Chapter VIII Deductions as per Income Tax Act 2025
Old and New Regime
A comprehensive guide to deductions under new Income Tax Act covering the old and new regimes.
FY 2026-27
Setting the context
The Income Tax Act, 2025, is now effective from 1st April 2026, marking a new era in India's direct tax legislation by superseding the Income Tax Act, 1961.
Section Numbering Revised
While core deduction principles and limits largely remain unchanged, all section numbers have been revised for clarity and modernization.
Rules Duly Notified
The Income Tax Rules, 2026, have been officially notified by the CBDT, also effective from 1st April 2026.
Scope of Rules
These rules define allowance limits, perquisite valuations, and procedural compliances under the new Act.
What this guide covers?
This guide integrates all relevant sections and detailed explanations from both the new Act and Rules for a complete understanding.
Deductions under Chapter VIII:
Income tax act 2025 vs 1961
Below is a detailed comparison of key tax deductions, highlighting their new section numbers, limits, and significant changes under the Income Tax Act 2025 and Rules 2026.
What You CAN Claim in the New Regime
The new regime is not a zero-deduction regime. Here is the list of deductions and exemptions available in new regime.
1
Standard Deduction — Section 19 (Old section -16)
Standard dedcution- 75000/-
2
Employer NPS — Section 124 (Old section-Section 80CCD)
Government Employees: Up to 14% of salary.
Private Sector Employees: Up to 10% of salary.
Individual Contribution: up to ₹50,000 for self-contributi,ons,
3
Home Loan Interest only for Let-Out Property [Section 22 (1b) Old section 24(b)]
4
Family Pension Deduction - Section 93d (Old section-57(iia))
Lower of Rs.25,000 or one-third of family pension received.
5
Section 125 (2) (Old section- 80CCH) — Agniveer Corpus Fund.
Central Government's contributions towards the scheme deductible.
6
Gratuity — Section 1)9 (1) Table Sl no 3-6 (Old section -10(10)
7
Leave Encashment at Retirement — Section 19 (1) Table Sl no 13-14 (Old section 10(10AA))
Government employees: fully exempt. Private sector: up to Rs.25 lakh.
8
VRS Compensation — Section 19 (1) Table Sl no 12 (Old section 10(10C)
Exempt up to Rs.5 lakh.
9
Life Insurance Maturity — Section 11 (Schedule II Table serial no 2 ( Old section 10(10D))
Tax free subject to conditions. Policies issued after 1st April 2023 with annual premium above Rs.5 lakh — maturity proceeds taxable at slab rates.
10
Provident Fund— Section 11 (Schedule II Table serial no 3 ( OLd section 10(11))
Tax free subject to conditions..
11
Section 146 (Old section- 80JJAA) — Deduction in respect of additional employee cost.