Can You Claim Deductions in the New Tax Regime?
- PRITI SIRDESHMUKH
- Oct 15
- 11 min read
The new tax regime under Section 115BAC, introduced to simplify taxation, offers lower tax rates but limits most deductions and exemptions that were traditionally available. While the old tax regime allows a wide range of benefits under sections such as 80C, 80D, and HRA, the new regime restricts taxpayers to only a handful of deductions, such as the standard deduction, employer’s NPS contribution, family pension deduction, and a few others. Taxpayers must weigh these restrictions against reduced tax rates when deciding which system results in lower liability for their income level and investment profile.
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Can You Claim Deductions in the New Tax Regime?
The new tax regime introduced under Section 115BAC simplifies taxation by offering reduced slab rates but removes most of the deductions and exemptions that were previously available under the old regime. This design encourages taxpayers to move away from complex tax planning and focus on straightforward income computation. However, while many deductions are unavailable, a few selected benefits can still be claimed. Understanding which deductions remain and which ones are disallowed is essential for making an informed choice between the old and new systems.
Overview of Deductions Under the New Tax Regime
The new tax regime significantly reduces the number of deductions that taxpayers can claim, focusing instead on simplified slab rates. While the idea is to create a cleaner tax system, it does not completely remove all deductions. Only a handful of benefits remain available, and these are carefully defined.
The most prominent of these is the standard deduction of ₹75,000, which applies to salaried individuals and pensioners. This deduction was increased from the earlier ₹50,000, making it one of the few consistent relief measures in the new regime. It helps reduce taxable income directly and is automatically available without requiring additional documentation or proof of expenses.
Another benefit that continues under the new system is the employer’s contribution to the National Pension Scheme (NPS) under Section 80CCD(2). This deduction provides relief for employees, as contributions made by the employer to the NPS on their behalf are excluded from taxable income, subject to prescribed limits. It encourages long-term retirement savings while ensuring tax benefits remain available in specific cases.
For individuals receiving a family pension, the new regime allows a deduction under Section 57(iia). The permitted deduction is the lower of one-third of the pension amount received or ₹25,000. This provision ensures that dependents of deceased employees continue to receive some tax relief on pension income.
Transport allowance is another deduction retained, but only for specially abled individuals. This targeted benefit acknowledges the additional mobility-related expenses that differently abled taxpayers may incur. It provides an inclusive feature in an otherwise restricted list of deductions.
Additionally, contributions made to the Agniveer Corpus Fund are eligible for deduction. This provision was introduced to support individuals serving under the Agnipath scheme, recognizing their contribution and offering tax benefits for the amounts they allocate to the fund.
In contrast, most commonly used deductions have been removed under the new regime. Popular benefits such as Section 80C investments in Public Provident Fund (PPF), Equity Linked Savings Scheme (ELSS), life insurance premiums, and National Savings Certificates (NSC) are no longer applicable. Exemptions like House Rent Allowance (HRA) and Leave Travel Allowance (LTA), once key relief measures for salaried employees, are also not permitted. Medical insurance premium deductions under Section 80D, interest on self-occupied housing loans under Section 24, and education loan interest under Section 80E are excluded as well. Even smaller exemptions such as professional tax, children’s education allowance, and savings account interest deductions under Section 80TTA/80TTB have been removed.
The overall approach of the new tax regime is clear—it reduces the scope for tax planning through investments or exemptions and instead offers lower tax rates upfront. This structure benefits taxpayers with limited deductions or simpler financial profiles but may be less attractive for those who traditionally relied on multiple exemptions to reduce their tax burden.
Is Standard Deduction Allowed in New Tax Regime?
Yes, a standard deduction of ₹75,000 is available for salaried employees and pensioners under the new regime. This is an increase from the earlier limit of ₹50,000 and is one of the key relief measures retained.
How Standard Deduction Works in the Old Tax Regime
In the old system, the same deduction is available, but it is combined with other exemptions such as HRA and leave travel allowance, which collectively can reduce taxable income significantly.
Is NPS Contribution Deductible in New Tax Regime?
Employer contributions to NPS remain deductible under Section 80CCD(2) even in the new regime. This deduction can go up to 10% of salary for non-government employees and 14% for government employees.
Employer Contribution vs Employee Contribution
Only the employer’s contribution is deductible under the new system. Employee contributions, which would normally qualify under Section 80CCD(1B), are not allowed in the new regime.
Is Family Pension Deduction Available in New Tax Regime?
Yes, family pensioners can claim a deduction of one-third of the pension amount received or ₹25,000, whichever is lower. This provides some relief to dependents receiving pension after the death of an employee.
How Family Pension Deduction Works in the Old Tax Regime
Under the old system, the same provision applies, but it can be combined with multiple other deductions, creating a larger benefit.
Is Transport Allowance Allowed in New Tax Regime?
Transport allowance is not generally available in the new regime, except for individuals with disabilities. This exception ensures inclusivity and support for differently abled taxpayers.
Is HRA Allowed in New Tax Regime?
No, exemption for House Rent Allowance (HRA) is not permitted under the new regime. This can significantly increase taxable income for salaried employees who live in rented accommodation.
How HRA Works in the Old Tax Regime
Under the old regime, HRA exemptions can be claimed based on rent paid, salary level, and city of residence, making it one of the most commonly used deductions.
Are Section 80C Investments Allowed in New Tax Regime?
No, Section 80C benefits are not available. This means investments in PPF, ELSS, life insurance, NSC, and other similar instruments will not reduce taxable income under the new regime.
Popular 80C Options Available Only in the Old Regime
The old system provides deductions up to ₹1.5 lakh under Section 80C, covering savings schemes, tuition fees, and home loan principal repayment, making it highly beneficial for tax planners.
Are Medical Insurance Premiums Deductible in New Tax Regime?
No, Section 80D benefits for medical insurance premiums are not allowed in the new tax regime. This includes premiums paid for self, spouse, children, and parents.
Section 80D Benefits Under the Old Regime
The old regime permits deductions ranging from ₹25,000 to ₹1,00,000 depending on the age of the insured and whether the insurance is for senior citizens.
Is Home Loan Interest Deduction Allowed in New Tax Regime?
No, interest on housing loan for self-occupied property under Section 24 is not permitted in the new regime. This removal makes the regime less attractive for homeowners with large EMIs.
How Section 24 Benefits Work in the Old Tax Regime
In the old system, taxpayers can claim up to ₹2,00,000 as deduction for interest on self-occupied property and unlimited amounts for let-out property interest.
Latest Updates from Budget 2025
The Union Budget 2025 introduced several important updates that strengthen the framework of the new tax regime and make it more attractive for a wider group of taxpayers. One of the key changes is the increase in the standard deduction, which has been raised to ₹75,000 from the earlier limit of ₹50,000. This adjustment provides meaningful relief to salaried employees and pensioners, directly reducing their taxable income and thereby lowering overall tax liability.
Another major update is the revision of the rebate under Section 87A. The threshold for this rebate has been enhanced, making it applicable for taxable income up to ₹12 lakh. This effectively means that individuals whose income, after deductions permitted under the new regime, does not exceed ₹12 lakh will not be required to pay any income tax. This measure is particularly beneficial for middle-income earners, offering significant savings and making the new regime more attractive compared to the old system.
The deduction available to family pensioners has also been revised. The allowable deduction has been increased to ₹25,000, providing additional relief to dependents who receive pension income after the demise of the earning member. This step ensures that family pensioners are supported with more generous provisions under the simplified tax framework.
Another noteworthy development is that the new regime has been set as the default tax system. This means that unless a taxpayer specifically opts for the old regime while filing returns, they will automatically fall under the new structure. However, the government has maintained flexibility by allowing individuals to continue choosing the old regime if it results in a lower tax liability based on their investments and eligible deductions.
These updates collectively make the new regime simpler, more inclusive, and potentially more rewarding for those with limited deductions. At the same time, taxpayers who rely heavily on exemptions available under the old regime still retain the option to select it during filing, ensuring a balanced approach that accommodates different financial situations.
Should You Opt for the New Tax Regime?
The choice depends on the taxpayer’s profile. Those who do not invest much in tax-saving instruments and fall in the ₹5–15 lakh range may benefit from the simplicity and reduced rates of the new regime. However, individuals with significant deductions under Section 80C, Section 80D, and housing loans often find the old regime more tax-efficient.
TaxBuddy’s Role in Helping Choose Between Regimes
TaxBuddy provides tools and expert guidance to evaluate both regimes before filing returns. Its AI-driven calculators assess income, investments, and liabilities to suggest the regime that minimizes tax liability. With expert-assisted filing options, taxpayers can also ensure accuracy and compliance.
Conclusion
The new tax regime removes most traditional deductions but compensates with reduced slab rates and higher rebate thresholds. Taxpayers must compare their income and deduction eligibility before making a choice. TaxBuddy simplifies this decision by offering tools and expert advice to analyze both options. For anyone looking for assistance in tax filing, it is highly recommended to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options? TaxBuddy provides flexibility by offering both self-filing and expert-assisted plans. The self-filing option is ideal for taxpayers with straightforward income, such as salaried individuals without complex deductions or capital gains. On the other hand, the expert-assisted plan is designed for those who require professional guidance—like individuals with business income, capital gains, or foreign assets. This dual offering ensures that taxpayers can choose the level of support they need without compromising accuracy or compliance.
Q2. Which is the best site to file ITR? The official Income Tax Department portal remains the government’s primary platform for filing income tax returns. It is free to use and provides direct access to official forms. However, many taxpayers prefer platforms like TaxBuddy for a smoother experience. TaxBuddy enhances the process with automation, error checks, and expert guidance, reducing the chances of mistakes and saving time. The best choice depends on the taxpayer’s needs—official simplicity versus additional support and advisory.
Q3. Where to file an income tax return? An income tax return can be filed directly on the government’s e-filing portal (incometax.gov.in) or through reliable private platforms like TaxBuddy. While the government portal offers a standard filing process, private platforms combine filing with advisory features, such as tax regime comparisons, deduction calculators, and personalized recommendations. Choosing the right filing method depends on whether the taxpayer is confident in handling filing independently or prefers guided assistance to maximize accuracy.
Q4. Can HRA be claimed under the new regime? No, House Rent Allowance (HRA) exemption is not allowed under the new regime. Taxpayers opting for this structure cannot reduce their taxable income using rent-related claims. In contrast, the old regime permits HRA deductions based on rent paid, salary received, and the city of residence, which often results in substantial savings for those living in rented accommodation. Therefore, individuals with high rental expenses may still find the old regime more beneficial.
Q 5. Is Section 80C deduction allowed in the new regime? Section 80C, which includes investments in PPF, ELSS, LIC premiums, and tuition fees, is not allowed under the new tax regime. The removal of this benefit simplifies taxation but reduces flexibility for taxpayers who actively invest in these instruments to save tax. The old regime continues to provide deductions of up to ₹1.5 lakh under Section 80C, making it advantageous for individuals committed to long-term tax-saving investments.
Q6. What is the standard deduction available in the new regime? The new regime allows a standard deduction of ₹75,000 for salaried employees and pensioners, starting from FY 2024-25. This is an increase from the earlier deduction of ₹50,000. It is one of the few deductions permitted under the new structure and provides meaningful relief to middle-income taxpayers. While limited compared to the wide range of deductions in the old regime, this adjustment brings consistency across both systems.
Q7. Are medical insurance premiums deductible under the new regime? No, medical insurance premiums paid for self, spouse, children, or parents under Section 80D are not deductible in the new tax regime. This exclusion removes a significant tax-saving option for individuals who invest in health security. The old regime continues to allow deductions ranging from ₹25,000 to ₹1,00,000, depending on age and family structure. As a result, families with higher medical insurance premiums may save more tax under the old system.
Q8. Is interest on home loan deductible in the new regime? No, the new regime does not allow deductions for interest paid on housing loans for self-occupied property under Section 24. In the old system, taxpayers could claim up to ₹2,00,000 annually, offering relief to homeowners with large EMIs. The removal of this deduction in the new regime affects those with active home loans, often tipping the scales in favor of the old regime for property owners.
Q9. Who benefits most from the new regime? The new tax regime benefits individuals with fewer deductions and exemptions to claim. Salaried employees without home loans or heavy investment in tax-saving schemes often find the lower slab rates advantageous. Middle-income earners in the ₹5–15 lakh range usually see the most benefit, especially after the rebate under Section 87A for income up to ₹12 lakh. Taxpayers heavily dependent on deductions like 80C, 80D, or housing loan benefits may not benefit as much.
Q 10. Can both old and new regimes be used together? No, taxpayers cannot combine both regimes within the same financial year. They must choose either the old or the new system when filing their return. However, individuals can switch regimes in different financial years depending on their situation. Salaried employees may switch each year, while those with business income face restrictions and must exercise caution when changing.
Q 11. Is the new tax regime mandatory? The new tax regime has been set as the default system starting from FY 2024-25. However, it is not mandatory. Taxpayers can still opt for the old regime at the time of filing their returns if they find it more beneficial. The flexibility to choose ensures taxpayers can compare outcomes and make a decision aligned with their income and deductions.
Q 12. How can TaxBuddy help with regime selection? TaxBuddy offers AI-driven calculators and expert guidance that analyze a taxpayer’s income, deductions, and investments to suggest the most suitable regime. By comparing the old and new systems, TaxBuddy ensures taxpayers minimize liability while staying compliant. Its expert-assisted plans also provide additional support for complex cases such as capital gains, F&O trading, and foreign assets, making regime selection and filing seamless and accurate.
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