Income Tax Deductions & Exemptions Under Old and New Tax Regime

The new tax regime is now made even more effective under the Union Budget 2025. It means ₹12 lakh is now effectively tax-free, the rebate was increased to ₹60,000, and new slabs were introduced. However, the old regime is still beneficial for taxpayers as it offers significant deductions. In this blog, we will cover every income tax deduction and exemption available under both regimes for FY 2025-26.

Deductions Available Under Both Regimes

Regardless of which regime you choose, the table below lists the deductions and exclusions permitted under both regimes:

These are the deductions permitted under both old and new regimes. Let's now see the deductions that you can get only under the old regime.

Deductions Available Only in the Old Regime

The old regime is ideal for you if your combined total of the deductions saves you more money than the lower tax rates in the new regime. Here is a list of the deductions available only under the old regime and eliminated from the new regime:

Section 80C

It offers a deduction of up to ₹1,50,000 per year. It covers LIC premiums, ELSS, PPF, NSC, 5-year FDI, tuition fees, home loan principal, SCSS, and Sukanya Samriddhi. It is the most popular deduction and the foundation of middle-class tax planning.

Section 80D

It offers a deduction of up to ₹25,000 - ₹1,00,000. It covers health insurance premiums for self (₹25K), parents (₹25K additional and ₹50K if senior citizens). It also includes a preventive health check-up sub-limit of ₹5,000. A total deduction of up to ₹1 lakh for self and senior parent is covered.

Section 80CCD (1B)

The voluntary NPS contributions over the ₹1.5 lakh 80C limit can attract an additional deduction of ₹50,000. This additional deduction of ₹50,000 is a separate and exclusive NPS deduction in the old regime.

HRA - Section 10(13A)

House rent allowance exemption is offered on the lowest of:

(a) actual HRA recieved

(b) 50%/40% of basic + DA (metro/non-metro)

(c) rent paid minus 10% of basic + DA

It is one of the largest deductions for salaried employees in rental accommodation.

Section 24(b) - Home loan interest (self-occupied)

In the old regime, you can deduct up to ₹2 lakh against taxable income. In the new regime, this deduction is not available for self-occupied property.

Section 80G

Deductions for donations made to eligible trusts, political parties, PM relief fund etc is available only in the old regime. The deduction may vary based on the institution, but it is usually 50% or 100%. Cash donations exceeding ₹2,000 are not allowed.

Section 80TTA/80TTB

Under section 80TTA, a deduction of ₹10,000 is available on savings account interest (for non-seniors). Under section 80TTB, a deduction of ₹50,000 is available on all interest income for senior citizens aged above 60.

Section 80E

100% of the interest paid on the education loan for self, spouse, children, or a student for whom you are the legal guardian can be deducted for 8 years.

Section 80EEA

An additional deduction of up to ₹1.5 lakh on a home loan interest can be claimed by first-time homebuyers. It is available for loans sanctioned between 1st of April, 2019, and 31st of March, 2022, provided the property stamp value is ≤ ₹45 lakh with no existing property.

Section 80U/80DD

Under Section 80U, a deduction is provided for a taxpayer with a disability. While under section 80DD, a deduction is provided for maintaining a disabled dependent. A fixed deduction of ₹75,000 is available for disability instead of an actual expense-based deduction. For severe disability, a deduction of ₹1.25 lakh is available.

LTA - Section 10(5)

Leave travel allowance allows for tax-exempt reimbursements for domestic vacation travel. It covers actual transit costs (air, rail, or public road transport) for up to two journeys within a designated 4-year block.

Children Education & Hostel - Section 10(14)

Children's education allowance is permitted at ₹100/month per child for schooling and ₹300/month per child for hostel costs, limited to two children.

These are the deductions that you can claim only if you opt for the old regime. Moving further, let's see the Section 87A rebate.

Section 87A Rebate: the Zero-Tax Benefit

Under Section 87A, a tax rebate is available that brings the final tax liability to zero for taxpayers below a specified income threshold. It directly reduces the calculated tax and not the taxable income. Moreover, this does not apply to NRIs. Consider the table below to know the zero-tax benefit under the Section 87A rebate:

*Note: Remember that Section 87A doesn't apply to capital gains taxed at special rates. If your total income is ₹11 lakh but includes ₹5 lakh of STCG on equity (taxed at 20% separately). Then, the rebate is applicable only to your non-capital gain income. You must pay 20% on the STCG and cannot claim the 87A rebate to avoid that portion. Let's now look at the exemptions available in both regimes.

Income Exemptions Available in Both Regimes

Regardless of which regime you choose, some types of income may remain exempt from tax. These are those income categories that are never considered during the tax calculation:

These are some exemptions available under both old and new regimes.

The Bottom Line

The better choice between the old and new regimes for FY 2025-26 comes down to your income structure. The new regime is ideal for those with fewer deductions. It offers a generous zero-tax threshold of ₹12.75 lakh. The old regime remains beneficial for taxpayers who can maximize 80C, HRA, home loan interest, and health insurance deductions. To make the smartest choice, you must calculate your liability under both regimes before the start of the financial year. Also, you can switch it whenever it makes sense.

Moreover, as an NRI, if you need assistance with ITR filing, Savetaxs is the smartest choice. We have been helping NRIs from more than 90 countries in filing their ITR. Savetaxs team will ensure you stay compliant with Indian tax laws. We will also ensure you file the ITR accurately and on time, claim eligible tax exemptions, and do everything with compliance. Connect with us right away as we serve our clients 24/7 across all time zones.