The new tax regime offers a standard deduction of ₹75,000, exemption on employer contribution to NPS and EPF, housing loan interest (adjusted against rental income), 30% standard deduction (on rental income), and exemptions like leave encashment, gratuity, VRS, travel and daily allowance.
New Tax Regime Income Tax Saving Options: The government has given a big relief to the taxpayers in the Budget 2025-26 by making income up to 12 lakhs tax free. However, this benefit will be available only to those who adopt the New Tax Regime. The purpose of this step of the government is to promote the New Tax Regime. Many people criticize the New Tax Regime for not getting exemptions like the Old Tax Regime. But it is not that there are no exemptions available in the New Tax Regime. Let us know what exemptions are available under the New Tax Regime.
Deductions
According to the report of TAXCONCEPT, a standard deduction of Rs 75,000 is given for salaried individuals who choose the new tax regime. Apart from this, deduction can be availed by contributing up to 14 percent of the salary by the employer in the National Pension Scheme (NPS). Apart from this, deduction benefit is also available on the contribution of up to 12% of the basic salary by the employer to the Provident Fund (EPF).
Deduction of interest on housing loan
If a person has rental income, then the interest of the housing loan can be adjusted from it. However, if the amount of interest exceeds the rental income, then this loss cannot be adjusted with any other income (such as salary or commercial income) nor can it be carried forward to subsequent years.
However, if the person has more than one rental property, then that loss can be adjusted with the rental income of the second property. Apart from this, municipal taxes paid on the property are also tax deductible.
Interest deduction on self-occupied property
- If there is a self-owned property, then there will be no deduction on the interest of housing loan in the new tax system.
- The standard deduction of 30 percent on rental income will still be applicable.
- Deduction is available on contributions made to the Agniveer Corpus Fund for armed forces personnel and there is no provision for any maximum limit.
Other Exemptions
House Rent Allowance (HRA) is not exempted in the new tax regime, but salaried employees can avail exemption on certain special allowances given by their employer. These include
- Travel Allowance for official tours or transfers
- Daily Allowance for daily expenses during official tours
Apart from this, the following exemptions are available under the new tax regime:
- Exemption of up to Rs 25 lakh is available on leave encashment at the time of retirement.
- Exemption of up to Rs 20 lakh is available on gratuity.
- Exemption of up to Rs 5 lakh is available on voluntary retirement.
This table shows all the major deductions and exemptions available under the new tax regime.
| Category | Description |
|---|---|
| Standard Deduction | Deduction up to ₹75,000 for salaried individuals |
| Employer Contribution in NPS | Deduction up to 14% of basic salary |
| Employer Contribution in EPF | Deduction up to 12% of basic salary |
| Housing Loan Interest (Adjustment from Rental Income) | Interest can be set off against income from rental property |
| Municipal Tax | Deduction available on municipal taxes paid on property |
| Agniveer Corpus Fund Contribution | For armed forces, there is no maximum limit |
| Standard deduction on rental income | 30% deduction applicable |
| Travel Allowance | Exemption for official tour/transfer |
| Daily allowance | Exemption for daily expenses during official tours |
| Leave Encashment Exemption | Up to ₹25 lakh |
| Discount on Gratuity | Up to ₹20 lakh |
| Exemption on Voluntary Retirement | Up to ₹5 lakh |
