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Taxpayers can optimize taxes through strategic salary structuring, investments, and tax-loss harvesting. Experts suggest NPS, real estate, SSY, and equity mutual funds.
New tax regime: How salary restructuring and tax-loss harvesting can lower your tax bill
With the financial year 2025–26 nearing its close, taxpayers are looking for ways to optimise taxes under the new tax regime. While the regime has limited many traditional deductions, experts say individuals can still reduce their tax burden through strategic salary structuring, investment choices and tax-loss harvesting.
Optimising taxes through salary restructuring
According to CA Mrinal Mehta, Joint Secretary at the Bombay Chartered Accountants’ Society (BCAS), the new tax regime under Section 115BAC has restricted several investment-linked tax benefits. However, taxpayers can still plan their finances through employer-linked benefits and structured compensation.
Mehta said employer contributions to the National Pension System (NPS) under Section 80CCD(2) remain a significant tax advantage even in the new regime. These contributions—up to 14% of salary for government employees and 10% for others—are fully deductible over and above the standard deduction and slab benefits.
He explained that restructuring salary to increase employer NPS contributions instead of taxable allowances can help individuals reduce taxable income while simultaneously building a retirement corpus.
Real estate and SSY remain tax-efficient options
Mehta also pointed out that real estate continues to offer tax advantages. Interest paid on a loan for a let-out property can be claimed as a deduction, and rental income also benefits from a 30% standard deduction.
For parents planning long-term savings, Sukanya Samriddhi Yojana (SSY) remains an attractive option. The scheme currently offers interest of around 8.2% and enjoys an exempt-exempt-exempt (EEE) tax status, meaning investments, interest and maturity proceeds are tax-free.
Equity mutual funds can also be a useful long-term investment avenue. Long-term capital gains (LTCG) from such funds are taxed at 12.5% if held for more than one year, while gains up to Rs 1.25 lakh per year remain exempt.
Using tax-loss harvesting to cut tax liability
CA Chandni Anandan, tax expert at ClearTax, said investors can also use tax-loss harvesting to reduce their overall tax liability.
This strategy involves selling underperforming investments to realise losses, which can then be used to offset capital gains and lower the tax burden. The proceeds can be reinvested in similar assets to maintain portfolio allocation.
For listed equity shares and equity-oriented mutual funds, assets held for more than 12 months qualify as long-term. LTCG is taxed at 12.5% after the Rs 1.25 lakh exemption, while short-term capital gains are taxed at 20%.
Anandan noted that short-term capital losses can offset both short-term and long-term gains, whereas long-term capital losses can only offset long-term gains. Unused losses can also be carried forward for up to eight years if declared in a timely ITR filing.
How SIP investors can use tax harvesting
Tax-loss harvesting can be particularly useful for retail investors who invest through systematic investment plans (SIPs) in mutual funds.
Because SIP units are taxed using the FIFO (first-in, first-out) method, investors can redeem the earliest loss-making units held for more than 12 months to generate long-term or short-term capital losses. These losses can then offset gains from other investments.
According to Anandan, reinvesting the proceeds quickly allows investors to retain their market exposure while using realised losses as a tax shield against future capital gains.
Disclaimer: The views and investment tips by experts in this News18.com report are their own and not those of the website or its management. Users are advised to check with certified experts before taking any investment decisions.
March 13, 2026, 15:04 IST
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