Six smart ways to save tax under the New Tax Regime

When Finance Minister Nirmala Sitharaman unveiled the 2025 Budget, the headline-grabbing move was clear: “Zero tax on income of ₹12 lakh or less” under the New Tax Regime. This bold change made the tax process more attractive with automatic relief, simpler filing, and a broader swathe of tax cuts. But one twist left many confused: the end of popular deductions like 80C, 80D, and HRA. Does this mean Indian taxpayers have no legal ways left to cut their tax bills? Good news. Several powerful and legal routes to tax savings are still available!

The National Pension System (NPS): Your New Best Friend

NPS emerges as the top tax-saving tool in the updated regime. Here is why:

• Section 80CCD(2) states that if your employer contributes up to 14% of your basic salary to an NPS account, it is entirely tax-exempt.
• For example, with a basic pay of ₹10 lakh, an employer deposit of ₹1.4 lakh is fully tax-free.
• On retirement, 60% of your total NPS corpus is also tax-free.
• Key watchout: Lifetime employer contributions to NPS and EPF combined must not exceed ₹7.5 lakh per year; any surplus is taxed.

Remember that annuity income after retirement is taxable. NPS is no longer optional. It is a must-have for anyone focused on maximising exemptions under the new rules.

EPF: Don’t Fall for the Minimum Contribution Myth

Many believe the Employee Provident Fund (EPF) allows only a tiny contribution, but that is incorrect:

• The minimum is ₹1,800 per month, but you can contribute up to 12% of your basic salary.
• If your basic salary is ₹1 lakh per month, you could contribute ₹12,000 every month.
• This larger contribution boosts your retirement savings and reduces taxable income.
• Note that interest on EPF contributions above ₹2.5 lakh per year is taxable.

Smart Family Income Transfers

Looking for a creative and legal way to cut your tax? Here is one that most people overlook:

• You can give money to non-earning family members such as elderly parents or children.
• Let them invest the sum. They will pay tax at their lower rates or not at all if income is below thresholds.
• For example, if you gift ₹10 lakh to your mother and she invests in a fixed deposit earning ₹50,000 a year, she pays no tax if her income is below ₹3 lakh. This way, your family wealth grows efficiently.

Arbitrage Funds versus Fixed Deposits: Smarter for the Tax-Savvy

Fixed Deposits (FDs) are simple but tax-heavy. Arbitrage mutual funds offer a clever alternative:

• They provide returns similar to FDs.
• If held for over one year, gains enjoy equity-like taxation, with profits taxed at only 12.5%.
• By contrast, FDs are taxed according to your income slab, which could be far higher.
• Conservative investors should not ignore this lower-tax option.

The Freelancer’s Dream: Section 44ADA

Are you a consultant, freelancer, or have a side gig? Section 44ADA is a game-changer:

• Only 50% of your income is taxable, and there is no need to keep records or hire a CA.
• For example, if you earn ₹20 lakh, only ₹10 lakh is taxable.
• Combine this with the new zero-tax slab on ₹12 lakh, and your tax liability may be zero.

Other Hidden Tax Breaks Still Alive

• Section 115BAC exempts employer-provided food such as tea, coffee, or snacks, as well as reimbursement for books or learning materials used at work.
• If you own a second property and rent it out, interest paid on the home loan can still be offset against rental income.

While the new tax regime removes many old deductions, it still contains smart ways to keep your hard-earned money. Master these rules, and you will not just earn more but keep more as well.

Boost your tax IQ and make your money work harder for you!