Income Tax Deductions Under the Income-tax Act, 2025 — Chapter VIII Complete Guide

Quick Answer

Under the Income-tax Act, 2025 (30 of 2025), which received Presidential assent on 21 August 2025 and commenced on 1 April 2026, deductions are governed by Chapter VIII. For tax year 2026-27 — the first year under the new Act — the key thing to know is that the default new regime allows only limited deductions: standard deduction of ₹75,000 (salaried), employer NPS contribution under the Sec 80CCD(2) equivalent (14% of salary), family pension standard deduction (₹25,000), and Agniveer Corpus Fund. The old regime, available on opt-out, retains all traditional deductions — 80C (₹1.5L), 80D (health insurance), 80E (education loan), 80G (donations), 80TTA/80TTB (bank interest), HRA, LTA, and Sec 24(b) home loan interest. This guide walks through every deduction and helps you decide which regime is better for your situation.

Last Updated: 15 April 2026 | Applicable From: Tax Year 2026-27 (1 April 2026 onwards) | Reference: Income-tax Act, 2025 (30 of 2025), as amended by Finance Act, 2026

The Income-tax Act, 2025 makes the new tax regime the default, and the new regime is built on a deliberate policy choice: simpler, lower rates in exchange for fewer deductions. For most salaried individuals with modest investments, the new regime yields a lower tax bill without any paperwork or evidence gathering. But for those with significant traditional deductions — big home loans, high health insurance premiums, substantial charitable donations, or maxed-out 80C investments — the old regime may still beat the new. This guide explains exactly what is available under each regime for tax year 2026-27 and provides a practical framework for making the choice.

Definition — Chapter VIII Deductions: Chapter VIII of the Income-tax Act, 2025 contains provisions allowing deductions from gross total income in computing total income. These correspond broadly to Chapter VI-A of the repealed Income-tax Act, 1961. The availability of individual deductions depends on the tax regime opted for by the assessee.

Definition — Tax Year: A period of twelve months commencing on 1 April. The first tax year under the Income-tax Act, 2025 is tax year 2026-27, beginning 1 April 2026.

Featured Answer — New regime vs old regime for deductions

The new regime (default) allows only: (1) Standard Deduction ₹75,000, (2) Employer NPS contribution up to 14% of salary, (3) Family Pension Standard Deduction ₹25,000, (4) Agniveer Corpus Fund, and (5) Deduction on interest from savings account up to a limit. The old regime (opt-out) retains all traditional deductions including Sec 80C ₹1.5L, Sec 80CCD(1B) additional ₹50K NPS, Sec 80D health insurance up to ₹1L, Sec 80E education loan (no cap), Sec 80G donations (50%/100%), Sec 80TTA/80TTB (bank interest), HRA, LTA, and Sec 24(b) home loan interest ₹2L. The break-even for choosing between regimes depends on your total deductible amount and income level — typically, total deductions above ₹4–5 lakh favour the old regime.

Deductions available under the new regime
Standard deduction — ₹75,000 new / ₹50,000 old
Sec 80C equivalent — ₹1.5 lakh (old regime only)
Sec 80CCD NPS — regime treatment
Sec 80D health insurance (old regime only)
Sec 80E education loan interest (old regime only)
Sec 80G donations (old regime only)
Sec 80TTA/80TTB bank interest (old regime only)
HRA exemption (old regime only)
LTA exemption (old regime only)
Sec 24(b) home loan interest
Break-even analysis — which regime?
Expert Insight
Key Takeaways
Frequently Asked Questions

1. Deductions available under the new regime (default)

Under the default new regime of the Income-tax Act, 2025, only the following deductions can be claimed:

Deduction	Amount/Limit	Applicable to
Standard Deduction (salary/pension)	₹75,000	Salaried individuals, pensioners
Employer NPS contribution (Sec 80CCD(2) equivalent)	Up to 14% of salary	Salaried (Govt and private)
Standard Deduction (family pension)	₹25,000 or 1/3rd, whichever is lower	Recipients of family pension
Agniveer Corpus Fund (Sec 80CCH equivalent)	Entire contribution	Agniveers
Interest on let-out property (Sec 24(b) equivalent)	Full interest on loan	Let-out property owners (not self-occupied)

That is the complete list. All other deductions — Sec 80C, 80D, 80E, 80G, 80TTA, 80TTB, HRA, LTA, home loan interest for self-occupied property, medical expenses — are not available under the new regime.

2. Standard deduction — ₹75,000 new / ₹50,000 old

Standard deduction is the most valuable deduction for salaried individuals because it requires no investment, no documentation, and no paperwork. The amount is fixed and automatic:

New regime: ₹75,000 (up from ₹50,000 under the 1961 Act)
Old regime: ₹50,000 (unchanged)

Available to: salaried individuals, pensioners (not family pensioners — they get a separate deduction), and retired government employees receiving pension.

Not available to: business income earners, professionals computing income under PGBP, and family pensioners (who have their own ₹25,000 standard deduction under the Other Sources head).

3. Sec 80C equivalent — ₹1.5 lakh (old regime only)

The old Sec 80C — arguably the most famous Indian tax deduction — is preserved in Chapter VIII of the 2025 Act but only under the old regime. Aggregate limit: ₹1,50,000 per tax year. Eligible investments and expenses include:

Employee Provident Fund (EPF) contributions
Public Provident Fund (PPF)
National Savings Certificates (NSC)
Equity-Linked Savings Scheme (ELSS) mutual funds
Life insurance premium (self, spouse, children)
Unit Linked Insurance Plans (ULIPs)
Tuition fees for up to two children (Indian school/college)
Principal repayment on home loan
Stamp duty and registration charges on house purchase
Senior Citizen Savings Scheme (SCSS)
Sukanya Samriddhi Yojana (SSY)
5-year tax-saving fixed deposit with a scheduled bank
National Pension System (NPS) Tier I contribution (employee portion — counts towards ₹1.5L)

4. Sec 80CCD NPS — regime treatment

NPS (National Pension System) has multiple deduction lines, each with different regime treatment:

Sub-section	What it covers	Limit	New regime	Old regime
80CCD(1)	Employee NPS contribution	10% of salary (within ₹1.5L 80C ceiling)	✗ Not available	✓ Available
80CCD(1B)	Additional employee NPS	₹50,000 over and above 80C	✗ Not available	✓ Available
80CCD(2)	Employer NPS contribution	14% of salary (Govt & private)	✓ Available	✓ Available

Key point: The 14% employer NPS contribution under the Sec 80CCD(2) equivalent is one of the very few Chapter VIII deductions available under the default new regime. It was enhanced from 10% to 14% for private sector employees by the Finance Act, 2024 and is carried forward into the 2025 Act. Employees should negotiate with employers to shift some CTC from taxable salary into NPS employer contribution — the saving is immediate and substantial.

5. Sec 80D health insurance (old regime only)

Coverage	Below 60 years	Senior citizen (60+)
Self, spouse, children	₹25,000	₹50,000
Parents	₹25,000	₹50,000
Maximum family total	₹50,000	₹1,00,000

Within these limits, ₹5,000 per year can be claimed for preventive health check-ups. For senior citizens without any health insurance, actual medical expenses up to ₹50,000 can be claimed as a substitute for the premium deduction.

6. Sec 80E education loan interest (old regime only)

Interest on an education loan taken for higher education (including vocational courses) of self, spouse, children, or legal ward is fully deductible — no cap on the interest amount — for a maximum of 8 consecutive years or until the loan is fully paid off. Principal repayment is not deductible.

7. Sec 80G donations (old regime only)

Donations to approved charitable institutions and relief funds are deductible at either 100% or 50% depending on the recipient, subject to qualifying limits in some cases:

100% without qualifying limit: PM National Relief Fund, National Defence Fund, PM CARES, etc.
100% with qualifying limit: Specified scientific research funds (limited to 10% of adjusted gross total income)
50% without qualifying limit: PM Drought Relief Fund, Rajiv Gandhi Foundation, etc.
50% with qualifying limit: Most approved NGOs (limited to 10% of adjusted gross total income)

Cash donations above ₹2,000 are not eligible — payment must be by cheque, DD, electronic transfer, UPI, or card. Donation receipts must mention the 80G registration number of the recipient.

8. Sec 80TTA/80TTB bank interest (old regime only)

Sec 80TTA equivalent: Deduction of up to ₹10,000 on savings bank interest (non-senior citizens)
Sec 80TTB equivalent: Deduction of up to ₹50,000 on all bank deposit interest (savings + FD + RD) for senior citizens

9. HRA exemption (old regime only)

House Rent Allowance (HRA) exemption under the Sec 10(13A) equivalent is the lowest of:

Actual HRA received from employer
Rent paid minus 10% of salary (basic + DA)
50% of salary (metro) or 40% of salary (non-metro)

HRA is only an exemption under the old regime. Under the new regime, the entire HRA is taxable as part of salary.

10. LTA exemption (old regime only)

Leave Travel Allowance (LTA) covers travel expenses for a vacation with family (spouse, children, and dependent parents/siblings) anywhere within India. Key rules:

Available twice in a block of four calendar years
Current block: 2026–2029
Exemption limited to economy air fare or first-class AC rail fare by the shortest route
Hotel, food, and local sightseeing expenses are NOT covered
Actual travel must take place; proof of travel required (tickets, boarding passes, hotel bills may be needed in assessment)

11. Sec 24(b) home loan interest

Home loan interest deduction works differently under the two regimes:

Self-occupied property under old regime: Up to ₹2,00,000 deduction on interest paid — very valuable for first-time homebuyers with large loans.
Self-occupied property under new regime: NOT available. This is one of the biggest deductions lost when moving to the new regime.
Let-out property (both regimes): Full interest is deductible from the rental income under the House Property head. Any resulting loss can be set off against other heads up to ₹2 lakh per year; the excess is carried forward for 8 years.

12. Break-even analysis — which regime?

The decision between new and old regime depends on how many deductions you actually claim. A simple break-even rule of thumb for tax year 2026-27:

Total income	Break-even old regime deductions	Recommended regime
₹10 lakh	~ ₹2,50,000	New (usually)
₹15 lakh	~ ₹3,75,000	New (usually)
₹20 lakh	~ ₹4,50,000	Depends — check both
₹30 lakh	~ ₹5,50,000	Old (if deductions high)
₹50 lakh+	~ ₹6–8 lakh	New (surcharge cap helps)

For ultra-high-income individuals (above ₹5 crore), the new regime is almost always better because of the 25% surcharge cap — see our surcharge and cess guide. For detailed income-level comparisons, see our tax planning new vs old regime article.

Expert Insight

CA V. Viswanathan: I’ve watched the Indian tax landscape shift dramatically over the last three years. When the new regime was first introduced in 2020, very few taxpayers opted in. By tax year 2023-24, a majority had moved. Now, under the Income-tax Act, 2025, the new regime is the default, and in my practice approximately 85% of clients stay with the default. The 15% who opt out are overwhelmingly those with very large home loans (₹2 lakh interest deduction matters), substantial health insurance for parents (₹1 lakh deduction), and maxed-out 80C investments. But I always tell clients two things: first, don’t opt out of the default just because you’re used to claiming 80C — the new regime’s ₹75,000 standard deduction plus lower slabs plus ₹60,000 rebate up to ₹12 lakh often compensates for most old-regime benefits at moderate income levels. Second, compute both regimes every year, not just once — your deductions and income mix change, and a regime that was optimal last year may not be this year. I also remind business income earners that opting out is essentially one-time — once you move out of the default new regime and then come back, you generally cannot opt out again. Get the choice right the first time, and do it with a full break-even analysis, not a gut feeling.

Key Takeaways

Income-tax Act, 2025 commenced 1 April 2026; first tax year is 2026-27
New regime (default) allows only: standard deduction ₹75,000, employer NPS 14%, family pension ₹25,000, Agniveer Corpus
Old regime (opt-out) retains all traditional deductions — 80C ₹1.5L, 80D, 80E, 80G, 80TTA/TTB, HRA, LTA, Sec 24(b) home loan
Standard deduction raised to ₹75,000 under new regime (from ₹50,000)
Employer NPS contribution limit enhanced to 14% for private sector (from 10%)
Home loan interest for self-occupied property — only available under old regime
Home loan interest for let-out property — available under both regimes, subject to set-off limits
Cash donations above ₹2,000 are NOT eligible under Sec 80G equivalent
Regime choice is binary — no mixing allowed; compute break-even annually
For most salaried individuals below ₹20 lakh without large home loans, new regime is better

Frequently Asked Questions

What deductions are available under the Income-tax Act, 2025?

Under the new regime (default): standard deduction, employer NPS, family pension deduction, Agniveer Corpus. Under the old regime (opt-out): all traditional deductions — 80C, 80D, 80E, 80G, 80TTA/TTB, HRA, LTA, Sec 24(b) home loan interest.

Is Section 80C available under the new regime?

No. The Sec 80C equivalent (₹1.5L) is NOT available under the new regime. Only available if taxpayer opts out of new regime and chooses old regime.

What is the standard deduction under the 2025 Act?

₹75,000 for salaried/pensioners under new regime (up from ₹50,000); ₹50,000 under old regime. Automatic — no investment required.

How does Section 80D health insurance deduction work?

Old regime only. ₹25,000 for self/family (below 60), ₹50,000 if senior citizen. Additional ₹25,000/₹50,000 for parents. Maximum family benefit ₹1 lakh if both self and parents are senior citizens.

Is home loan interest deductible under the new regime?

No for self-occupied property. Yes for let-out property (deductible from rental income; set-off against other heads capped at ₹2L).

What is Section 80CCD(2) and why is it available under the new regime?

Employer NPS contribution up to 14% of salary (both Govt and private). Available under BOTH regimes because it’s an employer contribution, not a personal investment. Enhanced from 10% by Finance Act, 2024.

Is HRA exemption available under the new regime?

No. HRA exemption is only under the old regime. Under new regime, full HRA is taxable as salary.

How much of Sec 80G donation is deductible?

50% or 100% depending on recipient, subject to qualifying limits. Cash donations above ₹2,000 not eligible. Old regime only.

Is Sec 80TTA savings bank interest deduction available under the new regime?

No. 80TTA (₹10,000 savings interest) and 80TTB (₹50,000 bank interest for seniors) are only under old regime.

What is the Sec 80E education loan deduction?

Full interest on education loan (no cap) for 8 years or till repayment. Old regime only. Principal not deductible.

Is leave travel allowance (LTA) available under the new regime?

No. LTA exemption is only under old regime. Two journeys in a block of 4 years within India. Current block: 2026–2029.

What is the Agniveer Corpus Fund deduction?

Contributions to the Agniveer Corpus Fund are deductible under BOTH regimes under the Sec 80CCH equivalent. One of the few deductions allowed under the default new regime.

Can I claim both new regime and old regime deductions selectively?

No. Regime choice is binary. Cannot mix deductions from both regimes in the same tax year.

How do I decide between new and old regime for tax year 2026-27?

Compute both. If old-regime deductions (80C + 80D + HRA + home loan interest + other) exceed ~₹4.5 lakh, old regime may beat new. Below this, new is almost always better. See our detailed break-even guide.

How can Virtual Auditor help with deduction planning?

Regime selection, investment advisory for 80C basket, health insurance structuring, home loan optimisation, regime switching strategy. Call +91 99622 60333.