15 Practical Ways to Save Tax on HRA Under New Tax Regime (AY 2026–27)
With the advent of the new tax regime in India, salaried individuals face a significant change: no exemption for House Rent Allowance (HRA). While the old regime allowed tax benefits under Section 10(13A), the new regime (Section 115BAC) does not offer any such deduction. So, the question arises—how can you still reduce your tax liability effectively if you pay rent?
In this guide for Assessment Year 2026–27, we provide 15 actionable and legal methods to manage your taxes wisely despite the absence of HRA benefits. These tips are practical, compliance-friendly, and tailored for salaried taxpayers.
1. Choose the Right Tax Regime Every Year
The government allows salaried taxpayers to choose between the old and new tax regimes every financial year. If your rent is high and HRA exemption under the old regime gives substantial benefit, you can still opt for it. Evaluate both options using a tax comparison calculator each year.
2. Claim Deduction Under Section 80C
Although HRA exemption is unavailable, you can still claim deductions under the old regime for up to ₹1.5 lakh under Section 80C. Investments like:
- EPF (Employee Provident Fund)
- LIC premium
- Principal repayment on home loan
- ELSS (Equity Linked Savings Scheme)
- Tuition fees for children
can substantially reduce your taxable income.
3. Pay Rent to Parents and Get Receipt
If you’re staying in your parents’ house and paying rent, this payment may not benefit you under the new regime, but your parents can declare it as rental income and claim standard deduction of 30%. This creates a tax advantage in the family unit.
4. Use Home Loan Benefits (Even If Rented)
If you’ve taken a home loan and are living in a rented house due to employment in another city, under the old regime you could claim:
- Principal repayment under 80C
- Interest deduction up to ₹2 lakh under Section 24(b)
However, in the new regime these are not allowed. So, re-evaluate whether shifting to old regime gives a net benefit after including these deductions.
5. Claim NPS Deduction Under Section 80CCD(1B)
Even under the new tax regime, deduction up to ₹50,000 is allowed under Section 80CCD(1B) for contribution to the National Pension Scheme (NPS). It’s one of the few deductions still allowed.
6. Standard Deduction of ₹50,000 is Still Available
The new tax regime allows salaried taxpayers a standard deduction of ₹50,000 from their salary income (from FY 2023-24 onwards). This reduces taxable salary automatically.
7. Invest in Tax-Free Instruments
Though deductions are limited, investing in tax-free income sources such as:
- PPF (interest is tax-free)
- Tax-free bonds (NHAI, REC)
- Long-term equity (after holding period and under exemption limits)
can help reduce your effective tax outgo.
8. Consider HUF Formation for Rent Transactions
Renting property under HUF or receiving rental income through HUF helps split income and tax liability. This can be helpful where HUF owns the house and you’re the karta but receive salary income separately.
9. Maximize Employer-Provided Tax-Free Perks
Explore allowances that are exempt under both regimes such as:
- Meal vouchers (up to ₹50 per meal)
- Mobile/Internet reimbursement
- Travel expenses if reimbursed for official work
These reduce taxable salary when structured smartly in the CTC.
10. Consider Buying House on Loan Instead of Renting
If you plan to stay long-term in the same city, consider buying a house through loan. Under old regime, you can claim interest and principal deductions. It helps build wealth while saving tax if the old regime gives net benefit.
11. File Return Jointly as a Family Strategy
Though individual ITRs are required, tax planning across the family helps reduce collective liability. For example, clubbing rent income with the lower-income family member reduces tax burden as compared to receiving in a high-slab individual’s name.
12. Tax Planning with Spouse Working in Another City
If your spouse works in another city and pays rent there, one of you can choose old regime if beneficial. Smart tax regime selection within family improves cash flow and tax outcome overall.
13. Shift to Tier-II Cities to Reduce Rental Expenses
If your employer allows remote/hybrid work, shifting to smaller towns helps reduce rent, thereby preserving post-tax income. Since HRA exemption is not available, minimizing actual rent has direct impact on savings.
14. Choose Tax-Efficient Investment Funds
Tax-efficient equity mutual funds (held >1 year), and debt funds with indexation, are useful to reduce capital gain tax liability over long term.
15. Evaluate Filing Form 10-IEA for Regime Selection
From AY 2024-25 onwards, Form 10-IEA must be filed online to opt out of the default new regime (if you’re salaried). Ensure timely submission to avail old regime if that helps you claim HRA benefit.
FAQ – Frequently Asked Questions
No. The new tax regime under Section 115BAC does not allow HRA exemption under Section 10(13A).
No. Salaried individuals can choose between old and new regime every year.
It is the form used to opt for the old tax regime. From AY 2024-25 onwards, salaried individuals need to file it before the due date to switch from the default new regime.
Only under old regime. Under the new regime, it doesn’t offer any benefit to you directly, but helps in family-level planning if parents are in lower slab.
By following the above methods and analyzing your financial position each year, you can make an informed tax-saving decision even under the restrictive structure of the new tax regime for AY 2026–27.