Old Vs New Tax Regime: Which Deductions Are Still Available

Old vs New Tax Regime: Which Deductions Are Still Available

You must have heard this question times in Indian offices every March. People ask this question in hallways over tea in emails from the HR department with a deadline. If you have nodded along in one of these conversations without knowing the answer do not worry you are not alone. The rules have changed often over the few years that even people who file their own tax returns sometimes feel a step behind.

So let us fix that. Once you know what each tax regime actually lets you claim and what it does not the decision stops feeling like guesswork. This article walks through both tax regimes as they stand for the year 2025-26 which is the year most of us are filing for right now.

The Big Picture First

India has two parallel income tax systems side by side. The new tax regime is now the default. This means unless you actively opt out this is what your employer uses to calculate the tax deducted from your salary. It trades away deductions in exchange for lower tax rates. The old tax regime has not gone anywhere. Salaried individuals without business income can pick between the two every year at the time of filing so it is not a one-time decision. The old tax regime keeps its tax rates but it still rewards you for the saving, spending and borrowing habits it always has.

Neither one wins by default. It genuinely comes down to how much you can claim under the tax regimes list of deductions.

What the New Tax Regime Actually Offers

For the year 2025-26 income up to ?4 lakh is tax-free under the new tax regime. The tax rates climb in steps from there. 5% Between ?4-8 lakh 10% between ?8-12 lakh 15% between ?12-16 lakh 20% between ?16-20 lakh 25% between ?20-24 lakh and 30% above that. Add a deduction of ?75,000 for salaried employees and pensioners plus a rebate worth up to ?60,000 and here is the interesting part: salaried taxpayers with income up to roughly ?12.75 lakh end up owing nothing under this tax regime.

That is a win for a lot of people. It is not free. You give up almost every deduction that older filers grew up relying on.

What’s Still Deductible Under the New Tax Regime

It is not an empty cupboard. A few things survive:

Standard deduction of ?75,000 for salaried folks and pensioners. This one is automatic so there is nothing to actively claim

Employers National Pension System contribution. If your company puts money into your National Pension System account on your behalf that portion still reduces income

Interest on a home loan for a rented-out property. Though this can only offset income, not your salary

Family pension deduction for anyone receiving pension after a family members death

Transport allowance for differently-abled employees

And that is about it. Much everything else people associate with saving tax is gone in this tax regime.

 

 

 

What You Lose Under the New Tax Regime

Here is where it hurts. Under the tax regime you can no longer claim:

Deductions for Public Provident Fund, Equity Linked Savings Scheme funds, life insurance premiums Employees Provident Fund contributions, tuition fees or five-year tax-saving fixed deposits

Health insurance premiums whether for yourself your family or your parents

House Rent Allowance. Even if rent is a recurring expense and your salary structure has a House Rent Allowance component built in you cannot claim the exemption

Leave Travel Allowance. Exemption for domestic travel expenses is gone

Home loan interest on a self-occupied property

Additional National Pension System contribution

Interest on education loans

Donations to institutions

Deduction on savings or fixed deposit interest

If your payslip lists a House Rent Allowance component if you are paying off a home loan on the house you actually live in. If you have been quietly building up an Equity Linked Savings Scheme investment every month. None of that moves the needle here.

What the Old Tax Regime Still Gives You

The old tax regime rewards this kind of planning which is the whole trade-off. Its tax rates are steeper on paper: exemption of ?2.5 lakh then 5% up to ?5 lakh, 20% up to ?10 lakh and 30% beyond that. Nearly everything on the lost list above is still fair game. Public Provident Fund, Equity Linked Savings Scheme funds, life insurance premiums Employees Provident Fund contributions, tuition fees, health insurance premiums, House Rent Allowance, Leave Travel Allowance, self-occupied home loan interest the additional National Pension System contribution, education loan interest, charitable donations, all of it. If rent, investments, insurance premiums or a home loan are part of your reality these add up fast.

Putting It Side by Side in Plain Words

If you strip away the section numbers the difference between the two tax regimes comes down to this: the old tax regime is generous with deductions but stingy with tax rates and the new tax regime does the opposite.

Start with the deduction since almost every salaried person gets it automatically. The old tax regime gives you ?50,000 off the top no questions asked. The new tax regime is actually more generous here at ?75,000. One of the places where it beats the old tax regime outright.

Then things diverge sharply. Deductions for Public Provident Fund, Equity Linked Savings Scheme funds, life insurance premiums Employees Provident Fund contributions, tuition fees all of it worth up to ?1.5 lakh. Works in the old tax regime. The new tax regime does not recognize it all. Same story with health insurance premiums for yourself your family or your parents: available in the old tax regime completely absent in the new one.

House Rent Allowance and Leave Travel Allowance follow the pattern. If you pay rent and your salary has a House Rent Allowance component the old tax regime lets you exempt a chunk of it from tax; the new tax regime ignores it entirely rent or no rent. Leave Travel Allowance, the exemption for travel works the same way. Old tax regime only.

Home loans get a bit more nuanced. If you are living in the house, you have taken a loan for the old tax regime lets you deduct up to ?2 lakh in interest; the new tax regime gives you nothing. If that property is rented out instead both tax regimes actually allow you to deduct the interest against your rental income. That is one of the rare overlaps between the two.

National Pension System contributions split down the middle too. If your employer contributes to your National Pension System account on your behalf both tax regimes let you claim that as a deduction. The additional ?50,000 you might put into National Pension System yourself only counts in the old tax regime.

A few smaller ones follow the old-tax-regime-only rule: interest on education loans donations to charities and interest earned on savings or fixed deposits.

Finally, the basic exemption limits. The income level below which you owe no tax at all. Differ too. The old tax regime scales this by age: ?2.5 lakh if you are under 60, ?3 lakh if you are between 60 and 80 and ?5 lakh if you are above 80. The new tax regime does not care about age; everyone gets a ?4 lakh. Thanks to the rebate the effective tax-free threshold ends up being much higher in the new tax regime. Around ?12 lakh of taxable income. Compared to ?5 lakh in the old tax regime.

So, the short version: every deduction you have heard of lives in the old tax regime. The new tax regime keeps things by cutting nearly all of them out and compensates with lower tax rates and a much higher tax-free threshold instead.

Two Quick Examples

Take Priya. She is 32 works in marketing in Pune and earns ?12 lakh a year. She lives in a rented flat. Claims House Rent Allowance puts ?1.5 lakh a year into her Employees Provident Fund and an Equity Linked Savings Scheme fund and pays ?22,000 annually for a family health insurance policy. Add up her House Rent Allowance, Public Provident Fund and health insurance claims and her taxable income under the tax regime drops considerably. Enough that the old tax regime is almost certainly the cheaper option for her.

Now take Arjun. He is 27 also earning ?12 lakh as a software engineer. He lives with his parents. No rent, no House Rent Allowance to claim. And does not do much beyond his mandatory Employees Provident Fund when it comes to tax-saving investments. For him the tax regimes lower tax rates and the effective ?12.75 lakh tax-free threshold probably work out better and he skips the annual scramble for investment proofs entirely.

The pattern is fairly consistent once you have seen an examples, like this: the more deductions you can genuinely claim the more ground the old tax regime makes up. As a rule of thumb if your total eligible deductions cross somewhere around ?4-4.5 lakh a year the old tax regime usually pulls ahead. Below that the new tax regime tends to win.

Making the Choice

A few things worth doing before you commit:

Total up your eligible deductions. House Rent Allowance, Public Provident Fund investments, health insurance premiums, home loan interest, anything else that genuinely applies to you.

Run the numbers for both tax regimes. You can use a calculator on the Income Tax Departments website or on tax filing platforms. It only takes a couple of minutes to do this.

You need to tell your employer which tax regime you want to use at the start of the year. This is because it affects how much money is taken out for taxes each month. You can still make your choice later when you file your taxes.

You should think about this every year. Your income will change, the things you invest in will. Your rent will change. So, the better tax regime for you will also change.

A Final Word

The rules for taxes in India change a lot. The government can change the tax rates how much you can get back and how much you can deduct every time they make a budget. This article is based on the rules for the year 2025-2026 at the time it was written. If you have a lot of sources of income like money from investments or a business you should talk to a chartered accountant or tax advisor. They can look at your situation and give you better advice than a general guide, like this one.