Income Tax Deductions: The new tax regime, introduced in 2020 and made the default system in 2023, has often been perceived as offering fewer exemptions. However, contrary to this belief, several deductions and exemptions are still available under this system. Taxpayers, including salaried individuals and pensioners, can benefit from these deductions and reduce their tax liability.
Tax Deduction Highlights in Budget 2025
In the 2025 Budget, Finance Minister Nirmala Sitharaman announced tax exemption on income up to Rs 12 lakh annually. Additionally, new tax slabs were introduced, while no modifications were made to the old tax regime. The new tax system eliminates many exemptions and deductions available in the old system but still provides multiple benefits.
Here are seven types of deductions available under the new tax regime:
Standard Deduction
Salaried employees and pensioners can claim a standard deduction of Rs 75,000.
Retirement Benefits
Gratuity received on retirement and payments for unutilized leave are exempt from tax under both the new and old tax regimes.
National Pension System (NPS) Exemption
Employer contributions up to 14% in NPS are entirely tax-exempt under Section 80CCD. Similarly, contributions to Provident Fund (PF) are also tax-free.
Agneepath Scheme Exemption
Contributions to the corpus fund under the Agneepath scheme qualify for tax exemption under Section 80CCH.
Family Pension Deduction
Family pension recipients can claim a deduction of up to Rs 25,000 under the new tax regime.
Exemptions on Allowances
Various allowances from employers are exempt, including:
- Leave Travel Allowance (LTA) under Section 10(5)
- House Rent Allowance (HRA) under Section 10(13A)
- Special allowances under Sections 10(14) and 10(17)
- Entertainment allowance under Section 16(2)
Tax Exemption on Gifts
Gifts up to Rs 50,000 received from any source in a year are tax-free, even under the new tax regime.
Maximizing Tax Savings
With these available deductions, taxpayers should assess their tax planning strategies to maximize savings. By leveraging these exemptions, individuals can effectively reduce their tax burden and benefit from the new tax system.
