What you will learn: which deductions and exemptions still work in the default new regime for tax year 2026–27, how the main old-regime items and their limits work under the Income-tax Act, 2025, and how to test whether they add up to enough to change your regime choice.
Arjun Kulkarni (an illustrative profile), 34, works in Pune and rents a flat in Baner. Each January payroll asks him to declare rent, investments and premiums. One colleague says the new regime has "no deductions"; another that "renters should always pick the old regime". His real question: which of the things I already pay for actually reduce my tax this year, under which regime, and by how much?
Slabs, the rebate and the regime choice are in Choosing a tax regime. Everything here applies to tax year 2026–27 (1 April 2026 to 31 March 2027); a return for income of 2025–26 still follows the Income-tax Act, 1961.
Two regimes, two very different lists
The new regime in section 202 is the default. Section 202(2) switches off most exemptions and deductions under it: HRA, leave travel, professional tax, interest on a home you live in, and almost all of Chapter VIII, which holds the familiar deductions. To use them you must opt out. Without business income, you make that choice each year with the return you file by the due date; with business income, the choice is harder to reverse.
| Item | New regime (default) | Old regime | Income-tax Act, 2025 |
|---|---|---|---|
| Standard deduction from salary | ₹75,000 | ₹50,000 | Section 19 |
| Employer's NPS contribution | Up to 14% of salary | Up to 10% of salary (14% for a Central or State Government employer) | Section 124(1)–(2) |
| Interest on a loan for a let-out house | Allowed against that rent; a loss cannot reduce other income | Allowed; a loss can reduce other income by up to ₹2 lakh a year | Sections 22 and 109 |
| ₹1.5 lakh basket (PPF, EPF, ELSS and others) | No | Yes | Section 123, Schedule XV |
| Extra own NPS contribution | No | Up to ₹50,000 | Section 124(3) |
| Health insurance and check-ups | No | Yes, limits by age | Section 126 |
| Interest on a home you live in | No | Up to ₹2 lakh | Section 22(2) |
| Education loan interest | No | Yes, no rupee cap, up to eight years | Section 129 |
| Savings and deposit interest | No | ₹10,000 (₹50,000 for senior citizens) | Section 153 |
| HRA, leave travel, professional tax | No | Yes | Schedule III, section 19 |
| Donations | No | Yes, by category | Section 133 |
One narrow extra survives: the Government's credit to an Agniveer Corpus Fund account (section 125(2)).
The ₹1.5 lakh basket and NPS
Section 123 gives an old-regime deduction for what you pay into the items in Schedule XV, capped at ₹1,50,000 in total, not per item. The Schedule describes items by type, not product name. The common ones:
- your own contribution to EPF and to PPF;
- life insurance premiums for yourself, your spouse or children; for policies issued from 1 April 2012, premium counts only up to 10% of the actual sum assured (15% for certain disability or illness cases);
- units of a notified tax-saving mutual fund plan (ELSS);
- repayment of home-loan principal, with stamp duty and registration on the purchase;
- tuition fees, not development fees or donations, for the full-time education in India of up to two children;
- a five-year tax-saving bank deposit, the post office five-year time deposit, NSC, the Senior Citizens Savings Scheme and Sukanya Samriddhi;
- your own NPS contribution, up to 10% of salary (20% of gross total income if you are not an employee).
Two traps. EPF often fills most of the basket before you choose anything: 12% of an ₹8 lakh basic is ₹96,000. And some items carry clawbacks: sell the house within five years from the end of the year of possession, or let a life policy lapse before two years' premiums, and the deduction is taken back; SCSS or five-year post office deposits withdrawn within five years become income that year. Small savings schemes compares those schemes.
NPS has one extra beyond the basket: section 124(3) allows up to ₹50,000 more for your own contribution, old regime only, shared with anything you pay into a child's NPS Vatsalya account. NPS tax benefits has the detail.
Health insurance and preventive check-ups
Section 126 is old-regime only and has two separate pots:
- You, your spouse and dependent children: premiums up to ₹25,000 a year, or ₹50,000 if the insured person is a senior citizen.
- Your parents: a separate ₹25,000, or ₹50,000 if the insured parent is a senior citizen.
- Preventive health check-ups: up to ₹5,000 in total, counted inside the limits above, not on top.
- Senior citizen with no health insurance: medical bills can be claimed instead, within the same ₹50,000.
Premiums must be paid other than in cash; a check-up may be paid in cash. A multi-year premium paid upfront is spread equally over the years of cover, so a ₹60,000 three-year premium counts as ₹20,000 a year.
Home loans and education loans
A home you live in. Old-regime interest deduction is capped at ₹2,00,000 a year if the house is bought or built within five years from the end of the year the loan was taken and you have the lender's certificate; otherwise ₹30,000. Interest paid before completion is deducted in five equal parts from the year of completion. Up to two houses can count as your residence, but the ₹2 lakh is a combined cap. The new regime gives nothing; principal sits in the ₹1.5 lakh basket.
A let-out house. Rent is taxed after a 30% standard deduction, and loan interest is deducted without the ₹2 lakh cap. A resulting loss can reduce salary or other income by up to ₹2,00,000 a year in the old regime, but not at all in the new. Property as an investment works through the rental arithmetic.
Education loan interest. Section 129 allows the whole interest, with no rupee cap, on a loan from a bank, notified financial institution or approved charitable institution for higher education of you, your spouse, your children or a student in your legal guardianship. It runs for the year you start paying interest and the next seven. Principal does not count, nor does a loan from a relative. Old regime only.
Rent, leave travel and smaller items
House rent allowance. Under Schedule III and rule 279 of the Income-tax Rules, 2026, exempt HRA is the least of three amounts for the months you rented:
- the HRA actually received;
- rent paid minus 10% of salary;
- 50% of salary in Mumbai, Delhi, Kolkata, Chennai, Bengaluru, Hyderabad, Pune and Ahmedabad, and 40% elsewhere.
"Salary" means basic plus dearness allowance where your terms count it, not CTC. From 1 April 2026 the 50% list grew from four cities to eight. You declare rent to your employer in Form 124 (formerly Form 12BB).
No HRA at all? Section 134 allows the least of rent minus 10% of total income, ₹5,000 a month, and 25% of total income, unless you, your spouse or minor child own a home where you live or work. Old regime only.
Leave travel. Schedule III exempts an employer's travel payment for journeys within India by you and your family, limited to fare actually spent and the number of journeys the rules allow. Old regime only.
Savings interest. Section 153 lets a non-senior deduct up to ₹10,000 of savings-account interest (fixed deposits do not count). A senior citizen can deduct up to ₹50,000 of interest on bank, co-operative bank and post office deposits, fixed deposits included. Old regime only, and separate from the TDS thresholds in Interest, distributions and TDS.
Donations. Section 133 allows 100% or 50% of a donation depending on the recipient, some categories capped at 10% of adjusted gross total income. A cash donation above ₹2,000 gets nothing. Most charity claims rely on the charity reporting your donation, so check your Annual Information Statement.
Worked example: Arjun's two computations
Assumptions (illustrative): tax year 2026–27, resident, 34, Pune. Salary ₹18,00,000: basic ₹8,00,000, HRA ₹4,00,000, special allowance ₹5,20,000, employer NPS ₹80,000. Rent ₹4,80,000 a year. Savings interest ₹12,000; professional tax ₹2,500; EPF ₹96,000; PPF ₹54,000; extra NPS ₹50,000. Health: family premium ₹20,000, check-up ₹3,000, senior-citizen parents ₹45,000. 4% cess, no surcharge.
HRA: actual ₹4,00,000; rent minus 10% of basic ₹4,00,000; 50% of basic ₹4,00,000. Exempt: ₹4,00,000.
| Line | Old regime | New regime |
|---|---|---|
| Salary | ₹18,00,000 | ₹18,00,000 |
| Less HRA exemption | −₹4,00,000 | Not allowed |
| Less standard deduction and professional tax | −₹52,500 | −₹75,000 |
| Add savings interest | ₹12,000 | ₹12,000 |
| Gross total income | ₹13,59,500 | ₹17,37,000 |
| Schedule XV basket | −₹1,50,000 | Not allowed |
| Extra own NPS | −₹50,000 | Not allowed |
| Employer NPS | −₹80,000 | −₹80,000 |
| Health insurance and check-up | −₹68,000 | Not allowed |
| Savings interest (capped) | −₹10,000 | Not allowed |
| Taxable income | ₹10,01,500 | ₹16,57,000 |
| Tax before cess | ₹1,12,950 | ₹1,31,400 |
| Tax with 4% cess | ₹1,17,468 | ₹1,36,656 |
Old regime: ₹12,500 + ₹1,00,000 + ₹450 (30% of the last ₹1,500). New regime: ₹20,000 + ₹40,000 + ₹60,000 + ₹11,400 (20% of ₹57,000). The old regime is lower by ₹19,188.
Change one fact. In Nagpur, the 40% limit cuts his HRA exemption to ₹3,20,000; old-regime tax with cess becomes ₹1,42,428 and the new regime wins by ₹5,772. Or stay in Pune but drop the PPF top-up and extra NPS (₹1,04,000): old-regime tax becomes ₹1,49,916 and the new regime wins by ₹13,260. His old-regime win rests on renting in an eight-city location and on saving he chose to lock away.
Calculator: try your own numbers
Income Tax Calculator
Compare old and new regime tax for 2026–27
Tax year 2026–27 (1 April 2026 to 31 March 2027), resident individual. Compares the new regime (the default) with the old regime.
Before the standard deduction, which the calculator applies (₹75,000 new, ₹50,000 old). Include your employer's NPS contribution: it is part of salary and then deducted.
For example savings and FD interest, or rent after its own deductions. Leave out capital gains on shares and equity funds.
Sets the limit on the employer NPS deduction.
Deductible in both regimes up to a limit: 14% of basic + DA in the new regime; in the old regime 14% for government employers and 10% for others. Employer contributions to PF, NPS and superannuation above ₹7.5 lakh a year in total are taxable as a perquisite; that is not modelled here.
For example PPF/ELSS/life insurance within ₹1.5 lakh, health insurance, home-loan interest, extra NPS. Check each limit in the Academy lesson. Used only for the old regime.
Illustrative only. Actual returns, rates and taxes vary.
Try this: build your own deduction list
- List what you already pay for non-tax reasons: rent, EPF, premiums, school fees, loan EMIs, NPS.
- Put each in the right row of the first table and apply its cap, filling the ₹1.5 lakh basket with EPF first.
- Work out HRA with your actual basic, rent and city.
- Run both regimes on the same total income, interest and gains included, in the calculator above.
- Keep rent receipts, premium receipts and the lender's interest certificate with your tax file.
Common questions
Can I claim a deduction in my return that I did not declare to my employer?
Yes, if you are eligible, can support it with evidence and file under the regime that allows it. Employer TDS is only based on your declaration, so the return can show a refund.
I pay rent in Pune and a home loan on a flat in Nashik. Can I claim both?
In the old regime, HRA on the rented home and interest on the flat can both be claimed; the flat follows the self-occupied or let-out rule depending on its use. The section 134 deduction is different: owning a home where you live or work rules it out.
Should I buy a policy or ELSS in March to make the old regime win?
Only if you wanted it anyway. A ₹50,000 payment that saves ₹15,600 at the 30% slab still commits ₹50,000 to that product, its lock-in and costs. Judge the product first.
Where to go next
- Choosing a tax regime: slabs, rebate and the full comparison.
- Income tax rates for 2026–27: the figures in one table.
- Capital gains across assets: the next lesson.
- Which return, by when: forms, due dates and advance tax.
- Further reading: HRA exemption and the eight cities; home loan tax benefits in both regimes.