Understand the Deductions Available and Those No Longer Allowed Under the New Income Tax Regime

As taxpayers prepare to file their Income Tax Returns (ITR) for Assessment Year 2026–27, understanding the provisions of the New Tax Regime has become increasingly important. While the new system offers lower income tax rates, it also eliminates many of the exemptions and deductions that were available under the Old Tax Regime.

Choosing the appropriate tax regime without understanding these differences could affect your overall tax liability. Before submitting your return, it is advisable to compare both tax regimes based on your income profile and eligible deductions.

Why Understanding the New Tax Regime Matters

The New Tax Regime was introduced to simplify the tax structure by offering concessional tax rates in exchange for giving up most traditional deductions and exemptions.

Many taxpayers mistakenly assume that popular deductions available under the Old Tax Regime can still be claimed while opting for the new regime. However, this is not the case.

Understanding which deductions remain available—and which do not—can help taxpayers avoid incorrect tax planning and filing errors.

Deductions and Exemptions Not Available Under the New Tax Regime

Taxpayers opting for the New Tax Regime generally cannot claim several commonly used deductions and exemptions, including:

Salary-Related Exemptions

• Leave Travel Concession (LTC)
• House Rent Allowance (HRA)
• Most special allowances provided under salary
• Entertainment Allowance
• Professional Tax deduction

Property and Housing Benefits

• Interest deduction on self-occupied residential property under Section 24(b)

Investment-Linked Deductions

Most deductions available under Chapter VI-A are not permitted, including:

• Section 80C (PPF, ELSS, LIC, NSC, etc.)
• Section 80D (Health Insurance Premium)
• Section 80E (Education Loan Interest)
• Section 80G (Eligible Donations)
• Several other commonly claimed deductions

Business and Other Deductions

The following benefits are generally unavailable:

• Additional depreciation on eligible assets.
• Deductions relating to investment in notified backward areas.
• Certain deductions for tea, coffee, rubber, petroleum, and natural gas businesses.
• Scientific research-related deductions.
• Capital expenditure deductions for specified businesses.
• Agriculture extension project deductions.
• Certain deductions available to Special Economic Zone (SEZ) units.

Other exemptions relating to specified allowances and certain categories of income are also not available under the New Tax Regime.

Deductions Still Available Under the New Tax Regime

Although many exemptions have been withdrawn, taxpayers can still claim several important benefits.

Standard Deduction for Salaried Employees

Salaried individuals are eligible for a Standard Deduction of ₹75,000 under the New Tax Regime.

Standard Deduction on Family Pension

Recipients of family pension may claim a deduction equal to:

• ₹25,000, or
• One-third of the pension received,

whichever is lower.

Home Loan Interest on Let-Out Property

Interest paid on a home loan for a property that has been rented out may continue to be considered under the applicable provisions.

Employer Contribution to NPS

Employer contributions to the National Pension System (NPS) remain eligible for deduction, subject to prescribed limits, which may extend up to 14% of salary under the applicable provisions.

Agniveer Corpus Fund

Eligible contributions made to the Agniveer Corpus Fund continue to qualify for deduction under the relevant section of the Income Tax Act.

Other Exemptions That Continue

The following benefits remain available where applicable:

• Leave Encashment
• Gratuity
• Transport allowance for eligible persons with disabilities
• Voluntary Retirement Scheme (VRS) benefits
• Certain tax-free gifts up to the prescribed limit
• Eligible meal vouchers within notified limits

Which Tax Regime Should You Choose?

The decision between the Old and New Tax Regime depends entirely on your financial profile.

The Old Tax Regime May Be Suitable If You:

• Claim significant HRA benefits.
• Pay substantial home loan interest.
• Invest regularly under Section 80C.
• Claim deductions for health insurance under Section 80D.
• Make other tax-saving investments.

The New Tax Regime May Be Suitable If You:

• Have limited tax-saving investments.
• Prefer lower tax rates.
• Want a simplified tax structure with fewer compliance requirements.
• Do not claim multiple exemptions and deductions.

Compare Before Filing Your Return

Tax professionals generally recommend calculating your tax liability under both tax regimes before filing your Income Tax Return.

The option that results in lower overall tax liability will depend on:

• Annual income.
• Salary structure.
• Investment pattern.
• Home loan obligations.
• Eligible deductions and exemptions.

Using an income tax calculator or consulting a qualified tax advisor can help ensure that the most beneficial option is selected before filing the return.

Final Takeaway

The New Tax Regime offers lower tax rates but significantly limits the deductions and exemptions available to taxpayers. Before choosing a tax regime for ITR filing, carefully evaluate your financial situation and compare the tax impact under both systems.

Making an informed choice can help optimize tax savings while ensuring accurate and hassle-free Income Tax Return filing.