Did You Know? You Can Significantly Reduce Your Income Tax Even Under the New Tax Regime!

Tax Guru L. Giri Babu, Auditor, www.gbfs.in

Ph no - +91 98438 88007

“Sir... I have shifted to the New Tax Regime. That means I won’t get any tax benefits anymore, right?” Ravi asked the finance officer in his office.

“Don’t assume that. Have you checked your salary structure and the benefits offered by your company?” the officer asked.

Ravi was surprised.

“It is true that the New Tax Regime does not offer many investment-based deductions that were available under the Old Tax Regime. But that does not mean that all tax benefits have disappeared.”

That was the day Ravi understood an important point. Reducing income tax is not just about making tax-saving investments. It is also about choosing the appropriate tax regime and making full use of the legally available benefits in your salary structure.

Tax Rebate Up to ₹12 Lakh of Income

One of the most important features of the New Tax Regime is the tax rebate available under Section 87A.

For an eligible resident individual, if the total income during the financial year is up to ₹12 lakh, a tax rebate of up to ₹60,000 may be available. As a result, an eligible taxpayer may have no tax liability on such income. However, the rules can differ for certain types of income that are taxed at special rates.

This is where many taxpayers get confused.

Instead of saying, “There is no tax if your income is up to ₹12 lakh,” it is more accurate to say that eligible taxpayers can claim a tax rebate under Section 87A on total income up to ₹12 lakh, subject to the applicable conditions.

₹75,000 Standard Deduction for Salaried Employees

Salaried employees and pensioners are entitled to a ₹75,000 standard deduction under the New Tax Regime.

There is no need to make a separate investment to claim this deduction. Nor is there a need to submit investment-related documents for this standard deduction.

Therefore, when the ₹75,000 standard deduction available to salaried taxpayers is taken into account along with the Section 87A rebate, a salaried individual can potentially have no tax liability on salary income up to ₹12.75 lakh, subject to other income and eligibility conditions.

It is important to understand that this ₹12.75 lakh figure includes the ₹75,000 standard deduction applicable to salaried taxpayers.

1. Make Use of the Employer’s NPS Contribution

One of the useful benefits available to salaried employees under the New Tax Regime is the employer's contribution to the National Pension System (NPS) on behalf of the employee.

Generally, an employee’s own contribution to NPS does not qualify for the same deduction under the New Tax Regime. However, the employer’s contribution can qualify for a deduction under Section 80CCD(2), subject to the applicable limits.

For example, if Ravi’s basic salary plus dearness allowance is ₹12 lakh a year and his employer contributes 14%, the contribution could amount to ₹1.68 lakh. Subject to the applicable rules, this employer contribution can qualify for tax benefit.

Therefore, employees should ask their employers:

“Can the employer’s NPS contribution be included in my salary structure?”

This can be an important component of tax planning under the New Tax Regime.

2. How Should You Look at PF Contributions?

The employee’s own contribution to Provident Fund does not qualify for the Section 80C deduction under the New Tax Regime.

However, if the aggregate contribution made by the employer towards PF, NPS and an approved superannuation fund exceeds ₹7.5 lakh in a financial year, the excess can have tax implications.

High-income employees should therefore pay attention to the total employer contributions included in their salary structure.

3. Interest on a Home Loan for a Let-Out Property

Under the New Tax Regime, the ₹2 lakh deduction for home-loan interest applicable to a self-occupied house under the Old Tax Regime is not available.

However, if the property is let out, the interest on the home loan can be considered while computing income from house property, subject to the applicable provisions.

At the same time, any resulting loss from house property cannot be set off against salary income or other heads of income under the New Tax Regime in the same manner as under the Old Tax Regime.

Therefore, taxpayers with home loans should examine this provision separately.

4. Food Benefits

Food and non-alcoholic beverages provided by an employer during working hours, or certain meal vouchers provided subject to prescribed conditions, may qualify for tax exemption.

A benefit of up to ₹200 per meal can be exempt subject to the applicable conditions.

Employees who receive meal benefits from their employers should therefore understand how such benefits are reflected in their salary structure.

5. Mobile Phone and Internet Expenses

If a company provides a telephone, mobile phone or certain work-related facilities for official purposes, such benefits may not result in a taxable perquisite when provided and used in accordance with the applicable rules.

Similarly, if the employer reimburses telephone, internet or other official work-related expenses, employees should understand the company’s policy and maintain the required supporting documents.

6. Official Travel and Other Allowances

Certain allowances provided for official travel, transfer, daily expenses incurred in the course of employment, official transportation and similar work-related purposes may qualify for tax exemption, subject to the actual expenditure and applicable conditions.

Therefore, one should not assume that “every allowance is tax-free.”

What matters is the purpose for which the allowance is provided, the amount actually spent and the supporting documents required under the applicable rules.

7. Gifts from the Employer – ₹15,000 Threshold

Gifts, vouchers or tokens received by an employee from an employer may not be treated as taxable salary perquisites if their value remains below the prescribed threshold.

A commonly relevant threshold is ₹15,000 in aggregate during the financial year, subject to the applicable tax rules.

Employees receiving gifts or vouchers should therefore check their value and how they are reflected in the salary statement.

8. Deduction for Family Pension

Family members receiving a family pension can also claim a deduction under the New Tax Regime.

The deduction is one-third of the family pension or ₹25,000, whichever is lower.

Those receiving family pension should therefore make sure that this deduction is taken into account while calculating their taxable income.

9. Medical and Employee Welfare Benefits

Certain employee welfare facilities provided uniformly to employees may not be treated as taxable salary perquisites when they are provided under the applicable conditions.

For example, general health check-ups or medical camps organised by an employer for employees may qualify for such treatment depending on how the facility is provided.

However, one should not assume that every medical expense automatically qualifies for tax exemption.

The nature of the facility and the manner in which it is provided are important.

Key Tax Benefits Under the New Tax Regime

Benefit / Feature	Key Provision
Income up to ₹4 lakh	Nil tax
₹4–8 lakh	5%
₹8–12 lakh	10%
₹12–16 lakh	15%
₹16–20 lakh	20%
₹20–24 lakh	25%
Above ₹24 lakh	30%
Section 87A tax rebate	Up to ₹60,000 for eligible taxpayers with total income up to ₹12 lakh
Standard deduction for salaried employees	₹75,000
Employer’s NPS contribution	Up to 14% of salary, subject to applicable rules
Employer contributions to PF, NPS and approved superannuation fund	Tax implications may arise if aggregate contribution exceeds ₹7.5 lakh
Interest on home loan for a let-out property	Can be considered subject to applicable provisions
Food benefit	Up to ₹200 per meal, subject to conditions
Employer gifts	Benefit available for gifts below the prescribed threshold, subject to tax rules
Family pension	One-third of pension or ₹25,000, whichever is lower

Don’t Forget One Important Point!

The New Tax Regime does not provide many of the investment-based deductions that were available under the Old Tax Regime. Therefore, the compulsion to make investments merely to save tax is reduced.

But that does not mean that tax planning is no longer necessary.

You should look at your salary structure, employer’s NPS contribution, PF, home loan, rental income, food benefits, official travel expenses and other employee benefits as a whole.

In particular, the Section 87A rebate for eligible taxpayers with total income up to ₹12 lakh and the ₹75,000 standard deduction for salaried employees are important features of the New Tax Regime.