In a significant clarification impacting salaried taxpayers and government departments, the Central Board of Direct Taxes(CBDT) has issued an Office Memorandum clarifying that exemptions and deductions such as Leave Travel Concession (LTC), medical reimbursement, and deductions under Sections 80DD and 80DDB are not available to taxpayers opting for the new tax regime under Section 115BAC of the Income-tax Act.
The clarification was issued vide Office Memorandum dated January 23, 2026, by the Department of Revenue under the Ministry of Finance, Government of India.
Background of the Clarification
The memorandum was issued in response to a reference seeking clarity on the taxability of Leave Travel Concession (LTC) and medical reimbursement claims under the new tax regime introduced under Section 115BAC. The new regime, which provides concessional tax rates, restricts the availability of several exemptions and deductions that were otherwise permissible under the old regime.
Key Clarifications Issued
The CBDT has categorically stated that:
- Exemption under Section 10(5) (Leave Travel Concession) is not available to individuals who opt for taxation under Section 115BAC.
- Deduction under Section 80DD, which relates to maintenance including medical treatment of a dependent person with disability, is not allowable under the new tax regime.
- Deduction under Section 80DDB, which pertains to medical treatment for specified diseases or ailments, is also not available under Section 115BAC.
The memorandum reiterates that these exemptions and deductions stand withdrawn for taxpayers choosing the new regime, in line with the structure and intent of Section 115BAC.
Copies of relevant statutory provisions — Sections 10(5), 80DD, 80DDB, and 115BAC — were enclosed with the memorandum for ready reference.
Administrative Approval
The clarification has been issued with the approval of Member (Income Tax), CBDT, underscoring its authoritative and binding nature for tax administration purposes.
