Budget 2025: Tax deductions, exemptions under New Tax Regime and Old Tax Regime for FY2025-26

Tax calculations: The Centre has once again aimed to enhance the appeal of the New Tax Regime by introducing lower tax rates and reducing deductions. This restructuring aims to simplify taxation, while the Old Regime continues to provide tax benefits through various exemptions and deductions. The proposed income tax slabs in the Union Budget 2025 for the New Tax Regime include a rebate of Rs 60,000 for income up to Rs 12 lakh (Rs 12.75 lakh for salaried individuals) under Section 87A.

Despite these changes, taxpayers who have traditionally utilised tax-saving instruments may still prefer the Old Tax Regime. 

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In Budget 2025, the government opted not to modify the existing tax regime or introduce any new deductions. Finance Minister Nirmala Sitharaman instead made adjustments to the slabs, rates, and rebates within the new regime to ensure that income up to Rs 12 lakh remains tax-free. Here we look at the tax deductions and exemptions under both tax regimes for FY2025-26

New Tax Regime 2025-26

FM Nirmala Sitharaman's tax relief proposals in Budget 2025-26 encompass a variety of measures, such as raising the tax-free income limit to Rs 12 lakh, adjusting tax brackets, and introducing a standard deduction of Rs 75,000.

In the upcoming Budget 2025-26, the rebate in the latest tax system has been increased to Rs 60,000, up from Rs 25,000, for individuals earning up to Rs 12 lakh, previously Rs 7 lakh.

Deductions under New Tax Regime 2025-26

> Section 24(b): Allowance for Interest on Housing Loan for Let-out Property

> Section 80CCD(2): Deduction for Employer's Contribution to National Pension Scheme (NPS), capped at 14% of salary

> Section 80CCH: Deduction for Contributions to Agnipath Scheme.

Income tax slabs (Rs)         Income tax rate (%)
From 0 to 4,00,000            0
From 4,00,001 to 8,00,000     5
From 8,00,001 to 12,00,000    10
From 12,00,001 to 16,00,000   15
From 16,00,001 to 20,00,000   20
From 20,00,001 to 24,00,000   25
From 24,00,001 and above      30

Old Tax Regime 2025-26

The Budget 2025 has kept the Old tax regime unchanged. Income up to Rs 5 lakh continues to be tax-free through rebates. 

Tax slabs under the old tax regime:

Income up to Rs 2,50,000: Nil
Income from Rs 2,50,001 to Rs 5,00,000: 5%
Income from Rs 5,00,001 to Rs 10,00,000: 20%
Income above Rs 10,00,000: 30%

The old tax system permits deductions in different categories, including:

Section 80C: Individuals can claim deductions of up to Rs 1,50,000 for investments in options such as PPF, ELSS, and LIC premiums.
Section 80D: Deductions are available for health insurance premiums.
Section 24(b): Individuals can claim deductions for interest on home loans up to Rs 2,00,000.
Other exemptions include benefits like HRA and LTA.

The list is as follows:

Tax deductions and exemptions under the Old Tax Regime 2025-26

Section 24(b) Deduction: For self-occupied property, individuals can claim a deduction of up to ₹2 lakh on interest paid towards a housing loan.

Section 80C Deduction: A combined deduction of up to ₹1.5 lakh can be claimed for various payments such as life insurance premium, provident fund, ELSS, PPF, SCSS, National Savings Certificate, housing loan principal, tuition fees, etc.

Section 80CCC Deduction: Individuals can claim a deduction for contributions made towards an annuity plan of LIC or other insurer under the Pension Scheme.

Section 80CCD(1) Deduction: Deduction can be claimed for contributions made towards the Pension Scheme of the Central Government.

Section 80CCD(1B) Deduction: Individuals can claim a deduction of up to ₹50,000 for payments made to the National Pension System (NPS), excluding any deduction claimed under section 80CCD (1).

Section 80CCD(2) Deduction: Employers can claim a deduction for their contribution to the Pension Scheme of the Central Government.

Section 80CCH Deduction: Contributions made to the Agnipath Scheme are eligible for deduction under this section.

Section 80D Deduction: Individuals can claim a deduction for health insurance premium payments and preventive health check-ups. 

Section 80DD: Allows for a deduction for the maintenance or medical treatment of a disabled dependent.
Section 80DDB: Provides a deduction for the medical treatment of specified diseases.
Section 80E: Offers a deduction for interest payments on a loan for higher education for self or a relative, allowing for the full amount paid towards interest to be claimed.
Section 80EE: Grants a ₹50,000 deduction for interest payments on a loan for a residential house property, as long as the loan was sanctioned between 1st April 2016 to 31st March 2017.
Section 80EEA: Provides a deduction of up to ₹1.5 lakh for interest payments on a loan for the first-time acquisition of a residential house property, granted between 1st April 2019 to 31st March 2022.
Section 80EEB: Allows for a deduction of up to ₹1.5 lakh for interest payments on a loan for the purchase of an Electric Vehicle, sanctioned between 1st April 2019 to 31st March 2023.
Section 80G: Allows for deductions on donations made to prescribed funds and charitable institutions.
Section 80GG: Provides deductions for rent paid by individuals who are self-employed or do not receive House Rent Allowance (HRA) as part of their salary.
Section 80GGA: Enables deductions for donations made towards scientific research or rural development.
Section 80GGC: Offers deductions for donations made to Political Parties or Electoral Trusts.
Section 80TTA: Allows for a deduction of up to ₹10,000 on interest received on savings bank accounts by Non-Senior Citizens.
Section 80TTB: Provides a deduction of up to ₹50,000 on interest received on deposits by resident senior citizens.
Section 80U: Allows for deductions for resident individual taxpayers with disabilities.