Income tax: Deductions and exemptions you can claim even under the new tax regime

A guide exemptions offered by the new tax regime

Starting financial year 2025-26, most salaried taxpayers and pensioners are likely to shift to the new tax regime, which has now become friendlier - with wider tax slabs, lower tax rates and a higher tax rebate limit of Rs 12 lakh.

While it is indeed an income tax structure that offers minimal tax deductions, having steered clear of 70 exemptions available under the old regime, it does retain certain key benefits.

Corporate NPS contribution

This is among the tax benefits that remains under-utilised, though it is available under both regimes. While the National Pension System (NPS)-linked tax deduction — Rs 1.5 lakh under Section 80C  - and Rs 50,000 under 80CCD (1B) — do not find a place in the new regime, deduction on employers’ contribution to the employees’ NPS has been retained.

An employer’s contribution to employees’ NPS of up to 14 percent of basic pay, plus dearness allowance (DA), is allowed as deduction under Section 80CCD(2). According to Taxmann's calculations, those with gross salary of up to Rs 13.5 lakh (basic pay of  Rs 5.4 lakh) will not have to pay any tax under the new regime if they opt for corporate NPS.

However, do note that the tax-free limit on cumulative benefits received from employers is capped at Rs 7.5 lakh a year. If the total benefits breach this cap, the excess amount will be treated as the employee's taxable perquisite.

Let-out properties' home loan interest tax benefit 

You can claim the tax break on interest on home loan for a property that has been leased out under the new regime as well. However, deduction of up Rs 2 lakh under section 24(b) on self-occupied properties is not allowed under the minimal exemptions structure.

Under the old tax regime, the interest paid is deducted from the rent received (net of property taxes and standard deduction of 30 percent) to arrive at the income from house property. This helps reduce your taxable property income, and thus, the tax outgo. As long as the loss from house property—calculated as interest paid minus rent received, after adjusting for property tax and standard deduction—does not exceed Rs 2 lakh, it can be set off against other income in the same financial year to lower your overall tax liability. Any loss beyond Rs 2 lakh from a rented property can be carried forward and claimed over the next eight financial years.

However, the new regime facilitates this tax benefit a bit differently. Negative loss from house property can only be set off against income from house property and not salary or other heads, restricting its scope and benefits.

Also read: How new tax rules are chipping away at real estate's investment appeal

Employers’ EPF contribution of up to 12 percent of basic salary

Your employer contributes 12 percent of your basic salary to your EPF account. Like NPS employer contribution, this amount, too, is exempt from tax as long as the aggregate retirement benefits that you receive from your employer do not cross the Rs 7.5-lakh limit in a year.

This apart, tax exemptions on gratuity payout, leave encashment as also life insurance maturity proceeds, subject to conditions, are also available.