Complete List of Deductions and Exemptions Allowed Under New Tax Regime

What deductions can I claim under the new tax regime for AY 2026-27? Under Section 115BAC, you can claim the Rs 75,000 standard deduction, employer's NPS contribution under Section 80CCD(2), family pension deduction under Section 57(iia), gratuity and leave encashment exemptions, transport allowance for disabled persons, and housing loan interest on let-out property under Section 24. Deductions under 80C, 80D, HRA, and LTA are not available.

The new tax regime is the default for AY 2026-27. Most taxpayers know it offers lower slab rates but restricts deductions. What many miss is that several deductions and exemptions remain fully available under the new regime. Failing to claim these means paying more tax than required even within the new regime.

This post lists every deduction and exemption that Section 115BAC allows, every major one it blocks, and the practical impact on your tax computation.

Deductions Allowed Under New Tax Regime: Complete List

1. Standard Deduction: Rs 75,000 (Salaried and Pensioners)

Section: 16(ia) of the Income Tax Act, 1961

Every salaried employee and pensioner can deduct Rs 75,000 from gross salary or pension income under the new tax regime. No bills, receipts, or proof of expenditure is required.

• Salaried employees earning up to Rs 12,75,000 pay zero tax under the new regime (Rs 12 lakh Section 87A rebate limit + Rs 75,000 standard deduction).
• For pensioners receiving pension from a former employer, the same Rs 75,000 deduction applies.
• Under the old regime, the standard deduction is Rs 50,000. The new regime gives Rs 25,000 more.
• Worked examples at every salary level are in our standard deduction Rs 75,000 new tax regime guide.

2. Employer's NPS Contribution: Section 80CCD(2)

Deduction limit: Up to 14% of salary (Basic + DA)

This is the largest Chapter VI-A deduction available under the new regime. If your employer contributes to the National Pension System on your behalf, the entire contribution up to 14% of your basic salary plus dearness allowance is deductible.

• For a basic salary of Rs 50,000 per month (Rs 6 lakh per year), the maximum deduction is Rs 84,000.
• Both government and private sector employees are eligible.
• The employee's own NPS contribution under Section 80CCD(1) or 80CCD(1B) is NOT allowed under the new regime. Only the employer's contribution qualifies.

3. Family Pension Deduction: Section 57(iia)

Deduction limit: Lower of Rs 25,000 or one-third of the pension received

Family pension received by a legal heir or family member of a deceased employee is taxable under "Income from Other Sources." The deduction under Section 57(iia) reduces the taxable portion.

• The limit was increased from Rs 15,000 to Rs 25,000 by the Finance (No. 2) Act, 2024, effective AY 2025-26 onwards.
• This deduction is available under both old and new tax regimes.

4. Gratuity Exemption: Section 10(10)

Gratuity received at the time of retirement, resignation, or death is exempt up to specified limits:

This exemption is fully available under the new tax regime.

5. Leave Encashment Exemption: Section 10(10AA)

Leave encashment received at the time of retirement or superannuation is exempt:

The Rs 25 lakh limit was notified by the Central Government effective from April 1, 2023. This exemption applies under both regimes.

6. Voluntary Retirement Exemption: Section 10(10C)

Compensation received on voluntary retirement or voluntary separation is exempt up to Rs 5,00,000, provided the scheme meets the conditions specified in Rule 2BA.

Available under both old and new tax regimes.

7. Interest on Housing Loan for Let-Out Property: Section 24

If you own a property that is rented out (let-out), the interest paid on a housing loan for that property is deductible from rental income under Section 24(b) without any monetary limit under the new regime.

What is blocked: Interest on housing loan for self-occupied or vacant property. Under the old regime, you can claim up to Rs 2,00,000 per year for self-occupied property. Under the new regime, this deduction is not available.

Net effect: If you have a let-out property with rental income, the new regime still allows full interest deduction. If your only property is self-occupied, you lose the Rs 2 lakh deduction by staying in the new regime.

8. Agniveer Corpus Fund: Section 80CCH

The contribution made by the Central Government to an Agniveer's account in the Agniveer Corpus Fund is deductible under Section 80CCH(2). The Agniveer's own contribution is exempt under Section 10(12C).

9. Additional Employee Cost: Section 80JJAA

Employers who hire new employees can claim a deduction of 30% of additional employee cost for three consecutive years, provided the new employee's total salary does not exceed Rs 25,000 per month and the employee has been employed for at least 240 days (or 150 days for apparel/footwear/leather manufacturing).

This is a business deduction, not a personal deduction, but it is one of the few Chapter VI-A deductions available under Section 115BAC.

10. Transport Allowance for Disabled Persons

Transport allowance granted to an employee who is blind, deaf, dumb, or orthopedically handicapped for commuting between residence and workplace is exempt under Section 10(14) read with Rule 2BB.

11. Conveyance Allowance and Travel Compensation

• Conveyance allowance for expenses incurred on travel during official duties (not regular commute)
• Transfer or tour allowance received for official travel
• Daily allowance for ordinary expenses when away from the normal place of duty

These are exempt under Section 10(14) read with Rule 2BB and remain available under the new regime.

12. Retrenchment Compensation: Section 10(10B)

Compensation received on retrenchment under the Industrial Disputes Act is exempt up to the limit prescribed under Section 25F of the Industrial Disputes Act or Rs 5,00,000, whichever is less.

13. Commutation of Pension: Section 10(10A)

Lump sum received on commutation of pension is exempt:

• Government employees: full commuted value
• Non-government employees receiving gratuity: one-third of the pension commuted
• Non-government employees not receiving gratuity: one-half of the pension commuted

Deductions NOT Allowed Under New Tax Regime

These are the major deductions you give up by staying in the new regime:

Chapter VI-A Deductions (Blocked)

Salary Exemptions (Blocked)

Housing and Property (Blocked)

Business Deductions (Blocked)

Practical Decision Framework

Use this quick test to decide if the new regime works for you:

Stay with the new regime if:

• You are salaried, your income is below Rs 12.75 lakh, and you want zero tax with no paperwork
• Your total Chapter VI-A deductions (80C + 80D + 80CCD(1B) + 80G + others) plus HRA exemption are below Rs 3.75 lakh
• You do not pay rent (or your HRA exemption is minimal)
• You do not have a home loan on a self-occupied property
• Your employer contributes to NPS (you still get the 80CCD(2) benefit in the new regime)

Switch to the old regime if:

• Your total deductions and exemptions exceed Rs 3.75 lakh
• You claim HRA on rent above Rs 15,000/month in a metro city
• You have a home loan with interest exceeding Rs 2 lakh per year
• You max out 80C (Rs 1.5 lakh) + 80D (Rs 25,000-75,000) + NPS 80CCD(1B) (Rs 50,000)

For a detailed regime comparison with worked examples, see our Old vs New Tax Regime comparison guide.

Information in this article is based on Section 115BAC of the Income Tax Act, 1961, the Finance (No. 2) Act, 2024, the Income Tax Department's FAQs on New Tax vs Old Tax Regime at incometax.gov.in, and the salaried individuals' guide for AY 2026-27 on the e-filing portal. Specific exemption limits for gratuity (Section 10(10)) and leave encashment (Section 10(10AA)) are based on Central Government notifications. Taxpayers are advised to verify current exemption limits on the income tax portal before filing.

Frequently Asked Questions

Can I set off a loss on my let-out property against salary under the new regime?

No. Under the new regime, interest on a loan for a let-out property is deductible against that property's rental income, but any resulting loss from house property cannot be set off against salary or other heads, and it cannot be carried forward. Under the old regime, up to Rs 2 lakh of house property loss can be set off against other income and the rest carried forward for 8 years.

Is the employee's own NPS contribution deductible under the new tax regime?

No. Deductions under Section 80CCD(1) and the additional Rs 50,000 under Section 80CCD(1B) for your own NPS contribution are available only under the old regime. Under the new regime, only the employer's contribution under Section 80CCD(2) is deductible, up to 14% of basic salary plus dearness allowance. Contributions to the Agniveer Corpus Fund under Section 80CCH are also allowed.

Do pensioners get the Rs 75,000 standard deduction under the new regime?

Yes. Pension received from a former employer is taxed as salary, so the Rs 75,000 standard deduction under Section 16(ia) applies under the new regime for AY 2026-27, against Rs 50,000 under the old regime. Family pension received by a legal heir is different: it is taxed as income from other sources with a deduction of one-third or Rs 25,000, whichever is lower.

Is the Section 87A rebate of Rs 60,000 available on all income under the new regime?

No. The rebate of up to Rs 60,000 for resident individuals with total income up to Rs 12 lakh applies to tax on normal income only. It cannot be used against tax on special-rate income such as short-term gains under Section 111A, long-term gains under Section 112A, or crypto gains under Section 115BBH. Marginal relief applies to income slightly above Rs 12 lakh.

Can a salaried person switch between old and new regimes every year?

Yes. A salaried individual without business or professional income can choose either regime each year when filing the ITR by the due date, 31 July 2026 for AY 2026-27. The choice told to your employer for TDS does not bind you. Those with business income must use Form 10-IEA to opt out of the new regime and can return to the old regime only once after switching back.