The new tax regime, introduced in Budget 2020 and further updated in Budget 2025, offers lower tax rates but removes many traditional deductions. However, several key exemptions and deductions are still available to salaried individuals. Understanding these can help optimize tax planning and reduce taxable income.
Budget 2025 Update
Starting from 1st April 2025, a salaried individual earning up to ₹. 12,00,000 will be exempted from paying income tax under the new tax regime. While the new tax regime offers lower tax rates, several deductions and exemptions are still available to salaried individuals.
Eligibility
The new tax regime applies to all individuals, including men, women, senior citizens, and super senior citizens. It is the default tax regime, meaning taxpayers must specifically opt for the old regime if they wish to claim other deductions.
List of Deductions Are Allowed to Salaried Individuals in New Tax Regime
Although many traditional deductions are removed under the new tax regime, some key exemptions and deductions can still help reduce taxable income. Here are the deductions available:
#1 – Standard Deduction
₹. 75,000/- for salaried individuals and pensioners (as per Budget 2025).
Family pensioners: ₹. 15,000 or 1/3rd of pension income, whichever is lower.
#2 – Interest Income Exemption
Interest received on Post Office savings accounts under Section 10(15)(i), up to ₹. 3,500.
#3 – Gratuity
Private-sector employees can claim tax exemption on gratuity up to ₹. 20,00,000 under Section 10(10).
#4 – Adhoc Deduction on Rent
A flat 30% deduction on rent paid (if applicable).
#5 – Home Loan Interest
Interest on home loans can be deducted if the property is rented out.
#6 – Employer Contribution to NPS
Employer contributions to NPS under Section 80CCD(2) are allowed up to 14% of Basic Salary + Dearness Allowance (DA) for central government employees and 10% for others.
#7 – Transport Allowance
Specially-abled individuals can claim a transport allowance exemption.
#8 – Deposits in Agniveer Corpus Fund
Contributions under Section 80CCH(2) are eligible for deduction.
#9 – Travel Expenses
Deduction under Section 80JJAA for travel expenses incurred for work.
#10 – Depreciation Deduction
Depreciation under Section 32 is allowed, except for additional depreciation.
#11 – Allowance for Travel for Employment
Exemption available for travel-related employment expenses.
#12 – Life Insurance Maturity Amount
Income from life insurance policies under Section 10(10D) is tax-free.
#13 – Leave Encashment
Leave encashment received at retirement or as a retirement cum death benefit is exempt under Section 10(10AA).
#14 – Capital Gains Exemptions
Exemptions under Section 54 for long-term capital gains on the sale of house property.
Exemptions under Section 54F for long-term capital gains on the sale of any asset other than a house property.
#15 – PPF and Sukanya Samriddhi Account
Interest and maturity amounts from Public Provident Fund (PPF) and Sukanya Samriddhi Account remain tax-free.
Exemptions and Deductions Removed in the New Tax Regime
While the new tax regime provides lower tax rates, many traditional deductions were removed when it was first introduced in Budget 2020, and they continue to be unavailable under Budget 2025. These include:
- Leave Travel Allowance (LTA).
- House Rent Allowance (HRA) under Section 10(13A).
- Section 80C deductions (such as EPF, ELSS, PPF, LIC premium, tuition fees, etc.).
- Section 80D deduction for medical insurance premiums.
- Interest deduction on home loans for self-occupied properties.
- Professional tax exemption under Section 16(iii).
- Food and meal coupons under Section 17(2)(viii).
- Deductions under Section 80CCD(1B) (additional ₹. 50,000 NPS contribution).
Final Thoughts
Although the new tax regime eliminates many traditional deductions, it still provides significant relief through the standard deduction, NPS employer contributions, home loan interest (for rented properties), and other exemptions. By understanding the deductions available, salaried individuals can optimize their tax planning and reduce their overall tax liability under the new tax regime.
If you are not sure about which tax regime to choose, evaluate your tax liability under both regimes before making a decision. You can check this article on how to check tax savings in 2 minutes article too. A well-planned approach can help you maximize savings while ensuring compliance with tax laws.
Let us know your thoughts on the new tax regime and how it impacts your tax planning in the comments below!
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Thanks for summing up Suresh.. What is the difference between point 9 and 11 related to Travel?
Hello Prasanna
There is a difference between these two deductions in the new tax regime:
#9 – Travel Expenses (Deduction under Section 80JJAA)
Not related to individual taxpayers.
Section 80JJAA is for businesses that provide employment, not for travel expenses of individuals.
This section allows deductions for businesses that employ new workers and meet certain conditions.
#10 – Allowance for Travel for Employment
This refers to a specific exemption for employees.
Employees may receive a travel-related allowance from their employer for employment-related travel.
Not a deduction but an exemption under salary components.
Thank you Suresh sir for the detailed information.
Just FYI – I’ve been following your blog since COVID times and made some of my financial decisions based on your insights. They had been very helpful and I’ve recommended your blog to so may friends of mine. Thank you so much
Thank you Venky. Let me know if you want me to cover any specific topic which is not covered yet in our blog.