Standard Deduction and Key Benefits Under the New Tax Regime 2025

What is the significance of the ‘New Regime’?

The New Tax Regime provides lower tax rates and broader income slabs, making it cheaper for the taxpayer. However, the majority of deductions are disallowed with certain exceptions, such as Section 80JJAA, 80M, and the standard deduction.

What was the previous income limit for paying zero tax?

Earlier, the limit of income for zero tax that would be paid was Rs. 7 lakh. Now, the limit has been raised to Rs. 12 lakh, so approximately one crore taxpayers who used to pay Rs. 20,000 to Rs. 80,000 as tax earlier will now be paying zero tax.

Does the new tax regime allow a standard deduction on salary?

Yes, under the new tax regime, taxpayers can claim a standard deduction of Rs. 75,000. This means that a salaried individual earning up to Rs. 12,75,000 before the deduction will not have to pay any income tax.

However, salaried individuals should note that if their employer’s total contribution to NPS, EPF, and the superannuation fund exceeds Rs. 7.5 lakh in a financial year, the extra amount will be taxed as part of their income. Moreover, all interest or dividends received on such surplus contributions are also taxable.

Tax Deduction on Employer’s NPS Contribution Under Section 80CCD (2)

Under the new tax regime, taxpayers can avail a deduction for employer contributions to NPS under Section 80CCD (2) of the Income Tax Act. As per current tax rules, an employee can deduct up to 14% of their salary (basic salary + dearness allowance) if the contribution is made by a government employer and up to 10% if made by a private employer.

How much additional benefit do taxpayers get from this change?

Due to changes in tax slabs, rates, and rebates, taxpayers will have around Rs. 1 lakh crore more in their hands.

What is the highest rebate a taxpayer can claim?

The maximum tax rebate you can get is Rs. 60,000. This rebate applies to taxpayers with an income of Rs. 12 lakh, where the tax is calculated based on the new tax slabs.