Key Takeaways
- The new tax regime under Section 115BAC allows fewer deductions than the old regime, but the ones it does allow are significant and often overlooked.
- Standard deduction of Rs 75,000 (salaried) and family pension deduction of Rs 25,000 are available without any proof or investment.
- Employer's NPS contribution under Section 80CCD(2) up to 14% of salary is the single largest Chapter VI-A deduction available in the new regime.
- Exemptions on gratuity (Section 10(10)), leave encashment (Section 10(10AA)), and voluntary retirement (Section 10(10C)) are fully available.
- Interest on housing loan for let-out (rented) property under Section 24 is allowed without limit. Only self-occupied property interest is blocked.
- Deductions under Section 80C, 80D, 80E, 80TTA, HRA, and LTA are not available in the new 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.
Looking for expert help with deductions allowed new tax regime Section 115BAC AY 2026-27? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant end-to-end: filings, notices, and advisory, all in one place.
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.
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:
| Employee Type | Exemption Limit |
|---|---|
| Government employees | Full gratuity is exempt |
| Non-government employees covered under Payment of Gratuity Act | Rs 25,00,000 (twenty-five lakh) |
| Non-government employees not covered under the Act | Calculated as per formula: least of actual gratuity, Rs 25 lakh, or 15 days' salary for each completed year of service |
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:
| Employee Type | Exemption Limit |
|---|---|
| Government employees | Full amount exempt |
| Non-government employees | Exempt up to Rs 25,00,000 (calculated as per prescribed formula) |
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)
| Section | Deduction | Limit (Old Regime) |
|---|---|---|
| 80C | PPF, ELSS, LIC, EPF, NSC, SCSS, tuition fees, home loan principal | Rs 1,50,000 |
| 80CCD(1B) | Employee's additional NPS contribution | Rs 50,000 |
| 80D | Health insurance premium | Rs 25,000 (self) + Rs 50,000 (senior parents) |
| 80E | Education loan interest | Full interest, up to 8 years |
| 80EE/80EEA | Additional home loan interest for first-time buyers | Rs 50,000 |
| 80G | Donations to charitable institutions | 50% or 100% of donation |
| 80GG | Rent paid (when HRA not received) | Rs 5,000/month or 25% of income |
| 80TTA | Savings account interest | Rs 10,000 |
| 80TTB | Interest income for senior citizens | Rs 50,000 |
| 80U | Deduction for disabled individuals | Rs 75,000 or Rs 1,25,000 |
Salary Exemptions (Blocked)
| Exemption | Section |
|---|---|
| House Rent Allowance (HRA) | Section 10(13A) |
| Leave Travel Allowance (LTA) | Section 10(5) |
| Professional tax deduction | Section 16(iii) |
| Entertainment allowance (government employees) | Section 16(ii) |
| Children education allowance | Section 10(14) |
| Hostel expenditure allowance | Section 10(14) |
| Helper/servant allowance | Section 10(14) |
Housing and Property (Blocked)
| Deduction | Section |
|---|---|
| Home loan interest on self-occupied property | Section 24(b) up to Rs 2,00,000 |
| Set-off of house property loss against other income | Blocked up to Rs 2,00,000 |
Business Deductions (Blocked)
| Deduction | Section |
|---|---|
| Additional depreciation | Section 32(1)(iia) |
| Investment in new plant/machinery in notified backward areas | Section 32AD |
| Tea/coffee/rubber development | Section 33AB |
| Site restoration fund (petroleum/natural gas) | Section 33ABA |
| Certain scientific research expenditure | Section 35(1)(ii), 35(1)(iia), 35(1)(iii), 35(2AA) |
| Capital expenditure on specified business | Section 35AD |
| Agriculture extension project | Section 35CCC |
| SEZ unit deduction | Section 10AA |
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.
Frequently Asked Questions
Can I claim Section 80C deduction under the new tax regime?
No. Section 80C deductions for PPF, ELSS, LIC premiums, EPF contributions, NSC, tax-saving fixed deposits, tuition fees, and home loan principal repayment are not available under the new tax regime. These deductions are available only if you opt for the old tax regime.
Is employer NPS contribution deductible under the new regime?
Yes. Employer's contribution to NPS under Section 80CCD(2) is one of the few Chapter VI-A deductions allowed under the new regime. The limit is 14% of salary (Basic + Dearness Allowance) for both government and private sector employees. Only the employer's contribution qualifies; your own NPS contribution under Section 80CCD(1) or 80CCD(1B) is not deductible under the new regime.
Is health insurance premium (Section 80D) allowed under the new regime?
No. Section 80D deductions for health insurance premiums paid for self, spouse, children, or parents are not available under the new tax regime. If health insurance premiums form a significant part of your deductions (Rs 25,000 to Rs 75,000 annually), factor this into your regime comparison.
Can I claim home loan interest under the new tax regime?
Partially. Interest on a housing loan for a let-out (rented) property is deductible under Section 24(b) without any limit under the new regime. However, interest on a housing loan for a self-occupied or vacant property (capped at Rs 2,00,000 under the old regime) is not allowed under the new regime. If your only property is self-occupied with a large home loan, the old regime may be better.
What is the standard deduction under the new regime for AY 2026-27?
The standard deduction is Rs 75,000 for salaried employees and pensioners under the new tax regime for AY 2026-27. This is Rs 25,000 more than the Rs 50,000 allowed under the old regime. No bills, receipts, or proof is required. It is automatically applied when computing taxable salary income.
Is the family pension deduction available under the new regime?
Yes. Family pension received by a legal heir is eligible for a deduction under Section 57(iia) of the lower of Rs 25,000 or one-third of the pension amount. This deduction was increased from Rs 15,000 to Rs 25,000 by the Finance (No. 2) Act, 2024, and is available under both old and new tax regimes.
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.
Work with the Trusted Tax & Compliance Services in Kondapur, Hyderabad - Tax Garden for expert GST filing, ITR, TDS, ROC, and startup compliance support.
Frequently Asked Questions: Tax Services in Kondapur & Hyderabad
What makes Tax Garden a preferred GST consultant in Kondapur?
Tax Garden is ISO 9001:2015 certified and backs every engagement with Kavach, our ₹50,000 error-protection cover. Our flat-fee, no-surprise pricing and dedicated account manager make us a compliance partner for startups and SMEs in Kondapur's HITEC City corridor.
Why is Tax Garden a trusted tax compliance partner in Hyderabad?
Trust comes from three pillars at Tax Garden. First, transparency: you know the exact fee before you sign up, and it never changes mid-year. Second, certified expertise: our compliance team is qualified, and the firm holds ISO 9001:2015 certification. Third, accountability: Kavach, our unique error-protection plan, covers up to ₹50,000 in service charges for any clerical mistake made by our team.
Is there a reliable tax consultant near me in Kondapur?
Yes. Tax Garden's office is in Kondapur itself (CWS One Building, Hanuman Nagar). You can book an in-person consultation or get everything done fully online via WhatsApp and our client portal. We serve walk-in clients by appointment and remote clients across all of Hyderabad and Telangana.
I want a friendly CA who explains things clearly. Is that Tax Garden?
Absolutely. Every client gets a dedicated account manager reachable on WhatsApp, plain-language explanations of what is filed and why, and proactive reminders before every deadline. No jargon, no surprises, just friendly, expert compliance support from Kondapur.
Where is Tax Garden located in Hyderabad?
Tax Garden is located at 4th Floor, South Block, CWS One Building, Hanuman Nagar, Kondapur, Hyderabad, Telangana 500084. We serve clients across Kondapur, HITEC City, Gachibowli, Madhapur, Jubilee Hills, Banjara Hills, and all of Hyderabad.
Can I get GST filing and registration services in Kondapur?
Yes. Tax Garden offers end-to-end GST services from our Kondapur office: GST registration, GSTR-1, GSTR-3B, GSTR-9 annual returns, ITC reconciliation, e-invoicing setup, and GST notice handling for businesses of all sizes in Kondapur and Hyderabad.
Do you file ITR for salaried employees and businesses in Hyderabad?
Yes. Our Kondapur team files ITR for salaried employees, freelancers, consultants, business owners, LLPs, and companies across Hyderabad. We cover ITR-1 through ITR-6 with complete Chapter VI-A deduction reconciliation, AIS reconciliation, and proactive deadline management.
Which areas in Hyderabad does Tax Garden serve?
Tax Garden's Kondapur office serves clients across Hyderabad including HITEC City, Gachibowli, Madhapur, Jubilee Hills, Banjara Hills, Begumpet, Secunderabad, Ameerpet, Kukatpally, Uppal, LB Nagar, and all of Telangana. Most services are available fully online.
What compliance services does Tax Garden offer for startups in Kondapur?
Tax Garden is a compliance partner for startups in Kondapur and Hyderabad's HITEC City corridor. We handle company incorporation, GST registration, TDS filings, payroll, ROC annual filings, director KYC, and annual ITR filing, all under one flat-fee plan.
How does Tax Garden's compliance model compare to traditional hourly accounting services in Hyderabad?
Unlike traditional accounting practices that charge hourly and are difficult to reach, Tax Garden operates on flat-fee subscription plans with a dedicated account manager, monthly compliance updates, and WhatsApp-first communication. Our AI-powered workflow catches errors before filings are submitted, and Kavach error-protection ensures you are never left alone if something goes wrong.