New Tax Regime – New Income Tax Act 2026 from April 1: What deductions and exemptions you lose under new tax regime

The New Income Tax Act, 2026, which comes into effect from April 1, marks a major shift in how deductions and exemptions will work under the new tax regime. While the government continues to offer lower tax rates under the new regime, many commonly used exemptions available earlier will no longer be allowed, making it important for salaried taxpayers to understand what changes from the new financial year.

The Central Board of Direct Taxes (CBDT) has notified the Income-tax Rules, 2026, to align with the new law, which replaces several provisions of the earlier Income-tax Act, 1961 and simplifies compliance by reducing the number of forms and disclosures.

Under the new framework, the new tax regime remains the default option, but it comes with restrictions on claiming deductions and exemptions.

New Tax Regime under New Income Tax Act, 2026

The new tax regime will continue to remain the default option for individual taxpayers from April 1, 2026. However, individuals who do not have business income can still choose the old tax regime while filing their income tax return for a financial year. Taxpayers can switch between the two regimes each year if they are eligible.

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Under the current rules, the rebate under Section 87A will remain available for taxable income up to ₹12 lakh. This means individuals with income up to this limit may not have to pay any tax after applying the rebate, subject to applicable conditions.

CA (Dr.) Suresh Surana said: “The new Income-tax Act, 2025 (ITA 2025), effective April 1, 2026, reinforces the new tax regime by offering concessional tax rates with restriction on claiming specified deductions and exemptions. While an individual taxpayer opting for old tax regime can claim all available deductions and exemptions, a taxpayer opting for the New Tax Regime u/s 115BAC (corresponding sec. 202 under ITA 2025) cannot claim them all.”

There will also be no change in income tax slabs under either the old or the new tax regime from April 1, 2026. The government has not announced any revision in Budget 2026–27, and the notified provisions under the Income Tax Act, 2025 do not include any change in the existing tax structure, indicating that the current slab rates will continue.

Most deductions not allowed

Under the new law, taxpayers choosing the concessional tax regime will not be allowed to claim many popular exemptions that were commonly used to reduce taxable income earlier.

These include:

Leave Travel Allowance (LTA)
House Rent Allowance (HRA)
Most special allowances related to job expenses
Interest deduction on self-occupied house property
Entertainment allowance
Professional tax deduction
Exemptions on income of minor child
Tax holidays for SEZ units
Additional depreciation and business-linked incentives

In addition, most deductions under Chapter VI-A, including those under Sections 80C to 80U, will not be available if the taxpayer opts for the new regime. This means deductions for investments such as PPF, ELSS, life insurance, tuition fees, and many others cannot be claimed.

Tax experts say this reinforces the government’s approach of offering lower tax rates in exchange for fewer exemptions.

What deductions are still allowed

Despite the restrictions, a few deductions continue to be available under the new regime.

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Employees opting for the new tax system can still claim:

Standard deduction up to ₹75,000 from salary income
Deduction for employer contribution to NPS up to the prescribed limit
Deduction for contribution under the Agnipath scheme
Deduction for additional employee cost in certain cases

These limited deductions mean that the new regime may still be beneficial for taxpayers who do not claim many exemptions, but less attractive for those with housing loans, investments, or multiple allowances.

Loss set-off restrictions also tightened

The new law also restricts adjustment of certain losses while computing total income.

Losses linked to deductions that are not allowed under the new regime cannot be set off. In addition, loss under the head house property cannot be adjusted against income from other heads if the taxpayer opts for the concessional regime.

Experts say this makes tax planning more important, especially for salaried employees with home loans or investment deductions.

Old vs new regime decision

The new Income Tax Act does not remove the old tax regime, but the new regime will continue as the default option from April 1.

This means taxpayers must actively choose the old regime if they want to claim full deductions and exemptions.

For middle-income salaried employees with HRA, home loan interest, insurance, and Section 80C investments, the old regime may still provide higher tax savings. On the other hand, taxpayers with fewer deductions may benefit from the lower tax rates under the new system.

With the new rules coming into force from April 1, tax experts advise reviewing salary structure, investments, and deductions carefully before choosing the tax regime for the financial year.