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New tax regime 2025-26 explained: Deductions, changes, and what taxpayers should know

Here's everything you need to know about which deductions are claimable under the new tax regime 2025-26 and the benefits

By Forbes India

Published: Jun 16, 2025 02:59:00 PM IST

Updated: Jun 16, 2025 03:06:32 PM IST

Every year, the Union Budget of India brings fresh updates, and the 2025 Budget was no different. With the government continuing to back the new tax regime as the default option, many of us were left weighing its benefits against the older, more deduction-heavy system. While some preferred the simplicity of the new regime, others still relied on exemptions to lower their taxable income. Naturally, you would want clarity on what deductions (if any) are allowed under the new setup, especially after recent changes.

In this article, we’ll simplify all of that for you. We've got you covered if you track these updates to plan better, save more, or simply avoid last-minute surprises. We’ll discuss what the new tax regime is under the Union Budget 2025-26, what deductions are still available, and how you can make smarter choices for your income.

What is Section 115BAC?

Section 115BAC is the part of the Income Tax Act that introduced the new tax regime—a structure with lower tax rates but fewer deductions and exemptions. The idea is simple—offer a cleaner, easier tax option for those who don’t want to deal with claiming multiple deductions. Initially introduced in Budget 2020, this section has seen significant updates over the years, most recently in the Union Budget 2025-26.

Starting FY 2023-24, the new regime became the default, meaning your taxes will be calculated under this unless you specifically opt for the old one by filing Form 10-IEA before your income tax return due date. You’re automatically taxed under the new regime if you miss the deadline.

So, in short, Section 115BAC defines how you’re taxed if you choose the simplified route, but it comes with a trade-off - lower rates in exchange for fewer tax-saving options.

Allowed deductions in the new tax regime

Section 115BAC may be simpler, but it’s not entirely without deductions. In the Union Budget 2025, you can still claim deductions in the new tax regime, but for limited options:

If your employer contributes to your National Pension System (NPS) account, you can claim a deduction under Section 80CCD(2). You can claim up to 14 percent of your salary if you’re a central government employee - the older regime had a limit of 10 percent.
Businesses hiring new employees can claim deductions under Section 80JJA for the extra employee cost. This provision is meant to encourage job creation and reduce the tax load on businesses expanding their teams.
If you're contributing to the Agniveer Corpus Fund, you can claim a deduction under Section 80CCH(2) for the amount paid.
Standard deductions: Under Section 57 (iia), if you receive a family pension, you can reduce your taxable amount by up to ₹25,000 (raised from ₹15,000). Under the new tax regime, the standard deduction amount for salaried individuals is raised from ₹50,000 to ₹75,000.
If you're a salaried person with a disability, a monthly transport allowance is tax-free.
If you own a house that’s rented out, you can still claim the interest on its home loan under Section 24.
In a year, gifts up to ₹50,000 remain exempt from tax—unless they’re from your employer, which may have different rules.
Exemptions are available on voluntary retirement under Section 10(10C), gratuity under Section 10(10), and leave encashment under Section 10(10AA).

Which deductions are not claimable under 115BAC?

Section 115BAC excludes many popular deductions in the new tax regime:

Interest earned on savings accounts (Section 80TTA) or fixed deposits by senior citizens (Section 80TTB) is not eligible for tax relief.
Section 80C, 80D, 80E and related deductions are excluded. You can't claim deductions for life insurance premiums, ELSS, PPF, medical insurance, or education loan interest in the new tax regime.
Under Section 115BAC, entertainment expenses, leave travel allowance (LTA), and professional taxes, which were deductible from salary in the old regime, are not allowed.
Under the new tax regime, the house rent allowance (HRA) exemption can’t be claimed as taxable income if you're paying rent.
The tax relief given for a child's education under the old rules is no longer applicable, and other special allowances under Section 10(14) are also no longer allowed.
Donations under Section 80G and 80GGC don’t fetch any tax benefit. These are contributions made to any political parties, trusts, or relief funds.
Under the new tax regime, depreciation and capital expenses deductions for businesses under Section 32(1)(iia) and others like Section 32AD, 33AB, and 33ABA are not applicable.

What are the benefits of the new tax regime?

The new tax regime under Section 115BAC comes with simplified rules and some key benefits:

Lower tax rates: You pay less tax on each income slab compared to the old regime.
Simplified filing process: There is no need to track multiple deductions or exemptions, so tax filing becomes quicker and easier.
Ideal for young people: If you’re a freelancer and a new earner who has not made any large or long-term investments, you have the flexibility to use or save your monthly salary as you please. This way, you’re not tied to any tax-saving tools and can have more monthly cash flow.
Flexibility to choose: You can choose between the old and new tax regimes. The new regime is the default, but salaried individuals can switch each year while filing their return.

For non-salaried taxpayers, the choice is more rigid—they can’t opt back in once they opt out. The last date to file FY 2024-25 returns is July 31, 2025.

Looking ahead, the government has proposed moving the current Section 115BAC to Section 202 under the new Income Tax Bill 2025. This change will be effective on April 1, 2026, and aims to streamline the new tax regime's provisions for individual taxpayers, companies, and other eligible entities.