The new tax regime has significantly raised the basic exemption limit to ₹4 lakh, representing a substantial increase from the old regime's ₹2.5 lakh threshold. This means tax will only be calculated once income crosses this threshold, providing immediate tax relief to lower-income taxpayers. According to tax and investment expert Balwant Jain, this enhanced limit, combined with the ₹75,000 standard deduction for salaried employees, effectively makes income up to ₹12.75 lakh tax-free for many taxpayers. The latest tax calculator data confirms that this ₹4 lakh basic exemption brings taxable income to ₹12 lakh for salaried individuals, making them eligible for the ₹60,000 Section 87A rebate and potentially paying zero tax under the new regime. For individuals earning ₹12 lakh annually, the revised tax structure reduces taxable income to ₹11.25 lakh through the standard deduction, with tax liability capped at ₹52,500 across different slabs, which is fully offset by the enhanced rebate provisions.
Employer contributions to the National Pension System have emerged as one of the most significant tax-saving opportunities under the new regime, with the deduction limit for employer contributions increased from 10% to 14% of basic salary. As reported by Jain, this enhanced limit can substantially reduce taxable income for employees whose organisations include NPS contributions as part of their compensation package. The latest tax calculator confirms that employer NPS contributions under Section 80CCD(2) are available under both regimes, but the new regime offers ₹50,000 additional employer contribution compared to the old regime's ₹1.5 lakh Section 80CCD(1B) limit. This makes NPS contributions more attractive for tax planning compared to the previous restrictions under the old regime, with the deduction available for employees of all categories of employers.
While the new tax regime does not permit taxpayers to claim deductions for interest paid on housing loans for self-occupied properties, taxpayers earning rental income from properties continue to receive significant relief. Under Section 24(b), taxpayers under the new tax regime can claim a deduction on interest paid on a housing loan for a let-out property when the loan is taken for construction or purchase of a house property that has been rented out. The latest tax calculator confirms that interest on home loans for let-out properties is deductible from rental income under both regimes, with no upper limit for the new regime compared to the old regime's ₹2 lakh limit for self-occupied properties. However, Section 24(b) deduction for self-occupied home loan interest is available only under the old regime, representing a significant narrowing of home loan benefits compared to the extensive deductions available under the old regime.
Many salaried employees assume that all allowances and reimbursements have become taxable under the new regime, but Jain clarifies that this is not necessarily the case. According to his guidance, expenses incurred for official purposes and reimbursed by the employer can continue to receive favourable tax treatment, provided they are based on actual expenditure. This includes expenses such as mobile phone bills and internet charges incurred for work purposes, though the distinction is that these must be genuine reimbursements and not fixed allowances paid irrespective of actual spending. However, House Rent Allowance (HRA) exemption under Section 10(13A) is available only under the old regime, and Leave Travel Allowance (LTA) exemption under Section 10(5) is also not available under the new regime.
The new regime introduces specific benefits for Agniveers enrolled under the Agnipath Scheme, providing additional tax relief for defence personnel. Section 80CCH provides tax benefits under the Agnipath Scheme, where an individual enrolled as an Agniveer who contributes to the Agniveer Corpus Fund on or after November 1, 2022 is eligible for a deduction on the full amount. Additionally, any contribution made by the central government to the Agniveer Corpus Fund account of the individual is also fully deductible, meaning both the Agniveer's contribution and the government's contribution qualify for 100% tax deduction. This represents a unique benefit specifically designed for defence personnel participating in the Agnipath initiative.
For many taxpayers, the biggest reduction in tax liability may come from rebate provisions available under the new regime, with resident individuals earning up to ₹12 lakh able to avail rebate under Section 87A for FY 2025-26. According to Jain, taxpayers whose income exceeds the threshold by a small margin may also benefit from marginal relief provisions, which prevent disproportionate jumps in tax liability. The latest tax calculator confirms that Section 87A rebate covers up to ₹60,000 of tax when total income does not exceed ₹12 lakh, effectively reducing tax liability to zero for salaried individuals earning up to ₹12.75 lakh. For individuals earning ₹12 lakh annually, the revised tax structure reduces taxable income to ₹11.25 lakh through the standard deduction, with tax liability capped at ₹52,500 across different slabs, which is fully offset by the enhanced rebate provisions. This provision has become increasingly important as the government shifts focus away from deduction-driven tax planning toward lower tax rates and rebate-based relief, making the new regime particularly attractive for middle-income earners with limited deductions.
