The new tax regime in India (FY 2025-26) offers limited deductions, primarily focusing on Standard Deduction (₹75,000 for salaried/pensioners), Employer's NPS Contribution (Sec 80CCD(2)), and Agniveer Corpus Fund (Sec 80CCH), while foregoing most Chapter VI-A deductions like 80C, 80D, HRA, and Home Loan Interest to provide lower slab rates and a higher basic exemption. Taxpayers choosing the new regime must opt out of common old regime deductions to benefit from its simplified structure.
Standard Deduction of INR 75,000 for salaried individuals and pensioners (from FY 2024-25). Rebate under Section 87A (up to INR 25,000): Available for individuals with income up to INR 7 lakh, making income effectively tax-free up to this level.
Some of the most common federal tax deductions include:
Rebate is a tax reduction available to resident individuals when they earn income within 10% tax slab. Under the new regime, a rebate of Rs.60,000 is allowed for an income up to Rs. 12 lakhs. Under the old regime, a rebate of Rs. 12,500 is allowed for an income up to Rs. 5 lakhs.
How to Save Tax in India? 10 Smart and Legal Ways for FY 2025-26
The Old vs New Tax Regime debate centers on tax slabs and deductions. Income up to ₹12 lakh is tax-free under the new regime, due to rebate. Beyond ₹25 lakh, the old regime is better if deductions exceed ₹8 lakh. Between ₹12 - 25 lakh, the choice depends on your deduction level.
While Senior Citizens between 60 to 80 years enjoy a basic exemption limit of Rs. 3 lakhs, super senior citizens above 80 years of age enjoy Rs. 5 lakhs basic exemption limit. However, the New Tax Regime does not offer any such kind of higher basic exemption limit for Senior and Super Senior Citizens.
The new regime provides lower tax rates and a simpler structure but has fewer exemptions and limited tax planning opportunities. Individuals should carefully assess their income, deductions, and tax liabilities to determine which regime is more beneficial for them.
2) Act, 2024 increased the amount of standard deduction from the existing Rs. 50,000 to Rs. 75,000 in a case where the assessee-employee computes the income tax under the new (default) tax regime prescribed under Section 115BAC(1A)(ii). Accordingly, this will apply to assessment year 2025-26.
How to avoid paying higher-rate tax
There are a few new tax regime deduction options that help you save taxes in the new tax regime, so let's look at them.
Under the new tax regime introduced in 2020, most exemptions and deductions, including those under Section 80CCD, are not available unless specifically allowed. If a taxpayer opts for the new regime, deductions under Section 80CCD (1) and 80CCD(1B) cannot be claimed.
Yes, Standard deduction of Rs.50,000 or the amount of salary, whichever is lower, is available for both old and new tax regimes from AY 2024-25 onwards.
Five Most Overlooked Tax Deductions
Key takeaways
You may be able to reduce your taxable income by maximizing contributions to retirement plans and health savings accounts. Tax-loss harvesting, asset location, and charitable giving are other tax strategies to consider to potentially lower your tax bill.
According to a distributional analysis from the nonpartisan Joint Committee on Taxation—which previously estimated the tax bill provides more than $600 billion in new tax relief to middle-class households—the largest proportional tax benefits go to workers and families making less than $50,000.
The Old Regime had many problems due to its strict social class system. Members of the first and second estates did not have to pay taxes, so the burden of taxation was left entirely to the third estate. Poor crop seasons, hunger, and heavy taxation were the main issues of the Ancien Regime.
Firstly, under the new tax regime, the tax liability is up to an income of Rs 7.5 lakh, thanks to the enhanced rebate and the Rs 50,000 standard deductions. This is a significant advantage over the old tax regime. Secondly, the taxpayer can choose the regime for paying taxes.