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Updated Feb 17, 2026 06:23 PM IST
The new tax regime offers key benefits such as Section 87A rebate, standard deduction and retirement-related exemptions, helping many taxpayers reduce liability and potentially pay zero tax on income up to Rs 12 lakh.
Highlights
- Tax rebate under Section 87A can reduce tax liability to zero for eligible taxpayers.
- Standard deduction of Rs 75000 benefits salaried individuals under the new regime.
- NPS contribution, gratuity and leave encashment exemptions remain available.
The new tax regime is often discussed as a simpler alternative to the old system, but many taxpayers still believe it offers almost no deductions or exemptions. That perception is only partly true. While the old regime allows popular benefits such as Section 80C investments, health insurance deductions and house rent allowance claims, the new regime has its own set of advantages that can significantly reduce tax liability and for many taxpayers, even bring it down to zero.
The biggest attraction is the claim that income up to Rs 12 lakh can attract no tax. This becomes possible through a combination of rebates, deductions and exemptions that continue to exist under the revised framework. Here is a clear explanation of the five major tax benefits available under the new tax regime.
Tax rebate under Section 87A
One of the strongest features of the new regime is the tax rebate available under Section 87A. Eligible taxpayers can claim a rebate of up to Rs 60000. This rebate reduces the final tax payable and, in many cases, wipes it out completely if the taxable income is within the eligible limit.
Simply put, if your taxable income falls within the prescribed threshold, the rebate can bring your tax liability down to zero, which is why income up to Rs 12 lakh is often described as effectively tax-free under the new system.
Standard deduction for salaried individuals
Salaried taxpayers continue to receive a standard deduction under the new tax regime. The deduction currently stands at Rs 75,000, reducing taxable salary before tax is calculated.
Because of this deduction, a salaried individual earning up to roughly Rs 12,75,000 in a financial year may still fall within the tax-free bracket after applying both the deduction and rebate, depending on overall income structure.
Employer’s contribution to NPS
Unlike several deductions that were removed, the deduction for employer contribution to the National Pension System remains available. This means that contributions made by the employer towards an employee’s NPS account can still be claimed as a deduction within specified limits.
This benefit not only reduces taxable income but also encourages long-term retirement savings, making it a useful advantage for salaried employees.
Gratuity exemption at retirement
Gratuity received at retirement continues to enjoy tax exemption under the new regime. Government employees typically receive full exemption, while non-government employees are eligible for exemption up to the prescribed limit, subject to conditions.
This helps ensure that retirement benefits remain tax-efficient even when choosing the simpler tax structure.
Leave encashment exemption
Leave encashment received at the time of retirement is also exempt up to the applicable limits. Employees who have accumulated unused leaves during their service can receive this payout without a major tax burden, adding another layer of relief under the new regime.
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