The new tax regime introduced in 2020 changed the way people look at taxes. The old regime provided different exemptions and deductions, while the aim of the new regime is to reduce the tax rate and bring more money directly to the taxpayer. But in the process, the new regime removed a lot of deductions and exemptions that were available in the old regime.
However, there are some deductions that are still valid and common in both regimes. Let's see who they are:
Standard Deduction (for Salaried Individuals and Pensioners)
Salaried individuals and pensioners can now avail the benefit of standard deduction not only in the old regime but also in the new regime.
- The old regime offers a fixed deduction of Rs 50,000.
- In the new regime (FY 2024-25 or AY 2025-26), this amount has become a deduction of Rs 75,000.
This deduction is automatically applied whenever you file your tax, which reduces your tax liability.
Employer's Contribution to EPF and NPS
If your employer's contribution is to retirement plans such as EPF and NPS, then both these regimes are tax-exempt, up to Rs 7.5 lakh per year. But if the contribution is more than this, then it is taxable in the hands of the employee.
Gratuity Payout
In the old tax regime, gratuity payout up to Rs 20 lakh is tax exempt (earlier this limit was Rs 10 lakh).
At the same time, this benefit was not available earlier in the new regime. But after the CBDT circular in May 2025, gratuity up to Rs 5 lakh has also been exempted in the new regime , under Section 115BAC(1A).
Family Pension Deduction
Family pension is a regular payment that is received by the spouse or dependent of a deceased employee.
- In the old regime, family pensioners used to get a deduction of up to Rs 15,000.
- After Budget 2024, this deduction limit has been increased to Rs 25,000 for the new regime (from FY 2024-25).
Agneepath Scheme Contributions (Section 80CCH)
The Agnipath scheme, which was launched in 2020, recruits youth in the armed forces for 4 years. In this, both Agniveers and the government contribute to a SevaNidhi corpus, which is available at the end of the service.
- Old regime: Agniveer's own contribution is deductible.
- New regime: Only the matching contribution of the government is deductible. Deduction on self-contribution is not allowed.
Popular deductions that have been excluded in the new regime
Revised tax slabs have been given in the new regime to reduce the tax burden of the common man. But for simplicity, most of the exemptions and deductions were removed. Some popular deductions that are not available in the new regime:
- Section 80C - Investments in PPF, ELSS, NSC, Life Insurance Premium, Home Loan Principal Repayment, Tuition Fees.
- Section 80D - Health Insurance Premium.
- Section 80E - Interest on Education Loan.
- Section 24(b) - Home Loan Interest (self-occupied property).
- Section 80G - Donations.
- Section 80TTA 80TTB - Savings Account Interest Deduction.
- HRA (House Rent Allowance) and LTA (Leave Travel Allowance).
Conclusion
The new tax regime is lean and simple, but tax-saving options are limited. If you are dependent on the deductions of sections 80C and 80D, then the old regime may be more beneficial for you.
At the same time, if your priority is to reduce your overall tax burden, then the new regime can be beneficial.
The common deductions available in both regimes provide an added advantage so that you can reduce your liability further. Before filing, always compare the tax outgo of both the regimes and choose the best option for yourself.
CAclubindia
