Deductions & Exemptions for Salaried Employees Under the New Tax Regime (Budget 2025)

Under Budget 2025, the New Tax Regime has become the default tax regime for individual taxpayers in India. The new regime has lower income tax rates, but many taxpayers feel that all the deductions and exemptions have disappeared. But this is not exactly true. There are still several important deductions and exemptions that salaried employees can claim to reduce their taxable income and save more on taxes.

In this article, we cover the deductions and exemptions under the New Tax Regime in Budget 2025 and the relevant sections of the Income Tax Act.

Standard Deduction Under Section 16(ia)

One of the biggest reliefs salaried employees get is the Standard Deduction.

All salaried employees are eligible for a standard deduction of ₹75,000 under the New Tax Regime under Section 16(ia).

Key Takeaways

Open to all wage-earning employees.
No proof or bills needed.
It is deducted automatically at the time of calculation of taxable salary.
Also available to eligible pensioners on family pension (subject to applicable provisions)

This deduction directly reduces your taxable salary and is one of the most valuable tax benefits under the new regime.

Exempt Allowances Under Section 10(14)

Under the New Tax Regime, most allowances are not exempt but some allowances given for official duties are still tax-exempt under section 10(14).

1.Transport Allowance

Transport allowance is admissible only to certain employees, particularly divyang (disabled) employees, for travelling between their residence and place of work.

This exemption helps eligible employees with their daily travel expenses.

2. Daily Allowance /

Daily allowance received towards the meeting expenses incurred during official duty or deputation is exempt.

Examples are:

Tours of official
Training Courses
Transfers on Loan
Government assignments

The exemption is only on the actual amount spent for official purposes.

3. Allowance for Conveyance

Exemption: Conveyance allowance provided only for the purpose of discharging duties in office.

Examples are:

Meetings with clients
Site visits
Document Delivery (Official)
Field trips

The exemption is restricted to expenses paid in the performance of official work.

4. Travel/tour allowance

Employees reimbursed for official travel may claim exemption for expenses relating to:

Tours of official
Corporate travel
Transfers
Travel related to employment

The exemption is generally available for the lesser of:

Amount actually received or
Actual expenditure.

Employer Contribution to NPS – Section 80CCD(2)

One of the major deductions that can be claimed under the New Tax Regime is the deduction for the contribution made by the employer towards the National Pension System (NPS).

Under section 80CCD(2)

NPS contribution by employer is tax deductible.
The deduction is available to most of the employees up to 14% of Basic Salary plus Dearness Allowance (DA) where applicable under the new regime (subject to the applicable employer category and the prevailing tax provisions).

Advantages

Lowers the tax bill.
It can help you grow your retirement savings.
Promotes long-term financial planning.

Many companies now add NPS contributions as a part of employee salary structures to be tax efficient.

Agnipath Scheme Deduction – Section 80CCH(2)

The persons enrolled under Agnipath Scheme are eligible to claim deduction under Section 80CCH(2).

The deduction takes in:

Central Government’s share
Contributions eligible under the scheme

This ensures that the beneficiaries of the Agnipath Scheme continue to be eligible for tax benefits under the New Tax Regime.

Tax-Free Retirement Benefits

Several retirement benefits continue to be exempt under the New Tax Regime upto the extent of the limits prescribed under the Income Tax Act.

These are:

Retirement pension

Section 10(10A) continues some pension related exemptions subject to the type of pension and the conditions that apply.

Tip

The gratuity received on retirement continues to be exempt under section 10(10) subject to certain monetary limits and conditions.

Voluntary Retirement Scheme (VRS) –

If you have been paid compensation under an approved VRS scheme, then you can claim exemption under section 10(10C).

This benefit offers financial assistance to employees choosing voluntary retirement.

Encashment of Leave

Encashment of leave received at retirement is exempted under section 10(10AA) subject to limits applicable.

This waiver also applies to employees who retire from service.

Deductions Not Available Under the New Tax Regime

Currently, some deductions are available but there are many popular deductions which cannot be claimed under the New Tax Regime.

These are:

Section 80C investments (PPF, ELSS, LIC, NSC, Tax Saver FD)
Section 80D (Premium on Medical Insurance)
House Rent Allowance (HRA).
Leave Travel Concession (LTC)
Interest on Self Occupied Home Loan (Section 24)
Children’s Education Allowance
The Special Allowances Most

Hence, taxpayers should compare both tax regimes before filing their income tax return.

Who can opt for new tax regime?

Who generally benefits from the New Tax Regime?

Salaried employees with investments saving less taxes
Young proffesionals.
People without housing loan.
Employees who do not claim HRA or claim multiple deductions.
Taxpayers who want an easier tax system.

But those with large investments and deductions should compare their tax liability under both regimes before deciding.

Closing Thoughts

Budget 2025 has introduced a New Tax Regime to reduce tax rates and simplify income tax compliance. Even with the removal of a few traditional deductions, salaried individuals can still enjoy substantial benefits through provisions like the Standard Deduction of ₹75,000, exemptions on certain official duty allowances, Employer NPS Contribution under Section 80CCD(2), benefits under the Agnipath Scheme, and exemptions on eligible retirement benefits like gratuity, pension, VRS compensation, and leave encashment.

Before you choose a tax regime, calculate your tax liability under both the old and the new tax regime. The right option depends on your salary structure, investments and eligible deductions.

For expert advice on choosing the most tax efficient option or for help filing your Income Tax Return, consult experienced tax professionals for maximum compliance and savings