What Deductions are Allowed in the New Tax Regime?
Although many deductions have been removed, certain income tax deductions and allowances are still permitted under the new tax structure.
Standard Deduction
The standard deduction is one of the most widely used deductions available under the new tax regime. It allows salaried employees and pensioners to reduce their taxable income without needing to provide proof of expenses or investments. This deduction simplifies tax filing and ensures a basic level of tax relief for individuals earning salary income.
Key aspects include:
- A standard deduction of ₹50,000 is available to salaried employees and pensioners
- The deduction is applied directly to the gross salary before calculating taxable income
- Unlike other deductions, it does not require any investment or documentation
Employer Contribution to NPS
Another important deduction allowed under the new tax regime is the employer’s contribution to the National Pension System (NPS) under Section 80CCD(2). This deduction is particularly beneficial for salaried individuals whose employers contribute to their NPS accounts as part of the compensation structure.
Important details include:
- Deduction is available for employer contributions to NPS
- The maximum deduction allowed is 10% of salary for private-sector employees and 14% for government employees
- The contribution is directly deducted from taxable income
- This provision encourages retirement savings while offering tax benefits
Since NPS contributions are linked to long-term retirement planning, this deduction helps individuals build a financial safety net for the future while reducing tax liability.
Deduction for Agniveer Corpus Fund
A more recent provision under the tax system allows deductions related to the Agniveer Corpus Fund, introduced as part of the Agnipath scheme for armed forces recruitment.
This deduction is specifically designed to support individuals serving under the scheme.
Key points include:
- Contributions made by the Central Government to the Agniveer Corpus Fund are deductible
- The interest earned on the corpus may also be exempt from taxation
- The provision ensures financial support and tax relief for individuals enrolled under the Agnipath programme
Although this deduction applies to a limited group of individuals, it represents the government’s effort to align tax policies with new employment initiatives.
Deduction on Family Pension
Under the new tax regime, individuals receiving family pension income can claim a deduction while calculating their taxable income. This provision offers limited tax relief to family members who receive pension benefits after the death of an employee.
Key points to understand include:
- A deduction of ₹25,000 or one-third of the family pension received, whichever is lower, can be claimed
- The deduction is applied to the total family pension income before calculating the final taxable income
