How can I reduce my taxable income?

Last Updated: 23 Sep 2025

Reducing taxable income refers to the knowledge of how the tax system is designed and how to use the provisions of the tax system to reduce your taxable income. The idea behind this  financial plan is to make the right choice based on your income, expenditure and long-term plans.

Here, we have discussed some practical ways to reduce taxable income while adhering to the taxation rules of India.

Understand the New Tax Regime Basics

The New Tax Regime in India was introduced in budget 2020, i.e., for the FY 2020-21 with the aim to reduce income tax rates with minimal deductions and exemptions. Taxpayers can choose between the old regime and the new regime. It aims to simplify tax filings and widen the tax base.

What are the New Regime Exclusive Benefits

The new tax regime offers multiple ways to decrease taxable income. Some of them are as follows:

• Lower Tax Rates: It offers reduced slab rates as compared with the old regime.
• Simplified Tax Filing: It eliminates the need to track multiple exemptions and deductions.
• Lower Surcharge on High Income: You can be charged a maximum surcharge of 25% if your income exceeds ₹5 crore.

Benefits Still Allowed under Older Tax Regime

If you are thinking, ‘How can I lower my taxable income under the old tax regime?’. Here are some common ways you to reduce your overall taxable income:

• Employer’s Contribution to NPS (Section 80CCD(2)): It is a contribution made by your employer to the National Pension System (NPS) account and these amounts are tax-exempt.
• Tax-Free Gratuity: Gratuity that you would get upon retirement is tax-free to the amount prescribed by the Payment of Gratuity Act.
• Leave Encashment on Retirement (Section 10(10AA)): The amount you receive as leave encashment as a non-government employee at the time of retirement is tax-exempt up to ₹25 Lakh.

Exceptions and Deductions available in the New Tax Regime

Some of the common ways to save tax in the New Tax Regime are as follows:

• Standard Deduction of ₹50,000: From FY 2023-24, you can claim up to ₹50,000 deductions on your tax slab if you are salaried or a pensioner.
• Zero Tax Liability up to ₹7 lakh: You can be eligible for a full rebate under Section 87A if your annual income stays within ₹7 lakh.

Conclusion

Minimisation of the taxable income has a direct effect on both your taxable income and savings/investment funds. The New Tax Regime entails low rates with minimal deductions and exemptions. While the old tax regime has higher tax rates, it offers a wide range of deductions and exemptions under Sections 80C and 80D of the Income Tax Act 1961. The decision on whether to take the old or the new regime lies with your choice of the benefits of taxation.