Many taxpayers today are opting for the New Tax Regime since it offers no income tax on salary income up to Rs 12.75 lakh, but they often think it offers no deductions at all. This can lead to many taxpayers missing out on important tax deductions that are still available under the new regime.
Understanding the New Tax Regime
Even though popular deductions like Section 80C, HRA, LTA and Section 80D are largely not allowed, the New Tax Regime still allow a few key deductions that can help reduce taxable income and lower overall tax liability while filing ITR for FY 2025-26 (AY 2026-27).
Hidden Deduction 1: Standard Deduction
The standard deduction of Rs 50,000 is available under the new regime for salaried individuals and pensioners. This deduction reduces your gross salary before calculating tax, providing a straightforward benefit without any additional documentation.
Hidden Deduction 2: Employer's Contribution to NPS
Under Section 80CCD(2), an employer's contribution to the National Pension System (NPS) up to 14% of salary (for central government employees) or 10% for others is deductible. This is allowed in the new regime, unlike the employee's own contribution which is not deductible.
Hidden Deduction 3: Family Pension Deduction
If you receive a family pension, a deduction of up to Rs 15,000 or one-third of the pension amount, whichever is lower, is available under Section 57(iia). This deduction remains applicable under the new tax regime.
Taxpayers should carefully review their income sources and consult a tax professional to ensure they claim all eligible deductions. Missing these benefits could result in paying more tax than necessary. The new regime may be simpler, but it still offers opportunities to save tax through these hidden deductions.
