before filing ITR, compare both regimes using the income tax calculator available on the official Income Tax portal or consult a financial expert.
