Choosing the new tax regime? The deductions you give up, from 80C to HRA and self-occupied home-loan interest

The new tax regime under Section 115BAC has been the default regime since FY 2023-24, and for FY 2025-26 (assessment year 2026-27) it carries the widest slabs and the largest rebate the regime has ever offered. But that headline simplicity comes at a price: to enjoy the lower rates you surrender almost the entire toolkit of deductions and exemptions that salaried taxpayers built their planning around. According to the Income Tax Department's own New vs Old Tax Regime FAQ, the new regime "permits only limited deductions" and specifically disallows house rent allowance and the interest on borrowed capital for a self-occupied house. This tip walks through exactly what you give up when you accept the default, and shows with a Rs 15,00,000 salary why the answer is not automatic.

What the Section Says

Section 115BAC of the Income-tax Act, 1961, sets out a concessional slab structure that applies unless the taxpayer opts out. For FY 2025-26 the seven-band new-regime schedule taxes income at 0%, 5%, 10%, 15%, 20%, 25% and 30%, with the nil band running all the way to Rs 4,00,000. To access those rates, sub-section (2) of Section 115BAC requires the taxpayer to compute total income without most of the deductions and exemptions the old regime allows.

The forfeited list is long and it is the whole point of the trade-off. In the new regime you cannot claim Section 80C (the Rs 1,50,000 basket covering PPF, EPF, life insurance premiums, ELSS, principal repayment on a home loan and children's tuition), Section 80D health-insurance premiums, Section 80CCD(1B)'s additional Rs 50,000 for NPS, house rent allowance exemption under Section 10(13A), leave travel allowance under Section 10(5), and the Section 24(b) deduction of up to Rs 2,00,000 for interest on a self-occupied home loan. Chapter VI-A deductions such as 80TTA, 80TTB, 80G and 80E are also switched off in the default regime. To be unambiguous: Section 80CCD(1B) is not allowed in the new regime, and the additional Rs 50,000 NPS deduction it offers is available only in the old regime.

What the new regime still allows is a shorter but not trivial list. The standard deduction against salary income survives, and it is actually higher in the new regime at Rs 75,000 for FY 2025-26 versus Rs 50,000 in the old regime. The employer's contribution to your NPS account under Section 80CCD(2) remains deductible, as does the Section 80CCH deduction for Agniveer Corpus Fund contributions and the deduction for family pension. Crucially, the Section 87A rebate in the new regime is now up to Rs 60,000, wiping out tax entirely for a total income up to Rs 12,00,000 for FY 2025-26.

Worked Example

Take Priya, a salaried professional in Bengaluru with a gross salary of Rs 15,00,000 for FY 2025-26. She pays rent, has a self-occupied home loan, invests the full Rs 1,50,000 under Section 80C and pays Rs 25,000 in health-insurance premiums. Her deduction profile is exactly the kind the old regime was built to reward, so this is the fair test of what the new regime costs her.

New regime. Her only reduction is the Rs 75,000 standard deduction, leaving total income of Rs 14,25,000. Applying the FY 2025-26 slabs, tax is Rs 20,000 on the Rs 4,00,000 to Rs 8,00,000 band, Rs 40,000 on the Rs 8,00,000 to Rs 12,00,000 band, and Rs 33,750 on the Rs 2,25,000 that falls in the 15% band, for base tax of Rs 93,750. Because her total income exceeds Rs 12,00,000, the Rs 60,000 rebate under Section 87A does not apply. Adding 4% health and education cess of Rs 3,750 gives a final liability of Rs 97,500.

Old regime. Priya claims an HRA exemption of Rs 1,80,000 under Section 10(13A), the Rs 50,000 standard deduction, Rs 2,00,000 of self-occupied home-loan interest under Section 24(b), Rs 1,50,000 under Section 80C and Rs 25,000 under Section 80D. Her taxable income falls to Rs 8,95,000. Old-regime slab tax is Rs 12,500 on the Rs 2,50,000 to Rs 5,00,000 band plus Rs 79,000 on the Rs 3,95,000 taxed at 20%, giving Rs 91,500. With 4% cess of Rs 3,660, her liability is Rs 95,160.

Priya forfeits deductions and exemptions worth Rs 5,55,000 by not choosing the old regime, and that tax shield tips the balance: the old regime is cheaper for her by Rs 2,340. The lesson is not that one regime always wins but that the answer flips with your deduction profile, which is why the old vs new regime calculator and the full income tax calculator exist. Had Priya's rent, home loan and 80C investments been smaller, the wider new-regime slabs and Rs 60,000 rebate would have swung the result the other way, as the new regime calculator makes clear.

Common Mistakes

The single most expensive error seen in ITR scrutiny is claiming forfeited deductions in the new regime and then facing a defective-return notice or a processing adjustment. Taxpayers who filled Chapter VI-A schedules for Section 80C or 80D while their return was flagged as new-regime routinely have those amounts disallowed under Section 143(1), because Section 115BAC(2) does not permit them. If you want those deductions, you must actively opt for the old regime, not simply enter the numbers.

A second frequent mistake is assuming Section 80CCD(1B), the additional Rs 50,000 for self-contributions to the National Pension System, is available in the new regime. It is not; only the employer's contribution under Section 80CCD(2) survives in the default regime for FY 2025-26. Taxpayers who made a Rs 50,000 voluntary NPS deposit expecting a new-regime deduction lose the tax benefit entirely unless they switch to the old regime.

Third, salaried employees and business owners face different switching rules, and confusing them is a costly trap. A salaried taxpayer with no business income may choose the regime afresh every year up to the Section 139(1) filing deadline, but a taxpayer with income from business or profession who opts out of the new regime may return to it only once in a lifetime, using Form 10-IEA. Filing that form late, or not filing it at all when opting out, is treated by the department as a decision to stay in the default new regime for the whole year.

A fourth mistake is forgetting that a self-occupied house yields no interest benefit in the new regime, yet a let-out property is treated differently. In the old regime, interest on a self-occupied home is capped at Rs 2,00,000 under Section 24(b); in the new regime that Rs 2,00,000 vanishes, and any resulting loss from house property cannot be set off against salary income either. Taxpayers who bought a home on a large loan and still picked the default regime often discover this only when their refund is smaller than expected.

FAQ

Which deductions can I still claim in the new tax regime for FY 2025-26?

The standard deduction of Rs 75,000 against salary, the employer's NPS contribution under Section 80CCD(2), the Section 80CCH Agniveer deduction, and the deduction for family pension survive in the new regime. The Rs 60,000 rebate under Section 87A also applies for total income up to Rs 12,00,000. Everything else, including Section 80C, 80D, HRA and self-occupied home-loan interest, is disallowed by Section 115BAC(2).

Is HRA fully taxable if I stay in the new regime?

Yes. The house rent allowance exemption under Section 10(13A) is not available in the new regime, so the entire HRA component of your salary is taxable, regardless of how much rent you pay. If you are a tenant with a large HRA, model both regimes on the old vs new calculator before you decide, because losing HRA can easily exceed the value of the wider slabs.

Can I claim my Rs 2,00,000 home-loan interest in the new regime?

Not for a self-occupied house. Section 24(b) interest of up to Rs 2,00,000 is a deduction the new regime removes entirely, and the resulting house-property loss cannot be set off against salary. For a let-out property the treatment differs, so confirm your property's status before assuming the benefit is gone.

How do I switch from the new regime back to the old regime?

Salaried taxpayers with no business income simply select the old regime in the ITR before the Section 139(1) due date. Taxpayers with business or professional income must file Form 10-IEA to opt out, and once they opt back into the new regime they generally cannot return to the old regime again. The current-year default, if you do nothing, is the new regime.

Does the Rs 60,000 rebate mean income up to Rs 12,00,000 is tax-free?

For FY 2025-26, the Section 87A rebate in the new regime is up to Rs 60,000, which makes tax nil where total income does not exceed Rs 12,00,000. With the Rs 75,000 standard deduction, a salaried taxpayer earning up to about Rs 12,75,000 of gross salary can reach that zero-tax outcome. Above Rs 12,00,000 of total income the rebate does not apply, as Priya's Rs 14,25,000 example shows.

Is Section 80CCD(1B) for NPS available in the new regime?

No. The additional Rs 50,000 deduction for your own NPS contribution under Section 80CCD(1B) is an old-regime benefit only. In the new regime, only the employer's contribution under Section 80CCD(2) reduces your taxable income for FY 2025-26.

Which regime is better for me?

There is no universal answer; it depends on how much you claim. As a rough guide, if your combined deductions and exemptions (80C, 80D, HRA, home-loan interest and the rest) comfortably exceed roughly Rs 4,00,000 to Rs 5,00,000, the old regime often wins, as it did for Priya by Rs 2,340. Below that, the wider new-regime slabs and the Rs 60,000 rebate usually win. Always run your actual figures through the income tax calculator rather than relying on a rule of thumb.