When it comes to filing income tax returns in India, choosing between the old and new tax regimes can significantly impact your savings. While the new regime offers lower tax rates with limited deductions, the old regime provides a wide range of exemptions and deductions to reduce your taxable income. Understanding the deductions available under both regimes is essential to make an informed decision that aligns with your financial goals. In this article, we break down the key deductions permitted in each regime to help you choose the most beneficial option.
STANDARD DEDUCTION (SALARIED INDIVIDUALS AND PENSIONERS)
Salaried individuals and pensioners can now avail of standard deduction not just under the old regime, but also the new one. The amounts, however, differ—the old regime offers a fixed Rs 50,000 deduction while the new regime offers a Rs 75,000 deduction (FY 2024-25 or AY 2025-26). This deduction is automatically applied when you file your tax under your chosen regime, helping you lower your tax liability.
EMPLOYER’S CONTRIBUTION TO EPF AND NPS
Section 80CCD(2) of the Income Tax Act deals with deductions for contributions made by your employer to your National Pension Scheme (NPS) account. This is a separate benefit in addition to the deductions you can claim for your own contributions to NPS under Section 80CCD(1).
Key Points about 80CCD(2):
Employer’s Contribution: This deduction is specifically for the amount your employer contributes to your NPS account.It’s a part of your compensation package but is directly deposited into your NPS account.
For Salaried Individuals: This deduction is only available to salaried employees. Self-employed individuals cannot claim deductions under 80CCD(2).
Limit: The maximum amount you can claim under this section is:
14% of your salary (basic + dearness allowance) for government employees or Private Employees.
How it Works:
Your Employer Contributes: Your employer makes regular contributions to your NPS account.
Tax Deduction: At the time of filing your income tax return, you can claim a deduction under Section 80CCD(2) for the amount contributed by your employer, up to the limits mentioned above.
Reduced Taxable Income: This deduction reduces your taxable income, which in turn lowers your income tax liability.
GRATUITY PAY OUT
Under the old tax regime, gratuity pay outs up to Rs 20 lakh are tax exempt. The limit was earlier fixed at Rs 10 lakh. On the other hand, this benefit was not available to eligible taxpayers under the new tax regime until a CBDT Circular was issued in May 2025, allowing gratuity up to Rs 5 lakh to be exempt even under Section 115BAC(1A)] of the new regime.
FAMILY PENSION DEDUCTION
Family pension is a regular payment made to the spouse or dependent of a deceased employee. Under the old tax regime, family pensioners are allowed a deduction of Rs 15,000. This deduction limit has been increased in Budget 2024 to Rs 25,000 but only applies under the new tax regime for FY 2024-25.
AGNIPATH SCHEME CONTRIBUTIONS (SECTION 80CCH)
The Agnipath scheme, launched in 2020, recruit’s youth for a four-year stint in the armed forces, where Agniveers and the government both contribute to a SevaNidhi corpus, payable at the end of service.
- 80CCH(1): Agniveer’s Own Contribution:
If an individual enrolled in the Agnipath Scheme contributes to the Agniveer Corpus Fund on or after November 1, 2022, they can deduct the entire amount they contributed from their total income in Old Tax regime but this is not allowed in New Tax Regime u/s 115BAC.
This means a 100% deduction of the Agniveer’s personal contribution in Old Tax regime.
- 80CCH(2): Central Government’s Contribution:
If the Central Government makes a contribution to the Agniveer’s account in the Agniveer Corpus Fund, the Agniveer can also deduct the entire amount of the government’s contribution from their total income in Old / New Tax Regime.
This means a 100% deduction of the government contribution Old / New Tax Regime.
POPULAR DEDUCTIONS EXCLUDED FROM THE NEW REGIME
In an effort to reduce the common man’s tax burden, the new tax regime features revised tax slabs. However, most exemptions and deductions, including popular ones, have not made it to the new regime in favour of simplicity. Here are some of those:
Section 80C – Investments in PPF, ELSS, NSC, life insurance premiums, repayment of home loan principal, tuition fees.
Section 80D – Health insurance premiums.
Section 80E – Interest paid on education loan.
Section 24(b) – Home loan interest paid for self-occupied property.
Section 80G – Donations.
Section 80TTA/80TTB – Deductions for savings account interest.
House Rent Allowance (HRA) and Leave Travel Allowance (LTA).
The new tax regime, while leaner, offers limited tax-saving avenues. If you depend on deductions under Sections 80C and 80D, the old regime may serve you better. On the other hand, if lowering your overall tax burden is the priority, the new regime could work in your favour. Deductions available under both regimes are an added advantage that can still help reduce your liability. Before filing, compare your tax outgo under each system to choose the one that best fits your situation.
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