Deductions and Exemptions in New Tax Regime: What Taxpayers Can Claim?

The new income tax regime has been simplified and made more attractive with several key deductions and exemptions available to taxpayers in the financial year 2025–26. While the new regime does away with a majority of traditional exemptions, it still offers select deductions for salaried individuals and property owners.

Key Deductions Allowed Under New Tax Regime:

Standard Deduction of ₹75,000: All salaried employees and pensioners can now claim a flat deduction of ₹75,000 from their gross salary or pension income.

Employer’s Contribution to NPS: Contributions made by employers to the National Pension System (NPS) up to 14% of the basic salary are eligible for tax exemption.

Retirement Benefits:

Leave Encashment: Exempt up to ₹25 lakh at the time of retirement, subject to prescribed conditions.

Gratuity: Exemption up to ₹20 lakh is allowed for eligible employees.

Voluntary Retirement: A tax-free amount up to ₹5 lakh is allowed under VRS, again subject to statutory limits.

Relief on Income from House Property:

Interest on Home Loan: Taxpayers can set off interest paid on home loans against rental income from the property.

Standard Deduction on Rental Income: A 30% standard deduction is applicable on rental income to account for repairs and maintenance.

Note: Any loss from house property cannot be adjusted against other income heads or carried forward.

Tax-Free Allowances for Official Travel:

Employees like Mr. A can enjoy tax exemptions on the following:

Travel Allowance: If the employer pays for official travel such as a trip to Delhi or another city, it is not taxable.

Daily Allowance: Reimbursements for daily expenses during official tours are also exempt from taxation.