When the income tax exemption limit was increased to Rs 12 lakh under the new tax system in Budget 2025, lakhs of salaried people heaved a sigh of relief. Compared to the old system, this new system not only provides tax relief but also reduces the hassle of filling out forms and documentation.
But a big question remains in people's minds: is there no longer a need for tax planning? The answer is that it still exists, only the method has changed. In the old system, exemptions like 80C, 80D, and HRA were available, which are not there in the new system, but some easy methods are still available, through which you can reduce the tax burden.
Tax savings and retirement assurance from NPS
In the new tax system, annual income up to Rs 12.75 lakh is tax-free. But if your income is more than this, then NPS, i.e., National Pension System, can become a big support for you. Many people think that money remains stuck in NPS for a long time, so they do not invest in it. But this is a mistake. NPS not only saves tax, but also creates a strong fund for retirement.
Under section 80CCD(2), your company can put up to 14% of your basic salary in NPS, and this entire amount remains tax-free. If you want, you can take this facility by asking the company. At the time of retirement, 60% of the total amount deposited in NPS also remains tax-free.
Increase contribution to EPF, get double benefit.
Most employees contribute at least 12% to EPF, but many times they do not give the full 12% of their basic salary. If you change your salary structure and increase your contribution to EPF, then retirement savings will also increase, and tax will also be saved.
Keep in mind that the contribution made by the company to EPF is also tax-free. Just keep in mind that the total contribution of NPS and EPF should not exceed Rs 7.5 lakh annually; otherwise, tax will be levied on the additional amount.
Investment in the name of parents
Some people invest their savings in the name of their parents to save tax, especially if the parents have no income. Technically, this is correct, but it is important to do it in the right way, such as declaring it a gift and considering the money received back as a gift. If you have to invest a large amount, then definitely get a will made, so that there are no legal hassles in the future.
Arbitrage fund instead of FD
If you still invest money in Fixed Deposit (FD), then change your thinking. Interest on FD is taxable every year, whereas the earnings from the Arbitrage fund are taxable only at the time of selling. That too at a lower rate. If you invest money in an Arbitrage fund instead of FD and adopt methods like gains harvesting, then you will not have to pay any tax on capital gains of up to Rs 1.25 lakh every year. This will increase the returns and also save tax.
Are you a freelancer or consultant?
If you are not a salaried person but a freelancer or consultant, then options like NPS and EPF are not for you. In such a situation, section 44ADA is useful for you. Under this, only 50% of your total income will be considered taxable.
For example, if your annual income is Rs 20 lakh, then tax will be levied only on Rs 10 lakh. There is no tension of maintaining accounts, nor is there a need to show bills of expenses. This scheme is great for consultants, freelancers, and retired professionals.
Some small exemptions are still available in the new system.
Although major deductions like 80C and HRA are not there in the new system, some small benefits are still available. For example, office tea/coffee, expenses on office mobile or books, and training expenses are tax free, provided they are related to work.
If you have given a house on rent, then the interest of home loan on it can also be deducted. This exemption does not apply to a house in which you live.
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