5 Deductions Still Available Under the New Tax Regime That Most People Don't Know About

5 Deductions Still Available Under the New Tax Regime That Most People Don't Know About

Ask ten people about the new tax regime and at least eight will say the same thing: "There are no deductions." It's one of the most widespread tax myths in India. And it's costing people real money.

Yes, popular deductions like Section 80C investments, HRA, and home loan interest on self-occupied property are gone. But the Income-Tax Act, 2025 specifically preserves several powerful tax-saving tools under the new regime — and a few of them are actually more generous than their old-regime equivalents.

Here are five deductions you can still claim under Section 202(1), explained simply.

1. Standard deduction — Rs 75,000 (up from Rs 50,000)

This one most salaried employees know about, but many still underestimate. Salaried individuals and pensioners can claim a standard deduction of Rs 75,000 under the new tax regime. Because of this and the higher rebate limit, salaried taxpayers with gross income up to Rs 12.75 lakh pay no income tax.

What makes this even better is the comparison with the old regime: the standard deduction available under the old tax regime is Rs 50,000, while the new tax regime allows Rs 75,000 for FY 2025-26. That is a straight Rs 25,000 extra in your pocket, with zero paperwork or investment required.

Under Section 19(1) of the Income-Tax Act, 2025, the deduction is the lower of Rs 75,000 or actual salary — so it covers almost everyone. Family pensioners can also claim a standard deduction of Rs 25,000 from their family pension under the new tax regime — up from Rs 15,000 earlier, an increase announced in Budget 2025.

1. Employer's NPS contribution — up to 14% of salary (Section 124)

This is the most underused, and arguably the most powerful, deduction available in the new regime.

Most employees know NPS as the extra Rs 50,000 self-contribution deduction. But that self-contribution benefit is not available in the new regime. What is available — and what very few people actively use — is the employer contribution.

The deduction under Section 124(2) is capped at 14% of salary (basic + dearness allowance), aligning private sector limits with those of government employees. This adjustment ensures equitable treatment across employment categories and encourages employer-led retirement savings.

Critically, this deduction is over and above any other limits and is available even if you opt for the new tax regime. The overall annual Rs 7.5 lakh cap on aggregate employer contributions to NPS, recognised provident fund, and approved superannuation fund should be kept in mind, as any excess may become taxable.

In practice, this means you can ask your HR team to restructure your CTC so that a portion flows as employer NPS contribution. You take home the same money, your employer pays into your retirement fund, and your taxable income drops — sometimes by over a lakh — without any out-of-pocket spend.

1. Family pension deduction — Rs 25,000 (Section 93)

This one is almost invisible in most tax guides, yet it directly benefits thousands of families across India every year.

When a government employee or private sector employee passes away, their family often receives a regular monthly pension from the employer. That income is taxable — but it comes with a deduction.

Under Section 93(1)(d) of the Income-Tax Act, 2025, family pension recipients can deduct one-third of the pension received or Rs 25,000, whichever is lower. Under the old regime, this cap was just Rs 15,000. The new regime gives an extra Rs 10,000 of tax-free income — a small but meaningful upgrade for grieving families managing on a fixed monthly payout.

1. Agniveer Corpus Fund — full deduction (Section 125)

If you or someone in your family has enrolled in the Agnipath Scheme for the Indian Armed Forces, this deduction is built entirely in your favour.

Under Section 125 of the Income-Tax Act, 2025, individuals enrolled in the Agnipath Scheme can claim deductions for contributions to the Agniveer Corpus Fund. The full amount of the contribution made by the Central Government to the assessee's account is also deductible under Section 125(2), and this deduction can be claimed even if the assessee makes no personal contribution but receives only the government contribution.

Both the Agniveer and Government contributions qualify for deduction, and the Seva Nidhi amount received after completion of service is fully exempt from tax under Section 10(12C). In effect, every rupee that goes in is tax-deductible, and everything that comes out at the end of service is tax-free — a complete exemption from entry to exit.

1. Home loan interest on let-out property — no upper cap (Section 22)

Here is where many homeowners make an expensive mistake. They assume that because home loan interest is not allowed under the new regime, it is gone entirely. That is only half the story.

The restriction in Section 202(2)(a)(v) applies specifically to self-occupied properties. If you own a property that you rent out — a second flat, a commercial space, or even your primary residence while you live elsewhere — the interest paid on the home loan used to acquire or construct that property is fully deductible against the rental income earned from it.

There is generally no upper cap on this interest deduction for let-out properties — unlike the Rs 2 lakh cap that applies under the old regime for self-occupied property. But the net loss in house property may be subject to restrictions on set-off and carry-forward rules.

The one important restriction: if the interest exceeds the rental income and results in a "house property loss," you cannot set off that loss against your salary income in the new regime. The loss is ringfenced to house property and carried forward to future years. It still has value — just not immediately against other income.

Real-money example: combining all five

Let's look at Priya, a salaried employee with a CTC of Rs 18 lakh, a basic salary of Rs 9 lakh, and a rented-out flat that earns Rs 1.5 lakh in annual rent with Rs 2 lakh in home loan interest.

Without these deductions, Priya's taxable income would be Rs 18,00,000 minus Rs 75,000 standard deduction = Rs 17,25,000, resulting in a tax of approximately Rs 1,83,750.

With the employer NPS restructuring and the let-out property interest, her taxable income drops to roughly Rs 13,74,000 — a tax of approximately Rs 95,600. That is a saving of nearly Rs 88,000, all from deductions available right now under the new regime, without switching to the old one.

The bottom line

The new tax regime is not the barren wasteland of deductions that most people assume. Five specific tools — the enhanced standard deduction, employer NPS at 14%, the family pension deduction, the Agniveer corpus benefit, and interest on let-out property — are fully available and verified under the Income-Tax Act, 2025.

The difference between paying full tax and paying optimised tax is simply knowing where to look.

Want to find out exactly how much you can save using these deductions? Talk to us at Virtualca Services — we'll map out your personal tax picture.