When Budget 2025 increased the income tax rebate limit to ₹12 lakh under the new tax regime, it provided major relief to taxpayers. For most salaried individuals, the new structure now offers lower tax outgo, reduced paperwork, and faster filing. However, fewer deductions mean taxpayers need to plan strategically. Understanding the smart ways to save tax under the new system can help you lower your liability while growing your wealth efficiently.
1. Use NPS to Build Retirement Wealth and Save Tax
One of the most effective smart ways to save tax under the new regime is investing in the National Pension System (NPS). Contributions made by your employer—up to 14% of your basic salary—are tax-free under Section 80CCD(2). Many employees overlook this, but it’s a great way to reduce taxable income while building a retirement corpus.
Additionally, 60% of your NPS corpus withdrawn at retirement is exempt from tax as per Section 10(12A). This makes NPS one of the few remaining tax-efficient investment tools under the new tax regime.
2. Increase Your EPF Contribution
Your Employees’ Provident Fund (EPF) remains a reliable and risk-free savings option. While the mandatory contribution is 12% of your basic salary, you can choose to contribute more voluntarily. Increasing your EPF contribution not only builds long-term wealth but also helps reduce your taxable income indirectly.
Employers’ contributions to EPF and NPS are tax-free up to ₹7.5 lakh annually. Beyond that, any excess becomes taxable. Still, maintaining the full contribution ensures consistent, safe, and disciplined retirement savings—one of the simplest smart ways to save tax for salaried professionals.
3. Gift and Invest Through Parents’ Accounts
A lesser-known yet smart way to save tax is to gift money to your non-earning parents and invest it in their name. The gift itself is not taxable, and the interest income earned in your parents’ account remains tax-free if it falls below the taxable threshold.
However, this strategy should be used carefully and transparently. It’s completely legal if executed as a genuine gift rather than a tax evasion attempt. This method allows families to manage income distribution efficiently and reduce the overall tax burden ethically.
4. Shift from Debt to Arbitrage Funds
Another smart way to save tax is by replacing traditional fixed deposits (FDs) with arbitrage funds. These funds generate debt-like returns but are taxed like equity—making them far more efficient.
While FD interest is taxed annually, arbitrage funds are taxed only at redemption. If held for more than one year, long-term capital gains tax of 12.5% applies, which is much lower than most income tax slabs. This allows your investment to compound uninterrupted, leading to better post-tax returns.
You can also practice gains harvesting—redeeming profits up to ₹1.25 lakh each year (tax-free limit per PAN), and reinvesting them to reset your cost base.
5. Opt for Presumptive Taxation (For Consultants & Freelancers)
For self-employed professionals, opting for presumptive taxation under Section 44ADA is one of the smartest tax-saving moves. This provision allows you to declare 50% of your gross receipts as taxable income, with no need to maintain detailed expense records.
For instance, if you earn ₹20 lakh annually, only ₹10 lakh will be taxed. This simple method reduces both compliance and tax outgo, making it one of the most smart ways to save tax & one of the most effective smart ways to save tax for freelancers, consultants, and small business owners.
6. Use Allowable Deductions Wisely
While most deductions have been removed in the new regime, some still remain. You can claim:
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Interest on home loans (for rented properties) under Section 24(b).
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Training or professional education expenses for job-related upskilling.
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Standard deduction of ₹75,000 for salaried individuals (as per Budget 2025).
These deductions may seem limited but can still contribute meaningfully to your overall tax savings if planned correctly – one of the simplest smart ways to save tax for salaried professionals.
The new tax regime may appear simplified, but strategic planning is still essential. By using these smart ways to save tax, you can lower your liability while achieving your long-term financial goals. Whether it’s leveraging NPS and EPF benefits, shifting investments to tax-efficient options, or utilizing eligible deductions, every small step counts toward maximizing your take-home income.
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