New Regime Deductions
Understanding New Regime Deductions for FY 2025-26
In this post, we will discuss the new tax regime in India, the latest updates for FY 2025-26, and what deductions are allowed and not allowed under it.
Let’s look at each section in detail:
Introduction
In India, taxpayers can now choose between two types of tax systems: the old regime and the new one.
The old tax regime allows you to claim various deductions, such as 80C, HRA, and home loan interest, among others, to reduce your tax liability. But it also means more paperwork and planning.
The new tax regime has lower tax rates but doesn’t allow most deductions. It’s made to keep things simple and easy for everyone.
For the financial year 2025-26, there’s a significant benefit in the new regime: if your income is up to ₹12 lakh, you may not have to pay any tax at all.
What is the new tax regime?
The new tax regime was introduced to simplify and ease the process. It has lower tax rates for different income levels. However, unlike the old system, which allowed for numerous deductions and exemptions, this new one offers only a limited number of deductions.
New Tax Regime Slab Rates
Here’s how the tax slabs look now:
|
Income Slab |
Tax Rate |
|
Up to ₹4 lakh |
No tax |
|
₹4 lakh to ₹8 lakh |
5% |
|
₹8 lakh to ₹12 lakh |
10% |
|
₹12 lakh to ₹16 lakh |
15% |
|
₹16 lakh to ₹20 lakh |
20% |
|
₹20 lakh to ₹24 lakh |
25% |
|
Above ₹24 lakh |
30% |
New updates:
- The rebate has been increased from ₹25,000 to ₹60,000 for FY 2025-26.
- As a result, individuals earning up to ₹12 lakh won’t have to pay any tax.
- If you are a salaried person, your income up to ₹12.75 lakh will also be tax-free, thanks to the ₹75,000 standard deduction.
Deductions and Exemptions Not Allowed under New Regime
In the new tax regime, you can’t claim the below exemptions and deductions:
- No standard deduction under Section 80TTA or 80TTB
- Deductions under Sections 80C, 80D, 80E, 80CCC, 80CCD, 80DD, 80DDB, 80EE, 80EEA, 80G, etc. (all from Chapter VI-A) are not allowed.
- Can’t claim professional tax
- Entertainment allowance is not allowed.
- No HRA (House Rent Allowance) benefit
- LTA (Leave Travel Allowance) is not allowed
- Allowance for helper not allowed
- Child education allowance is gone.
- Minor child income exemption is not available.
- Interest paid on home loans for self-occupied or empty houses is not allowed.
- Special allowances under Section 10(14) – not allowed
- Your own NPS contribution – not claimable
- Donations to political parties or approved trusts – are not allowed.
Deductions Allowed under New Tax Regime
Even though the new tax regime cuts down most exemptions and deductions, a few important ones are still allowed. Let’s see which ones you can still claim under the new system:
- Employee’s EPF & NPS Contribution:
Your share of the contribution to EPF and NPS is still eligible for deduction under Section 80CCD(1). However, please note that PPF contributions do not qualify for deduction here. - Employer’s NPS Contribution:
If your employer contributes to your NPS, that amount is also tax-deductible (up to 10% of your salary) under Section 80CCD(2). - Life Insurance Payout:
Any money you get from a life insurance policy, including a bonus, is still tax-free under Section 10(10D). - Leave Encashment on Retirement:
If you get paid for unused leave at the time of retirement, that amount is still exempt from tax under Section 10(10AA). - Retrenchment Compensation:
If you lose your job and receive retrenchment compensation, it remains tax-free within the allowed limit under Section 10(10B). - Gratuity Amount:
Gratuity received at the time of retirement or termination is also exempt, but only up to a specific limit, as per Section 10(10). - Transport Allowance for Differently-Abled:
Differently-abled employees can still get tax-free transport allowance under Section 10(14).
What are the benefits of the new tax regime?
The government introduced the new tax regime to simplify the tax process for taxpayers and reduce their tax burden. It’s a simpler system with no need to deal with confusing deductions and calculations.
Typically, people rush to invest in tax-saving schemes at the end of the financial year. Most of the time, these are done solely to save on taxes without considering the long-term benefits or wealth-building aspects.
As a result, your money gets locked up, and you may still not have enough funds to achieve your real-life goals.
However, with the new tax regime, you can save tax without relying on these types of investments.
How to Opt for the New Tax Regime
If you want to go with the new tax regime, here’s how you can opt for it:
- Salaried people can opt through their employer or while filing their income tax return
- Non-salaried individuals must file Form 10-IEA starting from AY 2024-25
- Remember: there’s a deadline to select or switch your tax regime
With that, we conclude this post. Please use the space below to ask questions or leave comments; we will be happy to respond.
FAQs
Q. How much income is tax-free in India?
Ans: If you are below 60 years old, you don’t have to pay any income tax if your income is up to ₹2.5 lakh under the old tax system. If you are between 60 and 80 years, income up to ₹3 lakh is tax-free. If you are 80 years old or above, you get a bigger relief; income up to ₹5 lakh is not taxed.
Now, if you choose the new tax system, then the basic tax-free limit is ₹3 lakh for everyone, no matter your age.
Q. Do I have to mandatorily choose the New Tax Regime while filing returns for AY 2025-26?
Ans: No, it’s not mandatory. You can choose between the old and new tax regimes. If you want to claim deductions, exemptions, or carry forward losses, you must select the old regime while filing your return by opting out of the new regime. If you don’t take action, the new regime will be implemented as default.
Q. Is HRA exemption available under the new tax regime?
Ans: No, under the new tax regime, HRA exemption as per Section 10(13A) is not allowed.
Q. Are NRIs (Non-Resident Indians) taxed under the same slabs?
Ans: Yes, NRIs are taxed as per the same slabs as resident Indians. However, they don’t receive the additional benefit of higher exemption limits available to senior citizens. Also, they are not eligible for the rebate under section 87A.
