Top Stories 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

By Kavi Priya – On April 16, 2025 10:29 am – 3 mins read 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. Worried About SME IPO Pitfalls?

Gain Clarity with This Advanced Course! Register Now 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%

Read More: Earning in USD or INR: What’s Really Worth More? CA Explains 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. Worried About SME IPO Pitfalls? Gain Clarity with This Advanced Course! Register Now Read More: FIR Against OYO on Alleged GST Fraud Over Fake Bookings 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.