Deductions and Exemptions Allowed Under New Tax Regime (FY 2025–26)

The New Tax Regime allows for a simplified tax structure with fewer exemptions and deductions, but certain important benefits are still available. Here's the full list:

5/27/20251 min read

1. Standard Deduction for Salaried Persons and Pensioners

A flat deduction of ₹75,000 is allowed from salary or pension income, providing relief to salaried individuals and pensioners.

2. Employer’s Contribution to NPS under Section 80CCD(2)

A deduction is allowed for the employer's contribution to the National Pension System (NPS) up to 14% of salary (basic + dearness allowance), for both government and private sector employees.

3. Transport Allowance for Disabled Employees

Employees with disabilities can claim a transport allowance exemption of ₹3,200 per month under the new regime.

4. Conveyance, Travel, Transfer, or Daily Allowances for Official Work – Fully Exempt

Any reimbursement or allowance provided to meet actual expenses for official duties like travel or transfers is fully exempt if actually incurred.

5. Perquisites Used for Official Purposes (e.g., Phones, Laptops) – Fully Exempt

Perquisites such as phones, laptops, or other equipment provided for official use are fully exempt from tax.

6. Voluntary Retirement Compensation – Up to ₹5,00,000

Compensation received on voluntary retirement is exempt up to ₹5,00,000 under the New Tax Regime, subject to prescribed conditions.

7. Gratuity (Non-Government Employees) – Up to ₹20,00,000

Gratuity received by a non-government employee is tax-exempt up to ₹20,00,000 upon retirement or resignation, as per existing rules.

8. Leave Encashment at Retirement (Non-Government Employees) – Up to ₹25,00,000

Leave encashment received by a non-government employee at the time of retirement is exempt up to ₹25,00,000.

9. Gifts from Employer – Up to ₹5,000

Gifts or vouchers received from the employer are exempt up to ₹5,000 in value per financial year.

10. Interest on Home Loan for Let-Out Property – Up to the Taxable Rent

Interest on home loans taken for let-out (rented) property can be claimed as a deduction to the extent of rental income earned, thereby reducing the taxable rental income.