Updated Overview of the New Tax Regime Union Budget 2025?
A detailed breakdown of the new tax regime, including deductions, exemptions, and tax rate comparisons.decision..
Post last updated: February 10, 2024
The Union Budget of February 2025 brought a major overhaul to India's tax structure, aiming to simplify processes and offer relief to taxpayers. While the new tax regime presents reduced tax rates, it limits the range of deductions and exemptions that were previously available under the old system.
Major Deductions and Exemptions in the New Tax Regime
| Category | Deduction/Exemption | Remarks |
|---|---|---|
| Standard Deduction | ₹ 75,000 | Available for salaried employees and pensioners. |
| Employer’s Contribution to NPS | Up to 14% of basic salary | Only valid when the employer makes the contribution. |
| Interest on Housing Loan (Rented Property) | Can be set off against rental income | Excess interest cannot be carried forward or set off against other income. |
| Interest on Housing Loan (Self-Occupied Property) | Not applicable | No deductions allowed. |
| Retirement Benefits | Leave encashment: ₹25 lakh Gratuity: ₹20 lakh Voluntary retirement: ₹5 lakh | These amounts remain tax-free up to the specified limits. |
| Allowances | Travel & daily allowances | Exemptions apply for official tours, transfers, and related expenses. |
What’s Not Allowed in the New Regime?
- Section 80C benefits (PPF, Life Insurance, ELSS, etc.)
- Section 80D (Health Insurance)
- House Rent Allowance (HRA)
- Leave Travel Allowance (LTA)
Employer’s NPS Contribution (Section 80CCD(2))
The employer’s contribution to the National Pension System (NPS) remains deductible under the new tax regime.
Eligibility & Limits:
- ✅ Deduction applies only to employer contributions.
- ✅ Maximum deduction: 10% of basic salary (private sector) or 14% (government sector).
- ✅ Standard deduction of ₹75,000 applies in addition.
Example:
| Basic Salary | Employer’s Contribution (10%) | Eligible Deduction |
|---|---|---|
| ₹10,00,000 | ₹1,00,000 | ₹1,00,000 |
Setting Off Home Loan Interest for Rented Property
Under the new tax regime, taxpayers with a rented property can set off the interest paid on a home loan against rental income. However, if the interest amount exceeds the rental income, the excess loss cannot be carried forward or adjusted against other sources of income.
Detailed Example:
Scenario 1: When Interest is Less Than Rental Income
| Rental Income | Interest Paid on Loan | Net Taxable Rental Income |
|---|---|---|
| ₹6,00,000 | ₹4,50,000 | ₹1,50,000 |
- Since the interest paid is lower than the rental income, the remaining ₹1,50,000 is taxable under 'Income from House Property'.
- 150,000 is now part of your income and would be taxed as per slabs in new tax regime.
Scenario 2: When Interest Exceeds Rental Income
| Rental Income | Interest Paid on Loan | Set-Off Allowed | Excess Loss Carry Forward? |
|---|---|---|---|
| ₹3,00,000 | ₹4,50,000 | ₹3,00,000 | ❌ Not Allowed |
- In this case, only ₹3,00,000 can be set off against rental income. The remaining ₹1,50,000 loss cannot be adjusted against other income sources or carried forward.
-
Only benefit taxpayers are getting is that the 3 lakh amount taxpayer is earning as rent in this scenario is not considered as his income and would not be taxed, no benefit of paying interest more than rental income as taxpayer used to get in old tax regime.
New vs. Old Tax Regime: A Side-by-Side Comparison (2025-26)
Tax Rate Differences
| Income Slab (₹) | New Regime Tax Rate | Old Regime Tax Rate |
|---|---|---|
| 0 - 4,00,000 | Nil | Nil |
| 4,00,001 - 8,00,000 | 5% | 5% (2.5L - 5L slab) |
| 8,00,001 - 12,00,000 | 10% | 20% (5L - 10L slab) |
| 12,00,001 - 16,00,000 | 15% | 20% (5L - 10L slab) |
| 16,00,001 - 20,00,000 | 20% | 30% (Above 10L) |
| 20,00,001 - 24,00,000 | 25% | 30% |
| Above 24,00,000 | 30% | 30% |
This detailed breakdown of the home loan interest set-off under the new tax regime ensures that taxpayers make informed financial decisions while evaluating rental income taxation.
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