Which Deductions Are Allowed In The New Tax Regime?

In the last few years, the government has announced a new tax regime with updated tax slabs. At the same time, the government gives taxpayers the option to choose between the new regime and old regime. This decision for many taxpayers depends on the deductions available, as they are the primary way for them to reduce or eliminate their tax obligation.

The new tax regime has its set of exemptions and deductions that taxpayers can use. However, it has removed many of the deduction that were available in the old regime. In the financial year 2024-25, both the new tax regime and the old tax regime option certain advantages to taxpayers. However, knowing the deductions available makes the decision easier to make.

Important deductions offered in the new tax structure

1. For employees on a salary and retirees

• Standard Deduction: One benefit that remains common to both regimes is the standard deduction. The new tax regime allows salaried people and senior citizens earning pensions a standard deduction of ₹75,000.
• Family Pension: If you have a family pension income, the new regime offers a deduction for it. You can claim a deduction of ₹25,000 or one-third of the pension amount, whichever is lower. 

2. Section VI-A deductions

The majority of deductions under Chapter VI-A (such as Sections 80C and 80D) are excluded from the new framework, though a limited number continue to apply.

• Employer's NPS Contribution (Section 80CCD(2)): Contributions made by an employer to an employee's National Pension 
• System (NPS) account can be deducted, capped at 10% of the employee's salary (14% for employees of the Central Government).
• Agniveer Corpus Fund (Section 80CCH): Donations to the Agniveer Corpus Fund are eligible for deduction.
• Extra Employee Expense (Section 80JJAA): Accessible to business proprietors who bear costs for extra employees.

Specific allowances and exemptions

Specific groups of employees can still claim certain allowances as exemptions.

• Transport Allowance: Exceptions for individuals with disabilities.
• Conveyance Allowance: Permitted for employees performing official tasks and travel.
• Daily Allowance: Accessible to manage regular costs or expenses while on duty away from the usual workplace.

Additional exemptions

Voluntary Retirement Scheme (VRS): Tax benefits on returns from a voluntary retirement plan.

• Gratuity: Exemptions for gratuity obtained upon retirement, within set limits.
• Leave Encashment: Exceptions for leave encashment upon retirement.
• Life Insurance Benefits: The amount obtained from a life insurance policy, plus any bonuses, stays tax-exempt.
• Gifts: Gifts gained up to ₹50,000 are exempt from tax.

Common Deductions Not Included

Numerous well-known deductions are specifically prohibited under the new tax system, such as:

• Section 80C: Contributions such as PPF, ELSS, and premiums for life insurance.
• Section 80D: Premiums for health insurance.
• Section 80E: Interest on student loans.
• Section 80TTA/80TTB: Earnings from savings accounts.
• Section 24(b): Interest on home loans for properties that are owner-occupied or unoccupied.
• House Rent Allowance (HRA) and Leave Travel Allowance (LTA).

Tax Planning Is Also About Long-Term Financial Preparedness

Understanding tax regimes, deductions, exemptions, and salary structures can help salaried individuals make more informed financial decisions. However, effective financial planning often goes beyond annual tax calculations.

Along with optimising taxes, many individuals also consider solutions such as:

• Term insurance plans help financially protect their family’s future
• Savings plans to support disciplined long-term financial habits
• Guaranteed return plans for more predictable future financial planning

The objective is not only to reduce tax liability for a single financial year, but also to build stronger long-term financial stability and confidence.