New Tax Regime Deductions

In India, the New Tax Regime, introduced under Section 115BAC of the Income Tax Act, offers a simplified tax structure with lower tax rates but fewer deductions and exemptions compared to the Old Tax Regime. As of FY 2024-25 (AY 2025-26), applicable on March 19, 2025, the New Tax Regime is the default option, though taxpayers can opt for the Old Regime if it suits their financial situation better.

Below are the key deductions available under the New Tax Regime:

Deductions Allowed in the New Tax Regime Standard Deduction for Salaried Individuals and Pensioners Amount: ₹75,000 (increased from ₹50,000 in Budget 2024).

Eligibility: Available to salaried employees and pensioners whose pension is taxed as salary income.

Impact: This deduction reduces taxable income, effectively making income up to ₹7.75 lakh tax-free when combined with the ₹7 lakh rebate under Section 87A.

Deduction for Family Pension Amount: ₹25,000 or one-third of the pension, whichever is lower (increased from ₹15,000 in Budget 2024).

Eligibility: Applicable to individuals receiving a family pension.

Note: This applies only if the pension is taxed under the head "Income from Salaries" and not "Income from Other Sources."Employer’s Contribution to National Pension Scheme (NPS) – Section 80CCD(2)Amount: Up to 14% of salary (basic + dearness allowance) for central/state government employees, and up to 10% for others, subject to a cap of ₹7.5 lakh annually (combined with PF contributions).

Eligibility: Available to salaried employees whose employers contribute to their NPS account.

Benefit: This amount is excluded from taxable income.

Interest on Home Loan for Let-Out Property – Section 24(b)Amount: Full interest paid on a housing loan for a property that is rented out.

Eligibility: Applies only to let-out properties, not self-occupied ones (unlike the Old Regime, where up to ₹2 lakh is allowed for self-occupied properties).

Note: No deduction is available for self-occupied property interest in the New Regime.

Exemptions Still Available Certain exemptions remain intact, such as:

Gratuity: Exempt under Section 10(10) up to specified limits.

Leave Encashment: Exempt under Section 10(10AA) up to ₹25 lakh for non-government employees (increased in Budget 2023).

Voluntary Retirement Scheme (VRS): Exempt under Section 10(10C) up to ₹5 lakh.

Employer’s Contribution to Provident Fund (PF): Up to 12% of salary is exempt, subject to the ₹7.5 lakh annual cap (combined with NPS contributions).

Deduction for Additional Employees – Section 80JJAAAmount: 30% of additional employee cost for three years.

Eligibility: Available to businesses hiring new employees, subject to specific conditions (e.g., employees must earn up to ₹25,000 per month and be employed for at least 240 days in a year).

Note: This is one of the rare Chapter VI-A deductions allowed in the New Regime.

Key Points to Note Rebate under Section 87A: A full tax rebate of up to ₹60,000 is available for resident individuals with taxable income up to ₹7 lakh (effectively making income up to ₹7.75 lakh tax-free with the standard deduction).

 This rebate was increased from ₹25,000 in Budget 2024.

Deductions Not Available: Most deductions under Chapter VI-A (e.g., Section 80C for investments like PPF, ELSS, or insurance up to ₹1.5 lakh; Section 80D for medical insurance; Section 80G for donations) and exemptions like House Rent Allowance (HRA), Leave Travel Allowance (LTA), and interest on self-occupied home loans are not allowed in the New Regime.

Tax Slabs: The New Regime offers lower tax rates with slabs starting at 0% (up to ₹3 lakh) and going up to 30% (above ₹15 lakh), with additional relaxations in Budget 2024 making income up to ₹12 lakh potentially tax-free under certain conditions.

Comparison with Old RegimeThe Old Tax Regime allows over 70 deductions and exemptions, including ₹1.5 lakh under Section 80C, ₹2 lakh on home loan interest for self-occupied property, HRA, and more.

 The New Regime sacrifices these for simplicity and lower rates, benefiting those with minimal investments or expenses eligible for deductions.

Who Benefits?

New Regime: Ideal for individuals with low or no eligible deductions (e.g., those not investing in tax-saving instruments or paying rent/high home loan interest).

Salaried employees with income up to ₹7.75 lakh pay no tax due to the rebate and standard deduction.

Old Regime: Better for those who can claim deductions exceeding ₹2.5–3.75 lakh (depending on income level), as this offsets the higher tax rates.

To decide, calculate your taxable income under both regimes considering your eligible deductions and compare the tax liability. 

The New Regime’s simplicity and enhanced deductions (like the ₹75,000 standard deduction) make it increasingly attractive, especially post-Budget 2024 updates.