By CA Surekha Ahuja
Part 1 – What Still Saves Tax Under the New Regime? The Truth Every Salaried Employee Should Know
"The new tax regime has removed many deductions. It has not removed tax planning."
That is perhaps the biggest misconception among salaried taxpayers today.
Ever since the new tax regime became the default tax regime, many employees have assumed that tax planning is no longer possible because deductions such as Section 80C, 80D, HRA and LTA are no longer available in most cases.
Unfortunately, this misunderstanding has resulted in thousands of employees paying significantly higher taxes than necessary or missing valuable retirement benefits simply because they were unaware of the provisions that continue to be available.
The reality is very different.
The Government has consciously shifted the focus from encouraging personal tax-saving investments to promoting retirement planning, genuine employment-related reimbursements and a simpler tax structure. Consequently, while several traditional deductions have been withdrawn, some of the most valuable tax benefits have been retained under the new regime.
For many salaried employees, these surviving provisions can still reduce taxable income substantially. In suitable cases, they may even help bring taxable income within the limit eligible for rebate under Section 87A, resulting in nil tax liability.
Understanding these provisions is therefore no longer optional. It is an essential part of salary structuring and financial planning.
In this comprehensive guide, we shall examine the important deductions, exemptions and planning opportunities that continue under the new tax regime, with special emphasis on:
- Employer's contribution to the National Pension System under Section 80CCD(2)
- Duty-related allowances exempt under Section 10(14)
- Standard deduction
- Leave encashment and gratuity exemptions
- The ₹7.5 lakh aggregate employer contribution ceiling
- Practical salary restructuring strategies
- The zero-tax planning framework for eligible employees
- Important considerations for employees changing jobs during the year
Before discussing each provision in detail, it is useful to understand what actually survives under the new tax regime.
What Still Survives Under the New Tax Regime?
One of the biggest myths surrounding the new tax regime is that "there are no deductions left."
This statement is incorrect.
Although several popular deductions have been withdrawn, Parliament has consciously retained provisions that encourage long-term retirement savings, reimburse genuine official expenses and protect important retirement benefits.
The following table provides a complete snapshot of the principal deductions and exemptions that continue to be available under the new tax regime.
Table 1 – Major Deductions and Exemptions Available Under the New Tax Regime (FY 2026–27)
| Section | Nature of Benefit | Maximum Benefit / Condition | Status |
|---|---|---|---|
| Section 16(ia) | Standard Deduction | ₹75,000 | Available |
| Section 80CCD(2) | Employer's contribution to NPS Tier I | Up to 14% of Basic Salary plus Dearness Allowance, subject to overall limits | Available |
| Section 10(10AA) | Leave Encashment | Exemption up to ₹25 lakh (lifetime limit subject to law) | Available |
| Section 10(10) | Gratuity | Exemption up to ₹25 lakh (subject to applicable conditions) | Available |
| Section 10(14)(i) | Duty-related allowances | Exempt to the extent of actual expenditure incurred | Available |
| Section 10(14)(ii) | Specified prescribed allowances | Exemption subject to prescribed monetary limits | Available |
| Section 17(2)(vii) | Aggregate employer contribution to retirement funds | Excess over ₹7.5 lakh taxable as perquisite | Restriction |
| Section 87A | Rebate | Subject to prescribed taxable income limit | Available |
What Has Actually Changed?
The philosophy of the new tax regime is fundamentally different from the earlier regime.
Earlier, the tax law rewarded taxpayers who invested in specified financial products such as LIC policies, PPF, ELSS, tax-saving fixed deposits and medical insurance.
The new regime, on the other hand, rewards taxpayers who build long-term retirement savings through employer-sponsored retirement schemes and who receive genuine reimbursements for expenses incurred in the course of employment.
In simple words,
Personal tax-saving investments have largely disappeared.
Retirement-oriented employer contributions continue to enjoy significant tax benefits.
Official duty-related reimbursements continue to receive tax exemption.
This distinction is extremely important because many employees continue making investment decisions based on the old regime without reviewing whether their salary structure itself can be made more tax efficient.
The Four Biggest Tax Benefits Still Available
Even after the introduction of the new tax regime, four provisions continue to play a central role in tax planning.
1. Standard Deduction
Every eligible salaried employee continues to receive the standard deduction without making any investment or incurring any expenditure.
This deduction directly reduces taxable salary.
2. Employer's Contribution to NPS under Section 80CCD(2)
This is arguably the single most powerful tax-saving provision available under the new tax regime.
Where the employer contributes to the employee's Tier I NPS account, the employee may claim deduction under Section 80CCD(2), subject to the prescribed conditions.
Unlike many deductions under the old regime, this benefit can substantially reduce taxable income while simultaneously creating a retirement corpus.
We shall discuss this provision in detail in the next part of this guide.
3. Duty-Related Allowances under Section 10(14)
Many taxpayers incorrectly assume that every allowance has become taxable.
That is not correct.
Allowances granted exclusively for the performance of official duties, such as specified conveyance, travel, helper, uniform and similar allowances, continue to enjoy exemption to the extent of actual expenditure incurred, subject to the statutory conditions.
Proper documentation, bills and employer policies become extremely important while claiming these exemptions.
4. Retirement Benefits
Certain retirement-related receipts continue to enjoy substantial tax exemptions even under the new regime, including:
- Leave encashment
- Gratuity
- Other eligible retirement benefits subject to the respective statutory provisions
These exemptions often become relevant not only on retirement but also when employees change jobs during their careers.
Key Takeaway
The new tax regime should not be viewed as a regime without deductions.
Instead, it should be viewed as a regime that rewards structured salary planning rather than investment-driven tax planning.
Employees who understand employer NPS contributions, official reimbursements, retirement exemptions and salary structuring can still achieve significant tax efficiency without relying on traditional deductions such as Section 80C or Section 80D.
The most important of these surviving provisions is Section 80CCD(2), which has become the cornerstone of tax planning for salaried employees under the new regime.
In the next part, we shall examine this provision in detail, including eligibility, conditions, salary definition, employer obligations, practical illustrations and common mistakes that employees and HR departments frequently make.
