How to reduce income tax on salary: levers that still work

Most tax-saving advice is about the old regime: 80C, 80D, HRA, home-loan interest. But most salaried people now file in the new regime, where none of those count.^[1] Two levers still work there, and on an ₹18 L salary they save ₹35.9K a year together.

Your tax, lever by lever

Lever 1: employer NPS contribution (80CCD(2))

Ask your employer to move part of your CTC into NPS. Up to 14% of basic is tax-free in the new regime (10% in the old). Your CTC doesn't change; the money goes into your NPS account instead of your salary.

The catch: NPS is locked until 60, and part of it must buy a pension.^[2] It suits money you'd be saving for retirement anyway. Not every employer offers it, so ask HR.

At ₹12 L, salary tax is already nil: the 87A rebate covers taxable income up to ₹12 lakh. Only the gains tax is left to save.

Lever 2: book ₹1.25 lakh of equity gains every year

Long-term gains on equity funds and shares up to ₹1.25 lakh a year are tax-free. Sell units with that much gain before 31 March and buy them back: you save ₹16,250 now and pay less tax when you finally sell. Tax harvesting on mutual funds explains the steps.

Should you switch to the old regime instead?

Only if your deductions are large. On this salary, using every old-regime lever (full 80C, ₹50,000 of your own NPS, 80D and HRA on ₹30,000 rent, as well as employer NPS and booking gains) still leaves ₹1.14 L of tax, against ₹1.01 L in the new regime with both levers.

The old regime tends to win with a big home loan's interest, a high rent in a metro, or both. Old vs new tax regime: the deductions the old one needs works out the break-even at your salary, and the regime calculator compares both.

Other things worth knowing

• Salaried people can switch regimes every year when filing. Compare both each year.
• Standard deduction: ₹75,000 in the new regime, applied automatically.
• Don't buy products just for tax. PPF or ELSS are fine investments on their merits, but in the new regime they save no tax.

What this doesn't mean

• Your employer's policy decides lever 1. If NPS isn't offered, it isn't available to you.
• Tax rules change every Budget. These numbers follow the rules for FY 2025-26 onward.
• This isn't tax advice. Confirm with a tax professional for anything unusual.

₹18 L CTC, 50% basic, metro, full PF, new regime; ₹2 lakh of long-term equity gains unbooked. Tax includes cess. For illustration only, not tax advice.