How to Maximise Your Income Tax Refund Under the New Tax Regime: 7 Strategies for AY 2026-27

The New Regime Refund Myth

A common misconception among Indian taxpayers is that choosing the new tax regime means giving up any chance of a refund. After all, most Chapter VI-A deductions like 80C, 80D, and HRA are not available. So why would the government owe you money?

The reality is different. Thousands of salaried individuals receive substantial refunds even under the new regime every year. The key is understanding where refund opportunities still exist and making sure your employer's TDS matches your actual tax liability — not an inflated estimate.

Here are seven strategies that can help you legally maximise your refund for AY 2026-27.

1. Claim the Full Rs 75,000 Standard Deduction

Under the new tax regime for FY 2025-26, every salaried individual and pensioner gets a flat standard deduction of Rs 75,000. This requires no proof or investment — it is automatically deducted from your gross salary before computing tax.

Where refunds get missed: If you switched jobs mid-year, your new employer may not have accounted for the standard deduction correctly, or both employers may have partially applied it. When you file your ITR and consolidate income from both Form 16s, the correct standard deduction applies to your total salary, which can lower your tax and trigger a refund.

If you switched jobs during FY 2025-26, read our guide on tax implications of changing jobs mid-year to make sure you are not overpaying.

2. Use the Section 87A Rebate — Income Up to Rs 12 Lakh Means Zero Tax

This is the single biggest refund opportunity under the new regime and the most frequently overlooked one.

For AY 2026-27, the Section 87A rebate has been enhanced to Rs 60,000. This means if your total taxable income (after the standard deduction) is Rs 12,00,000 or below, your entire tax liability is wiped out.

Practical example:

If your employer deducted TDS throughout the year on this salary assuming full tax liability, you would get the entire TDS amount back as a refund when you file your return.

The catch: The rebate only applies if taxable income does not exceed Rs 12,00,000. At Rs 12,00,001, you lose the entire rebate and pay tax on the full amount. If your income is close to this threshold, even a small reduction — say, through employer NPS — can bring you below the line and save you Rs 60,000 in tax.

3. Get Your Employer to Contribute to NPS Under Section 80CCD(2)

This is the one major deduction that survives in the new tax regime. Under Section 80CCD(2), your employer's contribution to the National Pension System is deductible up to 14% of your basic salary (for central government employees) or 10% of basic salary (for all other employees).

This deduction is above and beyond the Rs 1,50,000 limit of Section 80C and is explicitly allowed under the new regime.

Example: If your basic salary is Rs 8,00,000 per year and your employer contributes 10% (Rs 80,000) to NPS, your taxable income reduces by Rs 80,000. At the 15% slab, that is Rs 12,000 in tax saved.

Action step: Ask your HR department whether your company offers an NPS contribution as part of the CTC. Many companies allow you to restructure your salary to include this. If your employer already contributes but your Form 16 does not reflect the deduction, flag it before filing.

4. Ensure Correct Tax Declaration With Your Employer

The most common reason salaried individuals get large refunds — or unexpectedly owe tax — is a mismatch between the investment declaration submitted to HR at the start of the year and the actual tax situation.

Under the new regime, this is simpler since fewer deductions apply. But errors still happen:

• Wrong regime selected with employer: If you told HR you are on the old regime but actually want to file under the new one (or vice versa), TDS will be calculated incorrectly all year.
• Standard deduction not applied: Some payroll systems misconfigure the Rs 75,000 deduction, especially for employees who joined mid-year.
• NPS deduction missed: Even when the employer contributes to NPS, the payroll system may not apply the 80CCD(2) deduction to TDS calculations.
• Multiple Form 16s not reconciled: When you have two employers in one year, each calculates TDS independently assuming you had no other income. The total TDS deducted often exceeds your actual liability.

Review your final payslip and Form 16 carefully in June. If the TDS already deducted exceeds what you actually owe, you get the excess back as a refund.

5. Claim Interest on Home Loan for a Let-Out Property

While the new regime does not allow the Section 24(b) deduction of up to Rs 2,00,000 for self-occupied property, it does allow you to claim the actual interest paid on a home loan for a property that is let out (rented).

If you own a property that you rent out, the rental income is taxable — but the interest you pay on the home loan for that property is deductible from the rental income, with no upper limit. This can even result in a loss under "Income from House Property" which sets off against your salary income.

Example:

This Rs 1,48,000 loss sets off against your salary, reducing taxable income and potentially generating a refund.

For a detailed walkthrough of rental income taxation, see our rental income tax guide.

6. Verify All TDS Credits in Form 26AS and AIS

Your refund is only as accurate as the TDS credits the income tax department has on record. Before filing, cross-check:

• Form 26AS: Shows all TDS deducted by your employer, bank (on FD interest), and other deductors. Ensure every TDS entry from your Form 16, bank statements, and other certificates matches.
• Annual Information Statement (AIS): Shows a broader picture including high-value transactions, mutual fund purchases, and interest credited. If a bank deducted TDS on your FD interest but it is not reflected in Form 26AS, your refund will be short.

Common gaps to watch for:

If you find discrepancies, contact the deductor (employer or bank) and ask them to file a TDS correction return before you submit your ITR.

7. Do Not Ignore Advance Tax Overpayments

If you paid advance tax during the year — either because you had capital gains, freelance income, or rental income — check whether the total advance tax plus TDS exceeds your final liability.

This happens more often than you would expect:

• You estimated capital gains in Q2 and paid advance tax, but the gains were lower than projected (or you had offsetting capital losses later in the year).
• You paid advance tax on estimated rental income, but vacancy or reduced rent brought the actual income lower.
• You made conservative advance tax payments to avoid interest under Sections 234B and 234C, and the final liability turned out lower.

All advance tax payments are visible in Form 26AS under Part C. Ensure they match your actual challans. Any excess is refundable.

Putting It All Together: A Worked Example

Profile: Riya, 32, software engineer in Bengaluru. CTC Rs 18,00,000. She is on the new tax regime.

Tax calculation under new regime slabs:

Now suppose Riya's employer deducted TDS of Rs 1,35,000 during the year because the payroll system did not apply the employer NPS deduction. When she files her ITR with the correct deduction, her actual liability is Rs 1,08,420.

Refund = Rs 1,35,000 - Rs 1,08,420 = Rs 26,580

That is Rs 26,580 back in her bank account, simply by filing accurately.

Quick Checklist Before You File

• Confirm you are on the new regime (it is the default — you only need to opt out if choosing old)
• Verify Rs 75,000 standard deduction is applied in your Form 16
• Check if employer NPS under 80CCD(2) is reflected
• If income is near Rs 12 lakh, check if Section 87A rebate applies
• Match all TDS entries in Form 26AS and AIS with your records
• Reconcile advance tax challans if any
• If you changed jobs, combine both Form 16s and recompute

49Tax can automatically pull your Form 16 data, apply the correct deductions, and flag any TDS mismatches — so you do not leave money on the table.

The Takeaway

The new tax regime is simpler, but simpler does not mean there is nothing to optimise. The combination of the Rs 75,000 standard deduction, employer NPS contributions, the Section 87A rebate for incomes up to Rs 12 lakh, and proper TDS reconciliation can put real money back in your pocket. The single most important thing you can do is file your return accurately and on time — refunds are only issued to taxpayers who actually file.