Income Tax 2026: What deductions you lose under new tax regime from April 1

Tax rules: April 1, 2026, marks a structural shift in India’s tax system with the rollout of the new Income Tax Act, 2025, replacing the decades-old 1961 law. While the reform has been positioned as a simplification move—with fewer forms and the introduction of a unified “tax year”—its real impact is most visible in how deductions and exemptions are treated under the new tax regime.

At its core, the new framework strengthens the default new tax regime under Section 115BAC (now Section 202) by offering lower tax rates—but with significantly restricted deductions and exemptions.

Lower tax rates

The new framework moves away from the traditional model where taxpayers reduced their liability through multiple deductions. Instead, it focuses on concessional tax rates with minimal exemptions, making income computation more straightforward but less flexible.

For taxpayers who continue with the old regime, all deductions remain available. However, those opting for the new regime must forgo most exemptions.

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Major exemptions not available

Several commonly used salary-related exemptions have been removed under the new regime:

House Rent Allowance (HRA) Leave Travel Allowance (LTA) Special allowances and reimbursements related to job or personal expenses Allowances for MPs/MLAs Minor child income exemption

This effectively reduces the scope for structuring salary components to lower taxable income.

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Deductions on investments and expenses restricted

A major impact is seen in the removal of deductions under Chapter VI-A (Sections 80C to 80U). Taxpayers can no longer claim benefits on:

Investments such as PPF, ELSS, LIC premiums (80C) Health insurance premiums (80D) Education loan interest (80E) Donations (80G)

Additionally, deductions linked to housing and employment have also been withdrawn:

Interest on self-occupied home loans Professional tax and entertainment allowance deductions Additional depreciation and certain business-linked incentives What deductions are still allowed?

Despite the restrictions, the new regime retains a few targeted deductions:

Standard deduction increased to ₹75,000 for salaried individuals Employer contribution to NPS up to 14% of salary Deduction for contributions under the Agnipath Scheme Deduction for additional employee cost (Section 80JJAA equivalent)

In specific cases, such as units in IFSCs, deductions may still be available subject to conditions.

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Tighter rules on losses and set-offs

The new regime also limits the ability to adjust losses:

Losses arising from disallowed deductions cannot be carried forward House property losses cannot be set off against other income

This reduces flexibility for taxpayers who earlier used losses to optimise tax liability.

New Tax Regime Slabs & Rates (FY 2026-27)

Up to ₹4,00,000	Nil
₹4,00,001 - ₹8,00,000	5%
₹8,00,001 - ₹12,00,000	10%
₹12,00,001 - ₹16,00,000	15%
₹16,00,001 - ₹20,00,000	20%
₹20,00,001 - ₹24,00,000	25%
Above ₹24,00,000	30%

No double benefit on allowances or perks

Another key change is that no exemption or deduction will be allowed on allowances or perquisites under any other law while calculating total income. This ensures uniformity but further narrows tax-saving avenues.

What this means for taxpayers

The new Income Tax Act 2026 marks a clear transition towards a simpler, standardised tax system with fewer interpretation gaps. However, it also signals the end of deduction-driven tax planning for many individuals.

For salaried and middle-class taxpayers, the choice now is more straightforward:

Old regime: Higher rates, more deductions New regime: Lower rates, minimal exemptions

From April 1, 2026, the tax system becomes cleaner but less flexible. The new regime prioritises simplicity and transparency, but reduces the role of traditional tax-saving instruments — making it essential for taxpayers to reassess their financial planning strategies.