5 ways for salaried employees to save tax under the new tax regime in FY 2025-26

The new tax regime has done away with most of the deductions available in the old regime. However, salaried employees opting for the new regime can still explore some ways to save tax in the Financial Year 2025-26. Here's a look at five such options.

1. Save tax with the National Pension System (NPS)

In the new regime, the employer's contribution is exempted from tax under Section 80CCD (2). The rule allows an exemption of up to 14% of basic salary contributed by the employer towards the employee's NPS account.

The NPS account offers a tax-free withdrawal of up to 60% of the total corpus at the age of 60. The remaining 40% is required to be used for buying an annuity plan.

2. Save tax with a higher EPF contribution

In the new tax regime, the employer's contribution towards EPF is tax-free. Moreover, the amount withdrawn from EPF on retirement is also tax-free.

The rules allow salaried taxpayers to contribute up to 12% of their actual basic salary.

Salaried employees can increase their EPF contribution through the Voluntary Provident Fund (VPF). For this, they can ask their employers to increase their contribution.

Please note that to save tax, the total employer's contribution towards NPS and EPF should not be more than ₹7.5 lakh in a year.

Further, an employee's own contribution towards EPF should not be more than ₹2.5 lakh in a year for tax saving.

3. Save tax by investing in arbitrage funds and harvesting gains

Instead of parking money in fixed deposits, employees may explore the option of investing in arbitrage funds. They offer returns similar to FDs but are taxed differently.

In a fixed deposit, the interest income is taxed at the slab rate applicable to the taxpayers. In contrast, long-term gains from arbitrage funds are taxed like equity mutual funds at 12.5% after a year on redemption.

Further, salaried employees can also optimise their tax saving by harvesting gains.

Long-term capital gains up to ₹1.25 lakh from equity mutual funds, arbitrage funds, and stocks are tax-free. Employees can use this option to optimise their taxes under the new tax regime. They can book gains worth ₹1.25 lakh a year and reinvest them at the redemption price.

4. Save tax by optimising your CTC

Apart from increasing NPS and EPF contributions, as we pointed out earlier in this article, employees can also save tax by optimising various components of their annual CTC. The new regime allows exemption against reimbursements for certain expenses like books and periodicals, learning, official mobile and broadband use, company car lease, and meal vouchers. Please note that to claim these reimbursements, employees have to produce authentic bills. However, if your employer is already deducting these expenses then you don't need to anything else about it.

5. Save tax on let-out property

Although the new regime has removed the House Rent Allowance or deduction against home loan interest, salaried employees can claim tax benefits against rented property.