New Tax Regime Deductions Allowed AY 2026-27

Introduction: Deductions Allowed in the New Tax Regime

The deductions allowed in the new tax regime are limited, but they are not completely absent. For FY 2025-26, relevant to AY 2026-27, an eligible taxpayer may still claim the standard deduction, employer contribution to NPS, certain Agniveer Corpus Fund contributions, family pension deduction, specified house-property deductions and a few business-related deductions. The correct answer therefore depends on the taxpayer's income type and the exact provision being claimed.

The new tax regime removes many personal deductions, not every deduction under the Income-tax Act.

Section 115BAC of the Income-tax Act, 1961 is the governing provision for the new regime for AY 2026-27. It specifies the exemptions and deductions that must be forgone and also preserves a short list of Chapter VI-A deductions. In addition, normal deductions used to calculate income under a particular head—such as salary, house property, business or other sources—may continue unless section 115BAC specifically restricts them.

Applicable period: This article covers income earned from 1 April 2025 to 31 March 2026, filed in AY 2026-27 under the Income-tax Act, 1961. Income earned from 1 April 2026 is governed by the Income Tax Act, 2025.

Quick Overview for FY 2025-26 and AY 2026-27

For AY 2026-27, the new regime is the default tax regime for individuals, HUFs, associations of persons other than co-operative societies, bodies of individuals and specified artificial juridical persons. A non-business taxpayer can choose the old regime in the return every year. A taxpayer having business or professional income must follow the prescribed option procedure, including Form 10-IEA where applicable.

Main takeaway: Most investment-linked and personal-expense deductions such as sections 80C, 80D, 80E, 80G, 80TTA and 80TTB are not available under the new regime.

The list above covers the deductions most individual taxpayers encounter. Specialised taxpayers should also review income-head deductions and sector-specific provisions rather than relying only on the Chapter VI-A schedule displayed in the ITR.

Complete List of Deductions Allowed in the New Tax Regime

1. Standard Deduction under Section 16(ia)

A salaried employee or pensioner opting for the new tax regime can claim a standard deduction of ₹75,000 or the amount of salary or pension income, whichever is lower. No bill, investment proof or expense voucher is required. The deduction is normally reflected in Form 16 and Schedule Salary of the ITR.

This deduction applies to salary taxable under the head “Salaries.” A pension received by a retired employee from the former employer is generally treated as salary for this purpose. Family pension, however, is taxed under “Income from Other Sources” and receives a separate deduction under section 57(iia).

Standard deduction under section 16(ia)
= Lower of:
(a) ₹75,000; or
(b) Gross taxable salary/pension

Example: If gross salary is ₹9,50,000, the allowable standard deduction is ₹75,000. Salary after this deduction becomes ₹8,75,000 before considering any other salary adjustment. If salary is only ₹60,000, the deduction cannot exceed ₹60,000.

Remember: The standard deduction is not section 80C. It is deducted while computing income under the head “Salaries.”

2. Employer NPS Contribution under Section 80CCD(2)

Section 80CCD(2) allows a deduction for an eligible contribution made by an employer to the employee’s account under the notified pension scheme, commonly the Tier-I National Pension System account. This deduction is available under the new regime even though the employee’s own NPS deductions under sections 80CCD(1) and 80CCD(1B) are not available.

For AY 2026-27, the deduction under the new regime is generally limited to 14% of salary for contributions by all categories of employers. For this calculation, “salary” ordinarily means basic salary plus dearness allowance to the extent it forms part of retirement benefits; allowances and perquisites are not automatically included.

Example: An employee has basic salary plus eligible DA of ₹10,00,000. The employer contributes ₹1,40,000 to the Tier-I NPS account. Subject to the statutory conditions, the full ₹1,40,000 may be deducted under section 80CCD(2). If the employer contributes ₹1,70,000, the deductible amount under this percentage limit would generally be ₹1,40,000.

Separate overall limit: Employer contributions to recognised provident fund, NPS and approved superannuation fund are also subject to the combined taxation rule under section 17(2)(vii), broadly linked to ₹7.5 lakh per year. Excess contribution and prescribed annual accretion may be taxable as a perquisite.

3. Agniveer Corpus Fund under Section 80CCH(2)

Section 115BAC preserves the deduction under section 80CCH(2). It relates to the contribution made by the Central Government to the Agniveer Corpus Fund account of an eligible individual enrolled in the Agnipath Scheme. The whole eligible Government contribution may be claimed, subject to the conditions of section 80CCH.

A frequent mistake is to treat every payment covered by section 80CCH as automatically available in the new regime. The wording of section 115BAC specifically preserves subsection (2). Therefore, the statutory new-regime exception should be applied carefully to the Central Government contribution rather than being broadly equated with all personal deposits.

4. Family Pension Deduction under Section 57(iia)

Family pension received after the death of an employee is normally taxable under the head “Income from Other Sources.” Under the new regime, section 57(iia) allows a deduction equal to one-third of the family pension or ₹25,000, whichever is lower.

Example 1: Family pension is ₹90,000 for the year. One-third is ₹30,000, so the deduction is restricted to ₹25,000. Taxable family pension is ₹65,000.

Example 2: Family pension is ₹60,000. One-third is ₹20,000, which is lower than ₹25,000. The deduction is ₹20,000 and taxable family pension is ₹40,000.

Do not confuse: A retired employee’s own pension is generally salary and may receive the ₹75,000 standard deduction. Pension received by a family member after the employee’s death is family pension and uses section 57(iia).

5. House Property Deductions under Section 24

The new regime does not remove every house-property deduction. Municipal taxes actually paid by the owner may be reduced while calculating net annual value, and the standard deduction of 30% of net annual value under section 24(a) remains available for a let-out property.

Interest under section 24(b) requires a distinction between self-occupied and let-out property:

Example: Gross annual rent is ₹3,60,000, municipal taxes paid are ₹20,000 and interest is ₹2,80,000. Net annual value is ₹3,40,000. Section 24(a) deduction is ₹1,02,000, leaving ₹2,38,000 before interest. After interest of ₹2,80,000, there is a house-property loss of ₹42,000. Under the new regime, this loss cannot be adjusted against salary income.

Practical caution: Do not claim self-occupied home-loan interest merely because it appears in the bank certificate. Check the selected tax regime and property status first.

6. Normal Business and Professional Deductions

A person having business or professional income is not denied every business expense merely because the new regime is selected. Normal revenue expenses incurred wholly and exclusively for business may continue to be deductible under sections 30 to 37, subject to the usual conditions, documentation and disallowance provisions.

Examples may include eligible rent, employee cost, professional charges, electricity, repairs, business travel, software subscriptions, depreciation under the normal provisions, bad debts satisfying section 36, and other genuine business expenditure. However, section 115BAC specifically restricts certain incentive deductions and allowances, including additional depreciation under section 32(1)(iia) and specified deductions under sections such as 32AD, 33AB, 33ABA, 35 and 35AD.

Meaning: The new regime mainly removes specified tax incentives. It does not convert gross business receipts directly into taxable income.

7. Sections 80JJAA and 80LA(1A)

Section 80JJAA: An eligible assessee carrying on business may claim a deduction for additional employee cost when the detailed conditions are satisfied. Broadly, the provision encourages formal employment and generally requires timely filing of the return and a prescribed accountant’s report. It is not a deduction available merely because a business hired any person.

Section 80LA(1A): An eligible unit of an International Financial Services Centre may claim the specified deduction subject to section 80LA and the special preservation rule linked to section 115BAC. This is a specialised provision and is not relevant to an ordinary salaried taxpayer, freelancer or small domestic business.

Exemptions Still Available in the New Tax Regime

A deduction and an exemption are different. Section 115BAC withdraws specific exemptions, such as HRA and leave travel concession, but several other exemptions continue because they are not included in the prohibited list, subject to their own conditions.

Evidence matters: An allowance does not become exempt merely because the employer uses a particular name. The nature of duty, actual expenditure, prescribed conditions and payroll treatment must support the claim.

Popular Deductions and Exemptions Not Allowed

The following items are commonly claimed under the old regime but are generally unavailable when tax is computed under section 115BAC:

Investment decision: A deduction being unavailable does not automatically make the investment unsuitable. Insurance, retirement savings and health cover should also be evaluated for protection, liquidity, return and risk—not only tax savings.

Beginner-Friendly Examples

Example 1: Salaried Employee with Employer NPS

Gross salary                                  ₹12,00,000
Less: Standard deduction u/s 16(ia)              ₹75,000
Less: Employer NPS deduction u/s 80CCD(2)        ₹84,000
Taxable normal income                         ₹10,41,000

The employee cannot additionally deduct PPF of ₹1,50,000, health insurance of ₹25,000 or personal NPS of ₹50,000 under sections 80C, 80D and 80CCD(1B) in the new regime.

Example 2: Retired Employee Receiving Pension

A retired employee receives annual pension of ₹6,00,000 from the former employer and bank interest of ₹70,000. The pension is generally taxable as salary, so the ₹75,000 standard deduction may be claimed. However, section 80TTB deduction for bank interest is not available in the new regime.

Pension income                                  ₹6,00,000
Less: Standard deduction                          ₹75,000
Taxable salary/pension                           ₹5,25,000
Bank interest                                      ₹70,000
Gross total income                               ₹5,95,000

Example 3: Family Pension

A widow receives family pension of ₹1,20,000. One-third is ₹40,000, but the new-regime ceiling is ₹25,000. Therefore, taxable family pension is ₹95,000.

Example 4: Self-Occupied House

An employee pays ₹2,10,000 as home-loan interest on a self-occupied house. Under the new regime, this deduction is not available. Home-loan principal paid during the year is also not deductible under section 80C.

Example 5: Professional with Genuine Expenses

A consultant has professional receipts of ₹20,00,000 and eligible documented business expenses of ₹6,00,000. The new regime does not ordinarily deny those normal business expenses merely because section 80C and section 80D are unavailable. The professional income may broadly begin with ₹14,00,000, subject to depreciation, disallowances, presumptive-tax rules if used, and other applicable provisions.

How to Claim Allowed Deductions in the ITR

The exact schedule depends on the nature of income and the applicable ITR form. For AY 2026-27, ITR-1, ITR-2, ITR-3 and ITR-4 are available on the e-filing portal for eligible taxpayers.

1. Step 1: Confirm the assessment year. Select AY 2026-27 for income earned during FY 2025-26.
2. Step 2: Confirm the tax regime. The new regime is the default. Check whether the return reflects section 115BAC and whether any valid old-regime option has been exercised.
3. Step 3: Reconcile salary documents. Compare Form 16, AIS, TIS and payslips. Verify the standard deduction and employer NPS contribution.
4. Step 4: Enter Chapter VI-A deductions. Under the new regime, the portal normally displays only the permitted sections relevant to the taxpayer, such as 80CCD(2) and 80CCH.
5. Step 5: Compute house-property income correctly. Select self-occupied or let-out status, enter rent and taxes, and avoid claiming prohibited self-occupied interest.
6. Step 6: Report family pension separately. Enter it under Income from Other Sources and claim the section 57(iia) deduction in the appropriate field.
7. Step 7: Validate restricted deductions. Remove 80C, 80D, 80G, 80TTA, 80TTB and other old-regime-only deductions if the new regime is selected.
8. Step 8: Compare tax before submission. Taxpayers without business income may compare both regimes each year. Use actual eligible deductions, not rough estimates.
9. Step 9: Pay any balance tax. Confirm TDS, TCS, advance tax and self-assessment tax before filing.
10. Step 10: Verify the return. Complete e-verification within the prescribed time after submission.

Form 10-IEA: Taxpayers having business or professional income should carefully follow the option rules and due date. Their ability to move between regimes is more restricted than that of taxpayers without business income.

Useful Documents to Keep

• Form 16 and salary slips showing employer NPS contribution.
• NPS transaction statement and PRAN details.
• Family pension certificate or bank statement.
• Home-loan interest certificate and property-wise rent details.
• Municipal-tax payment receipts for let-out property.
• Books, invoices, bank statements and expense evidence for business or profession.
• Form 10-IEA acknowledgement, where applicable.
• Prescribed accountant’s report for section 80JJAA, where applicable.

Who Is Impacted?

• Salaried employees: They receive the ₹75,000 standard deduction and may claim employer NPS under section 80CCD(2), but lose HRA, LTC, professional tax and most Chapter VI-A deductions.
• Pensioners: Their own pension may qualify for the standard deduction. Senior-citizen deductions such as section 80TTB are not available in the new regime.
• Recipients of family pension: They may claim the special deduction under section 57(iia), not the salary standard deduction.
• House owners: Self-occupied home-loan interest is not deductible. Let-out property continues to use the house-property computation, subject to loss restrictions.
• Business owners and professionals: Normal genuine business expenses may continue, while specified incentive deductions are restricted. The regime-option procedure is also stricter.
• Employers: Salary structuring and employer NPS contributions can materially affect employees’ taxable income under the new regime.
• Agniveers: The specified Central Government contribution to the Agniveer Corpus Fund remains deductible.
• Eligible IFSC units and employment-generating businesses: Specialised deductions under sections 80LA(1A) and 80JJAA may remain available.

Not automatically impacted: Companies and co-operative societies are governed by separate concessional-regime provisions. This article focuses on section 115BAC taxpayers.

Timeline of the New Tax Regime

The rules have changed several times since the optional new regime was introduced. Historical context is important because an article written for an earlier assessment year may show outdated slab rates, standard deduction amounts or employer-NPS limits.

1. Finance Act, 2020: Section 115BAC introduced an optional concessional regime for individuals and HUFs from AY 2021-22, subject to forgoing specified exemptions and deductions.
2. Finance Act, 2023: The revised new regime became the default from AY 2024-25 for a wider class of eligible persons. A standard deduction became available in the revised regime.
3. Finance (No. 2) Act, 2024: The standard deduction under the new regime increased to ₹75,000, and the family-pension ceiling under section 57(iia) increased to ₹25,000 for new-regime computation from AY 2025-26.
4. Finance Act, 2025: For AY 2026-27, new-regime slabs were widened, the rebate framework under section 87A was revised, and taxable normal income up to the specified level became eligible for a larger rebate, subject to the law governing special-rate income.
5. 1 April 2026: The Income Tax Act, 2025 came into force for Tax Year 2026-27. However, AY 2026-27 returns for FY 2025-26 continue to be filed under the Income-tax Act, 1961.

Key Cut-off Dates and Deadlines

Regime selection and timely filing are particularly important for taxpayers having business or professional income. Due dates can differ based on audit, transfer-pricing and other requirements.

Check before filing: Return due dates may vary by taxpayer category and may be changed through official orders. Always verify the portal and applicable notification for the relevant ITR form.

Frequently Asked Questions on New Tax Regime Deductions

References & Official Sources

Conclusion: Use the Correct Deduction, Not the Most Familiar One

The new tax regime for AY 2026-27 permits fewer personal deductions, but important benefits remain. The most common are the ₹75,000 standard deduction, employer NPS deduction under section 80CCD(2), family pension deduction under section 57(iia), and house-property deductions applicable to let-out property. Eligible businesses, Agniveers and IFSC units may have additional statutory deductions.

Before filing, classify each claim correctly, reconcile Form 16 and AIS, verify the selected regime, and remove old-regime-only deductions. A comparison should be based on actual taxable income and tax liability, not merely the total amount invested during the year. For a complex salary structure, multiple properties, business income, capital gains or foreign assets, obtain professional advice before submitting the return.