Exemptions & Deductions in New Tax Regime Under Union Budget 2025

The Union Budget 2020 presented a new tax regime under Section 115BAC. This new tax regime features more tax slabs with reduced income tax rates. However, the Union Budget 2023 declared the new regime as the default slab from FY 2023-24.

Further, Budget 2025 revised the tax slabs, so taxpayers need to forgo tax deductions and exemptions available in the old tax regime if they want to pay concessional taxes under the new tax regime.

The upcoming segment summarises the new tax regime deductions and exemptions that individuals can and cannot claim. So, keep scrolling to know more about it.

They can claim a standard deduction of ₹75,000 under the head 'Income from salaries' only on their salary/pension income. Family pensioners can avail of a standard deduction of ₹25,000 or 1/3rd of the family pension, whichever is less, under the head 'Income from other sources.'

Given below is the new tax regime exemption list for both FY 2024- 25 and FY 2025-26:

1. Section 80CCD (2)

Under Section 80CCD (2) of the Income-tax Act, 1961, a salaried individual can claim the benefit of a standard deduction of ₹75,000 and any NPS (National Pension Scheme) contribution by the employer to the employee's NPS account.

However, there are no tax benefits on the employee's contribution. The maximum deduction amount that all private sector and government employees can claim is 14% of their salary.

2. Agniveer Corpus Fund

Any contribution made to the Agniveer Corpus Fund under the newly proposed section 80CCH of the Income-Tax Act can be claimed as a deduction. This contribution can be made by the Agniveer or the Central Government to the Agniveer’s Seva Nidhi account.

3. Section 80JJAA

Under Section 80JJAA, up to 30% of additional employee cost will be deductible.

4. Home Loans

Deduction on the interest component of a home loan borrowed for a rented property.

5. NPS, PPF and EPF

• Employers' contributions to their employee's NPS and EPF and superannuation accounts are applicable for tax exemption. However, the contributions made in a financial year to all the employee accounts should not be above ₹7.5 lakhs to qualify for the tax exemption.
• Taxpayers receiving interest from their Employees' Provident Fund account can claim tax exemptions on that interest, given the latter is not above 9.5%.
• The lump-sum maturity amount received from the NPS account is eligible for tax exemption, and the partial fund withdrawal from the Tier I NPS account is also exempted from taxation.
• Interest or the maturity amount received from the PPF account is eligible for tax exemption.

6. Savings Schemes

• According to Section 10(15)(i), taxpayers receiving interest on their Post Office Savings Account can claim exemptions up to ₹3,500 and ₹7,000 in the case of individual and joint accounts, respectively.
• According to Section 10(10D), funds received from a Life Insurance Company after the maturity of the account are eligible for tax exemption. 
• Interests and maturity amounts received from the Sukanya Samriddhi Account are exempted from being taxed.

7. Gratuity

Non-government employees receiving gratuity from their employer can claim exemption up to ₹20 lakh on that gratuity amount. In the case of government employees, the entire gratuity received by them is exempted from being taxed.

8. Retirement

• The leave encashment during retirement is eligible for tax exemption.
• Monetary benefits received from employers for the cause of voluntary retirement are eligible for tax exemption. The maximum exemption limit is up to ₹5 lakh.
• Education scholarships, retrenchment compensation, and monetary benefits for retirement cum death qualify for tax exemption.

9. Allowances by Employers

• Travel allowances provided to disabled employees, conveyance allowance, allowances provided to cover the travel cost or transfer of an employee, perquisites, and daily allowances are eligible for tax exemption under this new tax regime.
• Employers providing allowances to employees for performing official duties are exempt from being taxed.
• If non-government employees receive a commuted pension, then 1/3rd of it qualifies for tax exemption if the employee receives gratuity. If employees do not receive gratuity, then ½ of commuted pensions will be exempted from tax.
• Gifts received from employers, that do not exceed ₹5,000, are eligible for tax exemption.

Go through the following list of income tax new regime deductions and exemptions under the new tax regime, which eligible taxpayers CANNOT claim.

Up to 70 exemptions and deductions from the new tax regime have been removed for individual taxpayers. Here is the list of some revised ones that taxpayers cannot claim.

1. Home Loans

• Deduction on payment of interest and principal amount towards housing loans up to ₹1.5 lakhs under Sections 80C and 80EE/ 80EEA.
• Deduction of the interest payment of home loan for self-occupied/ vacant property under Section 24(b).
• Deduction of the interest payment up to ₹2 lakh for the purchase/construction/ repair/reconstruction of house property under Section 24(b).
• Also, Budget 2025 proposed that the annual value of up to two house properties will be tax-free if the owner occupies the house for their residence or cannot occupy it for any reason. Earlier, only one self-occupied house was treated as tax-free, while the second house was taxed based on its notional rental value.

2. Section 80C

Investments made in the Employees’ Provident Fund, life insurance premium, and Public Provident Fund under Section 80C.

3. NPS

Under Budget 2025, now the contributions made to the NPS Vatsalya Scheme also qualify for a ₹50,000 tax deduction under Section 80CCD(1B).

4. Section 80E

Interest paid on the student loan debt under Section 80E can no longer be claimed for tax relief.

5. Charity

• Donations or expenses in scientific research are not deductible.
• Deductions under section 80G including the National Defense Fund, the Prime Minister’s National Relief Fund, The National Foundation for Communal Harmony, National/State Blood Transfusion Council.

6. Salary Deductions

• House rent allowance, based on the rent payments and salary structure.
• The professional tax of ₹2,500.
• Leave travel allowance.
• Deductions on professional tax and entertainment allowance (applicable for government employees).

7. Savings Account

• Interest received from Savings Accounts under Section 80TTA and 80TTB (interest on deposits to senior citizens are taxable.
• Special allowances under Section 10(14).
• Business professionals and owners in the Special Economic Zone cannot claim tax exemption under Section 10AA.

8. Other Exemptions

• Tax deduction under Section 35(1)(ii), 35(2AA), 32AD, 33AB, 35(1)(iii), 33ABA, 35(1)(ii), 35CCC(a), and 35AD of the IT Act.
• Additional depreciation as specified under Section 32(ii) (a).
• The option to adjust the unabsorbed depreciation of previous years.
• Deductions as specified under Chapter VI-A such as 80IA, 80CCC, 80C, 80CCD, 80D, 80CCG, 80DDB, 80EE, 80E, 80EEA, 80DD, 80EEB, 80GG, 80IB, 80IAC, and 80IAB.
• Minor child, helper allowances, and allowances for children's education.

Taxpayers must note that there is an opportunity for them to choose between the old and new tax regimes to pay their taxes according to their convenience. So, if they choose to pay their taxes under the new tax regime, it is essential to go through the list of new regime deductions and exemptions. This will help them understand under which circumstances they can claim such exemptions and deductions and reduce their tax liability accordingly.