Income Tax Deductions Every Salaried Person Should Know: Here's 2025 Update
For FY 2025-26, salaried Indians can choose between the new tax regime with higher rebates and standard deductions, or the old regime with more claimable exemptions
The Indian tax system offers two ways for salaried individuals to calculate their income tax: the new tax regime and the old tax regime. Starting from the financial year 2025–26 (Assessment Year 2026–27), the new regime has become the default option. The old regime continues to be available if the taxpayer chooses it by filing a specific form. This article explains the tax...
The Indian tax system offers two ways for salaried individuals to calculate their income tax: the new tax regime and the old tax regime. Starting from the financial year 2025–26 (Assessment Year 2026–27), the new regime has become the default option. The old regime continues to be available if the taxpayer chooses it by filing a specific form.
This article explains the tax deductions available to salaried individuals under both regimes, in line with the latest updates from the Union Budget and Income Tax Act as of April 2025.
The Two Tax Regimes: Legal Basis and Comparison
New Tax Regime (Section 115BAC)
Introduced under Section 115BAC of the Income Tax Act, the new regime offers lower tax rates but limits most deductions and exemptions. This regime is now set as the default by the government starting from AY 2024–25.
A salaried person must file Form 10-IEA to continue using the old regime before the income tax return deadline each year.
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Old Tax Regime
The old regime remains in place and continues to allow a wide range of deductions and exemptions. Although it comes with higher slab rates, it may result in lower tax liability for individuals who have invested in eligible schemes or incurred allowable expenses.
Revised Slab Rates under the New Regime
| Annual Income Range | Tax Rate (%) |
| Up to Rs. 3,00,000 | 0% |
| Rs. 3,00,001 – Rs. 6,00,000 | 5% |
| Rs. 6,00,001 – Rs. 9,00,000 | 10% |
| Rs. 9,00,001 – Rs. 12,00,000 | 15% |
| Rs. 12,00,001 – Rs. 15,00,000 | 20% |
| Above Rs. 15,00,000 | 30% |
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What’s New for Salaried People?
Here are the major changes introduced by the government.
- Standard Deduction Raised to Rs. 75,000 under the new tax regime (was Rs. 50,000 earlier). This means everyone gets Rs. 75,000 reduced from their salary, no questions asked.
- Tax Rebate Increased to Rs. 60,000 under Section 87A, for income up to Rs. 12 lakh. This means if your taxable income is Rs. 12 lakh or less, you don’t have to pay any tax under the new regime.
- Employer NPS Contribution (Section 80CCD(2)): Up to 14% of salary (basic + DA) for all.
- Family Pension Deduction has gone up to Rs. 25,000 in the new regime.
Deductions in the New Tax Regime (Default System)
Even though the new regime allows fewer deductions, here are the ones you can still claim:
| Type of Deduction | Who Can Claim It | Limit/Details |
| Standard Deduction | All salaried persons and Family pensioners | Rs. 75,000 |
| Employer’s NPS Contribution | Salaried employees | Up to 14% of salary (basic + DA) for all employees (government and non-government) |
| Family Pension | Pension received by dependents | Lower of 1/3rd of pension or Rs. 25,000 |
| Home Loan Interest (if house is rented out) | Homeowners with tenants | No limit on interest |
| Transport Allowance (for disabled) | Employees with disabilities | Fully exempt |
| Gratuity, Leave Encashment, etc. | Those retiring or leaving job | Tax-free within limits |
| Tax Rebate | All individuals earning up to Rs. 12 lakh | Rs. 60,000 rebate, brings tax to zero |
Note: You cannot claim deductions like Section 80C (investments), 80D (health insurance), or HRA under the new regime.
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Deductions Allowed Under the Old Tax Regime
This regime is useful for people who have eligible expenses or make tax-saving investments. You must maintain proper documentation.
| Deduction | Section | Limit |
| Life insurance, PPF, EPF, tuition, etc. | 80C | Rs. 1.5 lakh |
| Health Insurance | 80D | Rs. 25,000 (self/family) + Rs. 25,000/Rs. 50,000 (parents) |
| House Rent Allowance | 10(13A) | Based on rent paid and city |
| Leave Travel Allowance | 10(5) | Domestic travel once in 4 years |
| Home Loan Interest (Self-Occupied Property) | 24(b) | Rs. 2 lakh |
| NPS (employee contribution) | 80CCD(1B) | Rs. 50,000 extra (over 80C) |
| Children’s Education/Hostel Allowance | 10 | Rs. 2,400 + Rs. 4,800 per child (max 2) |
| Donations | 80G | Varies (50–100% of amount donated) |
| Savings Account Interest | 80TTA | Rs. 10,000 (non-senior citizens) |
| Professional Tax | 16(iii) | Deductible if paid to state government |
Read More: Maximizing Tax Savings: A Detailed Guide to HRA, LTA, and Other Exemptions for Salaried Employees
Case Example: Which Regime is Better?
If your annual income is Rs. 12 lakh:
Under the New Regime:
- Standard deduction = Rs. 75,000
- Taxable income = Rs. 11.25 lakh
- Section 87A rebate = Rs. 60,000
- Final tax = Zero
Under the Old Regime:
- Total deductions: Rs. 1.5 lakh (80C) + Rs. 25,000 (80D) + Rs. 2 lakh (loan interest) = Rs. 3.75 lakh
- Taxable income = Rs. 8.25 lakh
- After slabs and rebate (only Rs. 12,500 allowed if income ≤ Rs. 5 lakh), you still pay tax.
Result: If your total deductions exceed Rs. 3 lakh, the old regime may offer better tax savings. Otherwise, the new regime is simpler and just as rewarding.
How to Choose and Report Your Tax Regime
- If you want to use the old regime, you must file Form 10-IEA before your Income Tax Return ( ITR ).
- Salaried employees can choose their regime every year.
- Form 16 from your employer will show your tax deductions.
- Use online calculators from trusted sources like IncomeTaxIndia.gov.in.
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