Deductions under old & new tax regime

Under India's old tax regime in FY 2026-27, taxpayers can claim Section 80C up to ₹1.5 lakh, Section 80D up to ₹25,000-50,000, home loan interest, HRA, LTA, and many other deductions, with higher slab rates. The new regime, now the default, offers concessional slabs, a ₹75,000 standard deduction, employer NPS contribution under 80CCD(2), and an effective tax-free income up to ₹7.75 lakh, but switches off most other deductions.

Mayank Wadhera

Published: 24 Apr 2023

Updated: 16 May 2026

4 min read

Choosing between India's old and new tax regimes is the single most consequential personal finance decision a salaried Indian makes every year. In FY 2026-27, with the new regime now the default and Union Budget 2026 fine-tuning slabs, the deductions question is not just "old vs new" — it is about whether your existing investments and life situation still justify the old regime's complexity.

Deductions exclusive to the old regime

Section 80C up to ₹1.5 lakh — PPF, ELSS, life insurance premium, principal repayment of home loan, tuition fees, NSC, tax-saving FDs.
Section 80D up to ₹25,000 (₹50,000 for senior citizens) — health insurance premiums for self and family, plus parents.
Section 80E — full interest on education loan for up to eight years.
Section 80G — donations to approved institutions (50% or 100% depending on the fund).
Section 80TTA / 80TTB — interest on savings account / senior citizen interest income.
Section 24(b) — interest up to ₹2 lakh on home loan for self-occupied property.
HRA exemption under Section 10(13A), LTA under Section 10(5), and most Section 10(14) allowances.

Deductions available in the new regime

Standard deduction of ₹75,000 for salaried individuals and pensioners.
Section 80CCD(2) — employer's contribution to NPS up to 14% of salary.
Section 80CCH — Agniveer Corpus Fund contributions.
Family pension deduction of ₹25,000 or one-third of pension, whichever is lower.
Section 87A rebate making taxable income up to ₹7 lakh effectively tax-free.

A side-by-side decision framework

List every deduction you can realistically claim — paper count both 80C and 80D limits.
Add HRA, home loan interest, NPS 80CCD(1B), and LTA if applicable.
If the total old-regime deductions exceed roughly ₹3.75 lakh and your income is mid-range, the old regime usually still wins.
If you are early-career, debt-free, and renting at low rent, the new regime almost always wins.
If you have a home loan with high interest plus full 80C and 80D usage, the old regime can still beat the new regime even at high income.

Tax planning beyond deductions

Whichever regime you pick, optimise income timing — sell long-term equity to use the ₹1.25 lakh LTCG exemption annually, harvest tax losses before 31 March, time bonus payouts across financial years, and use the 80CCD(2) NPS route (which works in both regimes) to top up retirement savings without sacrificing liquidity.

Lifecycle view — which regime fits which life stage

Tax regime choice should follow your life stage. Early-career professionals with little to invest are usually better off in the new regime — lower compliance, lower tax, more take-home for emergencies and discretionary spending. Once you take a home loan, the equation tilts towards the old regime, because Section 24(b)'s ₹2 lakh interest deduction kicks in.

Mid-career professionals with stable HRA, full 80C through EPF and PPF, and growing 80D outflow continue to find the old regime more efficient. Retirees with pension, family pension, and senior citizen 80TTB benefits often see a mixed picture — run the numbers carefully. Make regime selection a deliberate April exercise, not a default ITR-filing checkbox.

Tax simulation tools and resources

The income tax portal's tax calculator (incometax.gov.in) provides a quick old-vs-new comparison. For more detailed planning, use payroll-provided salary structure simulators, or work with a tax consultant in March-April. Avoid social media calculators that may not reflect the latest Budget 2026 changes.

Treat the simulation as iterative — change one input (HRA, NPS contribution, 80D) at a time and observe the tax impact. This builds intuition for next year's planning and ensures the chosen structure remains optimal as your salary grows or your life events (home purchase, child education, parents' insurance) evolve.

Tax regime choice also affects employer payroll TDS calculation. Communicate your regime preference to payroll at the start of the year and stay consistent — switching late in the year results in lumpy TDS in the final months and potential interest under Section 234B and 234C. The income tax portal's pre-fill captures the TDS regime as a default during ITR filing, so consistency saves processing time and refunds get released faster.

Conclusion

The old vs new regime debate is not philosophical — it is arithmetic. Run both calculations every year, especially when life events (marriage, home purchase, child's higher education) change your deduction base. The new regime is the default, but the old regime is still a legitimate, often optimal choice for those with structured tax planning.

Frequently Asked Questions

At what income level does the old regime usually beat the new regime?

As a rough rule for FY 2026-27, if you can claim total deductions and exemptions of around ₹3.75 lakh or more under the old regime (covering Section 80C, 80D, HRA, home loan interest, and NPS), the old regime typically gives a lower tax outflow. Below that, the new regime usually wins.

Is the standard deduction available in both regimes?

Yes. The standard deduction is available in both regimes for salaried taxpayers and pensioners, but the amount differs — ₹75,000 under the new regime and ₹50,000 under the old regime for FY 2026-27.

Can I claim 80CCD(2) NPS contribution in the new regime?

Yes. Employer's contribution to NPS under Section 80CCD(2) is allowed in both regimes, up to 14% of basic salary plus dearness allowance. This makes employer NPS one of the most tax-efficient salary components irrespective of regime choice.

How often can I switch between the old and new regime?

Salaried taxpayers without business income can switch every year by selecting the option in their ITR before the due date. Taxpayers with business or professional income must file Form 10-IEA to opt out of the default new regime and can switch back to it only once thereafter.

Does Section 80G work in the new regime?

Generally no. Section 80G deduction is not available under the new tax regime, except for specific government funds expressly preserved by law. To claim 80G for routine charitable donations, you must opt for the old regime when filing your return.