Smart salary tweaks unlock Rs 3.75 lakh in tax savings — even under New Tax Regime; check calculations

A growing number of salaried professionals are realising that India’s new tax regime isn’t as inflexible as it seems—if approached strategically. Contrary to the common notion that the regime offers no scope for deductions or savings, a recent real-world example reveals that careful restructuring and smarter investment choices can lead to significant tax relief, without any drop in take-home pay. This example was shared by tax professional Sujit Bangar.

In this case, an individual with a Rs 50 lakh cost-to-company (CTC) managed to reduce their tax outgo by a staggering Rs 3.75 lakh through two simple actions: salary restructuring and switching investment instruments.

Rs 50 lakh CTC, but smarter split

While the CTC remained Rs 50 lakh in both cases (before and after restructuring), the taxable income saw a notable reduction thanks to one key change: the addition of an employer contribution of Rs 3.5 lakh annually to the National Pension System (NPS). This contribution was added by trimming the special allowance component of the salary. Importantly, other benefits such as provident fund (PF), house rent allowance (HRA), and other standard components remained untouched.

As a result of this tweak, the total taxable income dropped from Rs 53.25 lakh to Rs 49.75 lakh. That shift alone brought down the tax payable under the new regime from Rs 13.47 lakh (including surcharge and cess) to Rs 9.71 lakh, saving Rs 3.75 lakh.

The legal basis for this saving lies in Section 80CCD(2) of the Income Tax Act, which permits a deduction for employer contributions to NPS—up to 14% of the employee’s basic salary—even under the new tax regime. This lesser-known provision creates an opening for meaningful tax deductions, provided the salary structure is designed intelligently.

Switching investments: FDs vs Equity MFs

The second leg of the strategy involved shifting from traditional fixed deposits to equity mutual funds to reduce tax on investment returns. Here's the math:

A Rs 1 crore investment in fixed deposits (FDs) generates around Rs 7 lakh in annual interest, which is fully taxable at the individual’s slab rate—30% in this case. That results in a tax liability of Rs 2.1 lakh on the interest income alone.

In contrast, the same Rs 1 crore invested in equity mutual funds incurs long-term capital gains (LTCG) tax at just 12.5% on gains above Rs 1.25 lakh (as per Section 112A). In this case, the tax payable on Rs 7 lakh gains comes to only Rs 71,875 -- a significant reduction from the Rs 2.1 lakh tax hit on FDs.

What this means

With just two strategic changes—restructuring salary to incorporate NPS and shifting investments to tax-efficient equity MFs—the individual achieved a tax saving of Rs 3.75 lakh under the new tax regime.

This case directly busts the myth that the new regime is tax-unfriendly. It demonstrates how intelligent planning, combined with knowledge of lesser-used provisions like 80CCD(2), can unlock sizable tax benefits. Moreover, it highlights a shift in how salaried individuals and financial planners are starting to view the new tax regime—not as a roadblock to savings, but as a framework that rewards smarter financial decisions.

 

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