Deductions in new tax regime (2023-24)

The new tax regime under Section 115BAC has been the default for individuals since AY 2024-25 and continues into FY 2026-27 with a ₹3 lakh basic exemption, concessional slab rates, a ₹75,000 standard deduction, and a Section 87A rebate that makes income up to ₹7 lakh effectively tax-free. Most other deductions like 80C, 80D, HRA, and home loan interest on self-occupied property are not available.

Mayank Wadhera

Published: 26 Apr 2023

Updated: 16 May 2026

4 min read

Although this guide retains its original title, the working framework has moved on. Union Budget 2026 has further sharpened the new tax regime under Section 115BAC, which has been the default option for individual taxpayers since AY 2024-25. Even taxpayers comparing legacy FY 2023-24 numbers need to know what survives, what is restricted, and what is genuinely available as a deduction today.

Slab structure under the new regime (FY 2026-27 view)

The new regime continues with concessional slabs and a higher rebate ceiling. Indicatively for FY 2026-27, the basic exemption is ₹3 lakh, slabs widen progressively, and the maximum 30% rate applies on income above ₹15 lakh (refer to the latest CBDT notification for the exact bracket structure published with Budget 2026). A health and education cess of 4% applies on the tax computed.

Deductions that are STILL available in the new regime

Standard deduction of ₹75,000 for salaried individuals and pensioners.
Employer's contribution to NPS under Section 80CCD(2), up to 14% of salary for central/state government employees and 10% for others (now 14% across the board after Budget 2024 changes).
Deduction under Section 80CCH for Agniveer Corpus Fund contributions.
Family pension deduction of ₹25,000 or one-third of pension, whichever is lower.
Transport allowance for differently-abled employees, conveyance for official duty, and travel on transfer.

Deductions and exemptions NOT available

Section 80C investments — PPF, ELSS, life insurance premium, tax-saving FDs.
Section 80D health insurance, 80E education loan interest, 80G donations (except specific cases).
HRA exemption under Section 10(13A) and LTA exemption under Section 10(5).
Interest on home loan for self-occupied property under Section 24(b).
Set-off of house property loss against other heads of income.
Most allowances under Section 10(14) like children's education allowance and uniform allowance.

Rebate and effective zero-tax point

Section 87A rebate under the new regime allows a full tax credit if taxable income does not exceed ₹7 lakh, with marginal relief just above that threshold. Combined with the ₹75,000 standard deduction, a salaried individual with gross salary up to ₹7.75 lakh effectively pays no income tax under the new regime in FY 2026-27.

Choosing between the regimes

Run two calculations every year:

Compute liability under the old regime using all your eligible 80C, 80D, HRA, and home loan claims.
Compute under the new regime with only the standard deduction and 80CCD(2).
Compare the post-cess outflow. If your old-regime deductions exceed roughly ₹3.75 lakh, the old regime usually still wins.
Salaried taxpayers simply pick during ITR filing; business or professional income taxpayers must file Form 10-IEA to opt out of the default new regime.

Practical regime-selection scenarios

Take three illustrative cases for FY 2026-27. Case 1 — a 28-year-old earning ₹12 lakh, paying ₹15,000 health insurance and ₹50,000 PPF: the new regime wins by roughly ₹15,000 because the ₹3.75 lakh deduction threshold is not crossed. Case 2 — a 40-year-old earning ₹18 lakh with ₹2 lakh home loan interest, full 80C, and ₹50,000 in 80D: the old regime wins.

Case 3 — a senior management executive earning ₹50 lakh with HRA, NPS 80CCD(1B), and 80C: the answer depends on whether HRA exemption is large. As a thumb rule, the higher the ratio of fixed structured deductions to gross income, the more the old regime helps. Salaried taxpayers should ask payroll to share a tentative annual deduction sheet by May and run the comparison once a year.

Common errors when switching regimes

A frequent error is selecting the wrong regime in the ITR after the TDS has been computed under the other regime. This creates a refund or demand situation that takes months to settle. To avoid this, confirm your regime choice with payroll at the start of the year and stay consistent at filing.

Another error is forgetting to file Form 10-IEA when required. Taxpayers with business or professional income must file it on or before the Section 139(1) due date to opt out of the default new regime. If missed, the new regime applies for that year and the switch must wait until the next year.

Conclusion

The new tax regime is no longer the "simplified alternative" — it is the baseline. Most deductions have been stripped away in exchange for lower rates and a generous ₹7 lakh rebate. Reassess your investment strategy each April: tax-planning under the new regime is less about chasing 80C limits and more about optimising structure, NPS, and timing of income.

Frequently Asked Questions

Is the new tax regime the default in FY 2026-27?

Yes. Since AY 2024-25, the new tax regime under Section 115BAC is the default for resident individuals, HUFs, AOPs, BOIs, and artificial juridical persons. Taxpayers must actively opt out using the income tax return (salaried) or Form 10-IEA (business/professional income).

Which deductions are still allowed in the new regime?

The new regime allows the ₹75,000 standard deduction, employer's NPS contribution under 80CCD(2) up to 14% of salary, Agniveer contribution under 80CCH, family pension deduction, transport allowance for differently-abled employees, and a few specified work-related allowances.

Can I claim HRA under the new tax regime?

No. House Rent Allowance exemption under Section 10(13A) is not available in the new tax regime. If your rent payments are significant and you have a high HRA component, the old regime may give a better outcome after running both calculations.

What is the effective tax-free salary under the new regime?

For FY 2026-27, a salaried individual with gross salary up to ₹7.75 lakh effectively pays no income tax under the new regime — that is the ₹75,000 standard deduction plus the Section 87A rebate covering taxable income up to ₹7 lakh, subject to marginal relief above ₹7 lakh.

How do I switch between regimes?

Salaried taxpayers without business income can switch between the old and new regime every year by selecting the option in their ITR before the due date. Taxpayers with business or professional income must file Form 10-IEA on or before the Section 139(1) due date and can switch only once back to the new regime later.