Category: Income Tax

Special Allowance in Salary: How It Is Taxed and Which Allowances Are Exempt

Posted on by CA Meet Dhrangadhariya

Last updated: 29 August 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • A “special allowance” shown in a salary slip is taxable as salary unless it is one of the allowances the law names as exempt.
  • Exempt allowances include travel on tour or transfer, daily charges, conveyance in duties, helper, research and uniform allowances, up to actual expenditure, and fixed-limit allowances such as children’s education (₹3,000 a month per child from 01/04/2026).
  • In the new tax regime only the travel, daily charge and conveyance allowances (and the disabled employee transport allowance) stay exempt; the rest need the old regime.
  • The list is in Schedule III of the Income-tax Act, 2025 and Rule 280 of the Income-tax Rules, 2026.

Many salary slips show a line called “special allowance”. It is usually a balancing amount that the employer adds to reach the agreed total pay. For tax, the name does not matter. The allowance is taxable as salary unless the law specifically names it as exempt.

Which allowances are exempt?

Until FY 2025-26 the exemptions were under section 10(14) of the Income-tax Act, 1961 and Rule 2BB. From Tax Year 2026-27 they are in Schedule III (Table Sl. Nos. 12 and 13) of the Income-tax Act, 2025, and Rule 280 of the Income-tax Rules, 2026.

Exempt up to the actual expenditure (Schedule III, Sl. No. 12)

Allowance Exempt up to
Travel on tour or transfer, and transfer, packing and transportation of personal effects Actual expense
Daily charges while away from the normal place of duty on tour or transfer Actual expense
Conveyance in the performance of duties (no free conveyance from the employer) Actual expense
Helper engaged for the performance of duties Actual expense
Academic, research and training pursuits in educational and research institutions Actual expense
Purchase or maintenance of uniform Actual expense

Exempt up to a fixed limit (Schedule III, Sl. No. 13), from 01/04/2026

Allowance Exempt amount
Children education allowance ₹3,000 a month per child, up to two children
Hostel expenditure allowance ₹9,000 a month per child, up to two children
Transport allowance for a blind, deaf and dumb or orthopaedically disabled employee ₹15,000 a month plus dearness allowance (metro cities) or ₹8,000 plus dearness allowance (other cities)
Transport business employee (no daily allowance) 70% of the allowance, up to ₹25,000 a month
Underground mine allowance 15% of basic pay
Special compensatory (remote locality), tough location allowances ₹1,500, ₹4,500 or ₹7,000 a month, depending on the place
Compensatory field area allowance ₹13,500 a month in notified areas
Compensatory modified field area allowance ₹8,000 a month in notified areas
Island duty allowance (Andaman and Nicobar, Lakshadweep) 10%, 16% or 20% of basic pay, depending on the area
Armed forces allowances: counter-insurgency, highly active field area, high altitude, Siachen ₹22,000, ₹22,000, ₹4,500 to ₹30,000 and ₹42,500 a month

Up to FY 2025-26 the old limits applied, for example ₹100 a month per child for education, ₹300 for hostel, ₹3,200 for the disabled employee’s transport allowance and 70% up to ₹10,000 for transport business employees.

What stays exempt in the new tax regime?

Under section 202 of the Income-tax Act, 2025 the new regime does not give most exemptions under Schedule III Sl. Nos. 12 and 13, except those prescribed. Rule 280(3) prescribes the allowances for travel on tour or transfer, packing and transport of effects, daily charges, conveyance in duties, and the disabled employee’s transport allowance. Helper, research, uniform, children education, hostel and the other fixed-limit allowances need the old regime.

When is a special allowance taxable?

  • A plain “special allowance”, a fixed allowance, a city compensatory allowance, dearness allowance and an allowance that you can spend as you wish are all taxable.
  • An exempt allowance becomes taxable if it does not meet the conditions of the rule, for example conveyance allowance when the employer gives a free car.
  • HRA has its own rules under the HRA exemption.

Does restructuring your salary help?

Under the old regime, if your employer pays genuine exempt allowances (for example uniform or children education), the exempt part reduces taxable salary. Moving amounts from taxable special allowance to exempt allowances you do not actually qualify for gives no benefit and can create a tax demand. Work out your tax under both regimes before you decide.

Examples

  1. Ms V has a “special allowance” of ₹10,000 a month in her slip. It is not named in the rule, so it is fully taxable.
  2. Mr C is a public sector doctor posted at a tribal area medical camp and gets a notified special compensatory allowance. It is exempt up to the limit for that place, in the old regime.
  3. Ms S gets children education allowance for two children. From 01/04/2026, up to ₹3,000 a month per child (₹72,000 a year for two) is exempt in the old regime, and ₹9,000 a month per child (₹2,16,000 a year for two) for hostel allowance.

Frequently asked questions

Is special allowance taxable?

Yes, a general special allowance shown in the salary slip is taxable as salary. It is exempt only if it matches one of the allowances listed in the rules and you meet the conditions.

Can I save tax by increasing allowances in my salary?

Only if the allowances are genuinely exempt and you spend them (or fall within a fixed limit) and you are in the old regime. A plain special allowance does not save tax.

Which allowances stay exempt in the new regime?

Allowances for travel on tour or transfer, daily charges while travelling, conveyance in the performance of duties, and the transport allowance of a disabled employee.

Where is the list of exempt allowances?

In Schedule III (Sl. Nos. 12 and 13) of the Income-tax Act, 2025 and Rule 280 of the Income-tax Rules, 2026.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

What is House Rent Allowance (HRA): Exemption, Calculation and New Rules 2026

Posted on by CA Meet Dhrangadhariya

Last updated: 29 September 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • HRA is partly or fully tax-free for a salaried employee who pays rent, but only in the old tax regime.
  • The exemption is the lowest of actual HRA, 50% (metro) or 40% (non-metro) of salary, and rent paid minus 10% of salary.
  • From 01/04/2026 the 50% limit applies to eight cities: Delhi, Mumbai, Chennai, Kolkata, Bengaluru, Pune, Hyderabad and Ahmedabad.
  • Landlord PAN is needed if yearly rent exceeds ₹1 lakh. Without HRA, rent can be claimed under section 80GG (section 134 in the new Act), up to ₹60,000 a year.

How to calculate the HRA exemption

1. Take the actual HRA received in the year
↓
2. Take 50% (8 metro cities) or 40% (other cities) of salary
↓
3. Take rent paid minus 10% of salary
↓
4. The lowest of the three is the exempt HRA
↓
5. The rest of the HRA is taxable as salary

House Rent Allowance (HRA) is a part of salary paid by the employer to meet the cost of rented accommodation. A part of it is exempt from tax if you live in a rented house and pay rent, provided you file under the old tax regime. It cannot be claimed in the new regime.

HRA eligibility: who can claim?

Person HRA exemption?
Salaried, with HRA in the salary Yes, in the old regime
Self-employed No, but section 80GG may apply
Salaried without an HRA component No, but section 80GG may apply
Paying rent to parents Yes, with conditions
Paying rent to spouse No
New tax regime No

How is the HRA exemption calculated?

The exempt amount is the lowest of:

  1. The actual HRA received.
  2. 50% of salary if you live in one of the eight metro cities, or 40% of salary elsewhere.
  3. Rent paid minus 10% of salary.

Salary here means basic pay plus dearness allowance, but dearness allowance counts only if the terms of employment provide for it. All other allowances and perquisites are left out. Rent and salary are taken only for the months you actually lived in the rented house. The part of HRA that is not exempt is taxed as salary.

New rules from 01/04/2026

The Income-tax Rules, 2026 (notified on 20/03/2026) apply from 01/04/2026. HRA limits are now in Rule 279, which replaces Rule 2A. Two changes matter for HRA:

  • The 50% limit, earlier given only to Delhi, Mumbai, Chennai and Kolkata, now also covers Bengaluru, Pune, Hyderabad and Ahmedabad, so eight cities in all.
  • The declaration to the employer now asks for the landlord’s relationship to you and other landlord details, The declaration form that replaces Form 12BB is Form 124 (Rule 205 of the 2026 Rules). It asks for the landlord’s name, address, PAN, Aadhaar, relationship with you, if any, and the rent paid.

HRA in the Income-tax Act, 2025

For FY 2025-26 (assessment year 2026-27) HRA is exempt under section 10(13A) of the 1961 Act. From Tax Year 2026-27 it falls under section 11 read with Schedule III of the Income-tax Act, 2025, and the rent deduction for those without HRA (section 80GG) moves to section 134.

Example of HRA calculation

Mr Anwar pays rent of ₹18,000 a month in FY 2025-26. His basic salary is ₹27,000 a month (₹3,24,000 a year) and his HRA is ₹1,62,000 a year. He is under the old regime. The calculation below uses the metro (50%) limit and the non-metro (40%) limit.

Particulars Metro city Other city
Actual HRA ₹1,62,000 ₹1,62,000
50% or 40% of salary (₹3,24,000) ₹1,62,000 ₹1,29,600
Rent paid (₹2,16,000) less 10% of salary (₹32,400) ₹1,83,600 ₹1,83,600
Exempt HRA (lowest) ₹1,62,000 ₹1,29,600
Taxable HRA Nil ₹32,400

If Mr Anwar opts for the new regime, the whole HRA of ₹1,62,000 is taxed at slab rates.

Old regime or new regime?

Choose the old regime only if the total of HRA, 80C, 80D, home loan interest and other deductions is large enough to beat the lower slabs of the new regime. High rent in a metro city and a high HRA make the old regime more attractive. Low rent and few deductions usually favour the new regime.

Documents for HRA

You need not file proofs with the return, but keep them for your employer and for any notice from the department:

  1. Rent receipts.
  2. Rent agreement.
  3. Bank proof of rent payment.
  4. The rent declaration given to your employer (Form 12BB until 31/03/2026).
  5. Salary slip showing HRA.
  6. Landlord’s PAN, if the rent in the year is more than ₹1,00,000.

If the landlord has no PAN, get a declaration to that effect from the landlord, as provided in CBDT Circular 8/2013 dated 10/10/2013.

Special cases

Rent paid to parents

You can claim HRA for rent paid to your parents if you genuinely pay it, for example by bank transfer, and your parents declare it as rental income in their return. Rent paid to a spouse is not allowed.

HRA and home loan together

If you own a house in one city and pay rent in another, for example because of a job transfer, you can claim both the HRA exemption and home loan interest. Conditions apply if both are in the same city, so take advice.

Rent deduction if you do not get HRA: section 80GG

Self-employed persons and employees who get no HRA can claim rent paid under section 80GG (section 134 from Tax Year 2026-27), in the old regime only. The deduction is the lowest of:

  • ₹5,000 a month, that is ₹60,000 a year,
  • 25% of adjusted total income, or
  • rent paid minus 10% of adjusted total income.

You (and your spouse and minor children) must not own a residential house at the place where you live or work, and you must file Form 10BA (Form 31 under the 2026 Rules from 01/04/2026) as a declaration.

Frequently asked questions

Is HRA available in the new tax regime?

No. The HRA exemption can be claimed only under the old tax regime.

Which cities get the 50% HRA limit?

From 01/04/2026: Delhi, Mumbai, Chennai, Kolkata, Bengaluru, Pune, Hyderabad and Ahmedabad.

Is landlord PAN required?

Yes, if the rent paid in the year is more than ₹1,00,000. If the landlord has no PAN, a declaration to that effect from the landlord is needed.

Can I claim HRA for rent paid to my parents?

Yes, if you actually pay the rent and your parents show it as income in their return. Rent paid to a spouse is not allowed.

Can I claim HRA and home loan interest together?

Yes, if the conditions are met, for example when you live in a rented house in one city and own a house in another.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Conveyance Allowance: Exemption Limit, Calculation and Eligibility

Posted on by CA Meet Dhrangadhariya

Last updated: 06 August 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Conveyance allowance is exempt to the extent of the amount you actually spend on travel in the performance of your official duties, in both the old and the new tax regime.
  • It applies only if your employer does not give you a free conveyance, and the part not spent is taxable.
  • The old ₹1,600 a month fixed exemption is not conveyance allowance: it was a transport allowance for commuting and ended in FY 2018-19.
  • From Tax Year 2026-27 the rule is in Schedule III of the Income-tax Act, 2025 and Rule 280(1)(d) of the Income-tax Rules, 2026.

Conveyance allowance is paid to an employee to meet the cost of travel done in the course of official work, such as visiting clients or sites. It is exempt from tax up to what you actually spend on such travel. There is no fixed rupee limit.

Where is this in the law?

Up to FY 2025-26 it was section 10(14)(i) of the Income-tax Act, 1961 and Rule 2BB(1)(b). From Tax Year 2026-27 it is in Schedule III of the Income-tax Act, 2025 (Table Sl. No. 12), with Rule 280(1)(d) of the Income-tax Rules, 2026 describing it as an allowance granted to meet the expenditure on conveyance in performance of duties of an office or employment of profit, where no free conveyance is provided by the employer.

How much is exempt?

The lower of:

  • the allowance you receive, and
  • the amount you actually spend on conveyance for official duties.

The unspent part is taxable as salary. Keep records of your official journeys, such as a log, fuel bills, tickets or cab receipts, as your employer may ask for them.

The ₹1,600 myth

Many articles say conveyance allowance is exempt up to ₹1,600 a month (₹19,200 a year). That figure belonged to the transport allowance for commuting between home and office, which was withdrawn from FY 2018-19 when the standard deduction was introduced. It is not a conveyance allowance limit. A fixed monthly “conveyance” amount that you use only to commute to work is therefore taxable.

Conveyance allowance vs transport allowance

Basis Conveyance allowance Transport allowance
Purpose Travel while doing the job Travel between home and office
Exemption Actual expense, up to the allowance Only for disabled employees and transport business employees
Regimes Both old and new Disability: both. Transport business: old only

Who is eligible?

Any employee who has to travel for official work, and whose employer does not provide a free conveyance. If the employer gives a company car or free transport, no exemption is allowed.

Reporting

Your employer applies the exemption in Form 16, based on the declaration and proof you give. In your return, show the exempt and taxable parts in the salary schedule.

Old regime or new regime?

Conveyance allowance (for travel in the performance of duties) is one of the few allowances that continue to be exempt in the new regime. Under section 202 of the Income-tax Act, 2025 and Rule 280(3), the new regime keeps the exemption for allowances for travel on tour or transfer, daily charges, conveyance in duties and, for a disabled employee, the transport allowance.

Frequently asked questions

What is the exemption limit for conveyance allowance?

There is no fixed limit. The exemption is the actual amount you spend on conveyance in performing your duties, up to the allowance you receive.

Is conveyance allowance taxable?

The part you do not spend on official travel is taxable as salary. A fixed allowance you use for commuting is taxable.

Is it available in the new tax regime?

Yes. It is one of the allowances that remain exempt in the new tax regime.

Is conveyance allowance the same as transport allowance?

No. Conveyance allowance is for travel in performing duties. Transport allowance is for travel between home and office.

Can I claim it if my employer gives a company car?

No. It applies only where no free conveyance is provided by the employer.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Transport Allowance: Tax Exemption, Limits for Tax Year 2026-27 and Rules

Posted on by CA Meet Dhrangadhariya

Last updated: 29 July 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • A transport allowance for travel between home and office is fully taxable for most employees. The old ₹1,600 a month exemption ended with the standard deduction in FY 2018-19.
  • Employees who are blind, deaf and dumb, or orthopaedically disabled get an exemption: ₹3,200 a month up to FY 2025-26, and from 01/04/2026 ₹15,000 a month plus dearness allowance in metro cities or ₹8,000 plus dearness allowance elsewhere.
  • Employees of a transport business can exempt 70% of the allowance, up to ₹10,000 a month until FY 2025-26 and ₹25,000 a month from 01/04/2026, in the old regime.
  • The disability transport exemption works in both tax regimes.

A transport allowance is an amount an employer pays so an employee can travel between home and the place of work. For most employees it is fully taxable. A special exemption applies to employees with certain disabilities, and a separate one to employees of a transport business.

Up to FY 2025-26 the exemption was under section 10(14) of the Income-tax Act, 1961 and Rule 2BB. From Tax Year 2026-27 it is in Schedule III of the Income-tax Act, 2025, with the amounts in Rule 280 of the Income-tax Rules, 2026.

Why is it taxable for most employees?

Until FY 2017-18 every employee could exempt ₹1,600 a month of transport allowance. From FY 2018-19 that exemption was withdrawn and replaced by the standard deduction on salary, which now stands at ₹50,000 in the old regime and ₹75,000 in the new regime. So an ordinary employee pays tax on the whole allowance and gets the standard deduction instead.

Exemption for employees with disability

The exemption is for an employee who is blind, or deaf and dumb, or orthopaedically handicapped with disability of the lower extremities (from 01/04/2026, the lower or upper extremities), for travel between home and the place of duty.

Period Exempt amount per month
Up to FY 2025-26 ₹3,200
From 01/04/2026, metro cities ₹15,000 plus dearness allowance on it
From 01/04/2026, other cities ₹8,000 plus dearness allowance on it

This is available in both the old regime and the new regime. The part above the limit is taxable.

Transport business employees

An employee of a transport system who gets an allowance to meet personal expenses while on duty during the journey, and who does not get a daily allowance, can exempt 70% of the allowance, up to ₹10,000 a month until FY 2025-26 and up to ₹25,000 a month from 01/04/2026. This is allowed in the old regime only.

Transport allowance and conveyance allowance

Basis Transport allowance Conveyance allowance
For Travel between home and office Travel in the performance of duties, with no free conveyance from the employer
Exemption Only for disability or transport business, as above Actual expense incurred
Regimes Disability: both. Transport business: old only Both

Example

Mr D is an orthopaedically handicapped employee in Mumbai and gets ₹20,000 a month as transport allowance in FY 2026-27, with no dearness allowance on it. The exemption is the lower of ₹20,000 and ₹15,000 (plus DA on it, nil here), so ₹15,000 a month, ₹1,80,000 a year, is exempt. The balance of ₹5,000 a month is taxable.

Another employee with no disability and the same allowance pays tax on the whole ₹2,40,000 a year.

How to claim

Your employer applies the exemption when calculating TDS and shows it in Form 16. Give the employer a disability certificate. If it was missed, you can still claim the exemption when you file your return, in the exempt allowances part of the salary schedule.

Central Government employees

Transport allowance for Central Government employees under the 7th Pay Commission depends on pay level and city class (for example ₹7,200 plus dearness allowance for pay level 9 and above in the highest cities). It is taxable unless the employee has a disability and qualifies for the exemption above.

Frequently asked questions

Is transport allowance taxable?

Yes, for most employees it is fully taxable. The exemption for commuting allowance was withdrawn from FY 2018-19 when the standard deduction was introduced.

Who gets a transport allowance exemption?

An employee who is blind, deaf and dumb, or orthopaedically handicapped with disability of the lower or upper extremities, for travel between home and work.

How much is exempt for a disabled employee from 01/04/2026?

₹15,000 a month plus dearness allowance in metro cities, and ₹8,000 a month plus dearness allowance in other cities (up to FY 2025-26 the limit was ₹3,200 a month).

Is it available in the new tax regime?

Yes, the transport allowance for disabled employees is allowed in both regimes. The transport business exemption is old regime only.

Is transport allowance the same as conveyance allowance?

No. Transport allowance is for travel from home to office. Conveyance allowance is for travel in the performance of duties and is exempt to the extent of the actual expense.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Section 80GG: Deduction for Rent Paid Without HRA, Conditions and Limit

Posted on by CA Meet Dhrangadhariya

Last updated: 06 August 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Section 80GG gives a deduction for rent paid to an individual who gets no HRA exemption, including the self-employed.
  • The deduction is the least of ₹5,000 a month, 25% of total income, and rent paid minus 10% of total income.
  • You and your spouse and minor children must not own a residential house where you live or work, and you must file a rent declaration.
  • From Tax Year 2026-27 it is section 134 of the Income-tax Act, 2025 and the declaration is Form 31. It is available only in the old tax regime.

If you pay rent but do not get an HRA exemption, section 80GG lets you deduct part of the rent from your income. It suits self-employed people and employees whose salary has no HRA component. It is available only under the old tax regime.

From Tax Year 2026-27 the provision is section 134 of the Income-tax Act, 2025. For FY 2025-26 (assessment year 2026-27) it is still section 80GG of the 1961 Act.

Who can claim?

An individual who pays rent for furnished or unfurnished accommodation that they occupy as their own residence, and who:

  • gets no HRA exemption (no income falling under the HRA exemption of the Act),
  • does not own, and whose spouse or minor child (or HUF, for a HUF member) does not own, a residential house at the place where they ordinarily live or work, and
  • does not own another house that they occupy and that is valued as a self-occupied property under the house property rules.

How much can you claim?

The deduction is the least of:

  1. ₹5,000 a month, that is ₹60,000 a year.
  2. 25% of total income.
  3. Rent paid in the year minus 10% of total income.

Total income here means total income before allowing the 80GG deduction.

Example

Mr Shah is a consultant paying rent of ₹15,000 a month, so ₹1,80,000 a year. His total income before this deduction is ₹6,00,000.

Test Amount in ₹
Limit of ₹5,000 a month 60,000
25% of total income 1,50,000
Rent less 10% of income (1,80,000 less 60,000) 1,20,000
Deduction (the least) 60,000

Declaration: Form 10BA and Form 31

  • Up to FY 2025-26 you file Form 10BA to declare that you meet the conditions.
  • Under the Income-tax Rules, 2026 the declaration is Form 31 (Rule 65), filed for claiming the deduction under section 134.
  • The form asks for your name, address, PAN, the address of the premises, the months you stayed, the rent paid in cash and by other modes, and the landlord’s name, PAN and address. It also asks you to certify that no other residential accommodation is owned by you, your spouse or your minor child (or your family for a HUF) where you live or work.

Old regime and the due date

Section 80GG works only in the old regime. A person without business income opts for the old regime along with the return furnished by the due date. If you file late, the new regime applies and you lose the deduction. A person with business or professional income has to opt out of the new regime in the manner and time the Act prescribes.

How is it different from HRA?

Basis HRA exemption Section 80GG
Who Salaried, with HRA in salary Self-employed, or salaried without HRA
Limit Lowest of HRA, 50% or 40% of salary, rent less 10% of salary Least of ₹5,000 a month, 25% of income, rent less 10% of income
Regime Old regime only Old regime only
Both together? Not allowed Not allowed

Frequently asked questions

Who can claim section 80GG?

Individuals who pay rent for their own residence and get no HRA exemption, including the self-employed and employees without an HRA component.

What is the limit under section 80GG?

The least of ₹5,000 a month (₹60,000 a year), 25% of total income, and rent paid minus 10% of total income, all measured before this deduction.

Can I claim 80GG if I own a house?

Not if you, your spouse, minor child or HUF own a residential house at the place where you live or work, or if you own another house you occupy that is treated as self-occupied.

Which form do I need for section 80GG?

Form 10BA up to FY 2025-26, and Form 31 under the Income-tax Rules, 2026 from 01/04/2026.

Is section 80GG available in the new tax regime?

No. It is available only in the old tax regime.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Income From House Property: How It Is Computed and Taxed (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 23 August 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Income from house property is the annual value of a building and its appurtenant land owned by you, less municipal taxes paid, a 30% standard deduction and interest on borrowed capital (sections 20 to 22 of the Income-tax Act, 2025).
  • The annual value is the higher of the rent the property could reasonably fetch and the actual rent; for up to two self-occupied houses it is nil.
  • A loss from house property can be set off against other income only up to ₹2,00,000 (old regime); the excess carries forward for 8 tax years against house property income. The new regime allows no set-off against other heads and no carry forward.
  • Co-owners with definite shares are taxed separately on their shares, and a person who is a deemed owner under section 25 is taxed as owner.

Rent from a house, flat, shop or office that you own is taxed under the head “Income from house property”. The head also applies to a house you live in, where the tax is nil but the home loan interest matters. From 01/04/2026 the rules are in sections 20 to 25 of the Income-tax Act, 2025 (they were sections 22 to 27 of the 1961 Act).

What is taxed under this head

  • Section 20(1): the annual value of property consisting of any building or land appurtenant to it (parking, garden or courtyard), owned by you.
  • Section 20(2): the head does not apply to the part of the property you occupy for your own business or profession, whose profits are taxed as business income.
  • Rent from a building, as such, is taxed here even if the tenant is a business. If the letting is itself your business, the income may be business income (see our post on house property income and business income).

Who is the “owner”

You are taxed as owner if you are the legal owner, or are treated as owner under section 25:

  • an individual who transfers a property to his or her spouse (other than under an agreement to live apart) or to a minor child (other than a married daughter) without adequate consideration;
  • the holder of an impartible estate;
  • a member of a co-operative society, company or association to whom a building is allotted or leased under a house building scheme;
  • a person allowed to take or retain possession in part performance of a contract (section 53A of the Transfer of Property Act, 1882);
  • a person who acquires rights in a building by sale, exchange or a lease of 12 years or more (month to month leases and leases up to one year are excluded).

Co-owners: where shares are definite and ascertainable, each co-owner is taxed on his or her own share and they are not an association of persons. The relief for self-occupied houses is available to each co-owner separately (section 24).

How income is computed

Step Rule
1. Annual value The higher of (a) the sum for which the property might reasonably be expected to let from year to year and (b) the actual rent received or receivable (section 21(1))
2. Adjust for vacancy If the property was let but vacant for part of the year and the actual rent is lower because of the vacancy, the annual value is the actual rent received or receivable (section 21(2))
3. Unrealised rent Rent that cannot be realised is left out, if the conditions in Rule 21 are met (below)
4. Less: local taxes Taxes levied by a local authority and actually paid by the owner during the tax year, whenever they fell due (section 21(3)). Taxes paid by a tenant are not deducted
5. Less: 30% of annual value Section 22(1)(a), whether or not you spent anything on repairs
6. Less: interest Interest on money borrowed to acquire, construct, repair, renew or reconstruct the property (section 22(1)(b)); see our post on home loan interest
Income from house property The balance, which can be a loss

The older provisions listed municipal value, fair rent and standard rent. Section 21 now speaks only of the sum the property can reasonably be expected to fetch. Municipal valuation and comparable local rents remain sensible evidence of that sum.

Unrealised rent (Rule 21)

Rent not paid by a tenant is left out when it is proved lost and irrecoverable, and:

  1. the tenancy is bona fide;
  2. the defaulting tenant has vacated, or steps have been taken to make him vacate;
  3. the tenant is not in occupation of any other property of yours; and
  4. you have taken all reasonable steps to sue for the rent, or satisfy the Assessing Officer that legal proceedings would be futile.

If you recover that rent later, it is taxed in the year you receive it, with a deduction of 30% (section 23).

Houses held as stock-in-trade

A builder’s unsold house that is not let at any time in the year has an annual value of nil up to two years from the end of the financial year in which the completion certificate is obtained (section 21(5), as amended by the Finance Act, 2026).

Self-occupied houses

The annual value of a house you occupy as your residence, or cannot occupy for any reason, is nil, but only for two houses that you specify (section 21(6) and (7)). It does not apply if the house is let at any time in the year or you get any other benefit from it. Any other house is taxed on its annual value even if it is vacant. Our post on deemed let-out property covers this.

With a nil annual value there is no 30% deduction. The only deduction is home loan interest, within the limits in section 22(2), and that creates a loss.

Examples

1. Let-out house. Rent ₹35,000 a month, so ₹4,20,000 a year. The reasonable rent is ₹3,90,000, municipal tax paid ₹12,000, loan interest ₹1,00,000.

  • Annual value: higher of 3,90,000 and 4,20,000 = ₹4,20,000
  • Less taxes paid: ₹12,000 = ₹4,08,000
  • Less 30%: ₹1,22,400
  • Less interest: ₹1,00,000
  • Income from house property = ₹1,85,600

2. Vacancy. A flat could fetch ₹40,000 a month (₹4,80,000 a year) but was vacant for two months, so rent received is ₹4,00,000. Because the actual rent is lower owing to vacancy, the annual value is ₹4,00,000.

3. Loss from a let-out house. Annual value less taxes ₹4,08,000, 30% deduction ₹1,22,400, interest ₹5,50,000. The result is a loss of ₹2,64,400.

  • Old regime: ₹2,00,000 is set off against other income, such as salary; the balance of ₹64,400 carries forward for up to eight tax years against house property income only.
  • New regime: the loss cannot be set off against any other head and it is not carried forward.

Arrears of rent

Arrears of rent received from a tenant, or unrealised rent realised later, are income from house property in the year of receipt, whether or not you still own the property, with a deduction of 30% (section 23).

House property loss: set-off and carry forward

Point Old regime New regime
Set-off against other house property income in the same year Yes Yes
Set-off against other heads Up to ₹2,00,000 (section 109(1)(b)) Not allowed (section 202(2)(b)(ii))
Carry forward of the balance Eight tax years, against house property income only (section 110) Not allowed (section 202(3))

Old and new section numbers

Topic 1961 Act 2025 Act
What is taxed Section 22 Section 20
Annual value Section 23 Section 21
Self-occupied houses Section 23(2) and (4) Section 21(6) and (7)
30% deduction and interest Section 24 Section 22
Arrears of rent Section 25A Section 23
Co-owners Section 26 Section 24
Deemed owner Section 27 Section 25
Set-off of loss Section 71 Section 109
Carry forward of loss Section 71B Section 110

The 1961 Act applies up to tax year 2025-26 (income of FY 2025-26); the 2025 Act applies from 01/04/2026.

Where to report it

Income from house property is reported in the house property schedule of the return. Give the address, whether the house is self-occupied, let out or otherwise, the co-owners and their shares, the rent, the taxes paid and the interest. Return forms with more than one house property, or with a loss to carry forward, need the fuller forms and not the simplest one. Check which form fits before you file.

Frequently asked questions

Which income is taxed under the head income from house property?

The annual value of any building or land appurtenant to it that you own (section 20). Property you occupy for your own business or profession is excluded, because its profits are taxed as business income.

How is annual value decided?

It is the higher of the sum for which the property could reasonably be expected to let from year to year and the actual rent received or receivable (section 21(1)). If it was let but stood vacant and the actual rent is lower because of the vacancy, the annual value is the rent actually received or receivable (section 21(2)).

What deductions are allowed?

Municipal and similar local taxes actually paid by the owner in the year, then 30% of the annual value and interest on borrowed capital (section 22). Nothing else, such as repairs or insurance, is allowed separately.

Can I have two self-occupied houses?

Yes. The annual value of up to two houses that you specify and occupy, or cannot occupy for any reason, is nil (section 21(6) and (7)). Any other house is taxed on its annual value even if it is vacant.

How much house property loss can I set off?

Under the old regime, up to ₹2,00,000 against income under other heads (section 109(1)(b)); any balance carries forward for eight tax years against house property income only (section 110). Under the new regime the loss cannot be set off against other heads and is not carried forward.

Who is taxed when a property is co-owned?

Each co-owner with a definite and ascertainable share, on that share. They are not taxed as an association of persons (section 24).

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Section 80G and 80GGA: Deduction for Donations, Limits and How to Claim

Posted on by CA Meet Dhrangadhariya

Last updated: 29 August 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Section 80G allows a deduction for donations to specified funds and charities, at 100% or 50%, with or without a limit of 10% of adjusted gross total income.
  • Donations must be in money, and a donation above ₹2,000 must be made by a mode other than cash.
  • Claims for donations to registered charities are allowed only on the basis of the information the charity reports to the department, so ask for the donation certificate.
  • Section 80GGA covers donations for scientific and social science research. Both sections are available only in the old tax regime and are sections 133 and 135 of the Income-tax Act, 2025 from Tax Year 2026-27.

How to claim the section 80G deduction

1. Donate to an eligible fund or registered charity by cheque, draft or online (cash only up to ₹2,000)
↓
2. Collect the donation receipt and the donation certificate from the charity
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3. Check that the donation shows in your pre-filled return data
↓
4. Work out the qualifying limit and the 100% or 50% share
↓
5. Claim the deduction in the old regime and report the donee details in the return

Donations to certain funds and charities reduce your taxable income under section 80G. Donations for scientific and social science research are covered by section 80GGA. Both work only under the old tax regime.

From Tax Year 2026-27 section 80G is section 133 and section 80GGA is section 135 of the Income-tax Act, 2025. For FY 2025-26 (assessment year 2026-27) the 1961 Act sections still apply.

Who can claim section 80G?

Any taxpayer who makes an eligible donation: individuals, HUFs, firms, companies and others, including NRIs. The deduction is 100% or 50% of the donation, depending on the donee, with or without a ceiling.

Mode of payment

  • The donation must be in money. Donations in kind (food, clothes, medicines, material) do not qualify.
  • A donation of up to ₹2,000 can be in cash. A donation above ₹2,000 must be by cheque, demand draft or an electronic mode.

Donations eligible at 100% with no limit

  • National Defence Fund.
  • Prime Minister’s National Relief Fund and PM CARES Fund.
  • Prime Minister’s Armenia Earthquake Relief Fund and the Africa (Public Contributions, India) Fund.
  • National Children’s Fund and National Foundation for Communal Harmony.
  • An approved university or educational institution of national eminence.
  • A fund set up by the Gujarat Government for earthquake relief.
  • A Zila Saksharta Samiti.
  • National and State Blood Transfusion Councils.
  • A State Government fund for medical relief to the poor.
  • Army Central Welfare Fund, Indian Naval Benevolent Fund and Air Force Central Welfare Fund.
  • Andhra Pradesh Chief Minister’s Cyclone Relief Fund, 1996.
  • National Illness Assistance Fund.
  • Chief Minister’s Relief Fund or Lieutenant Governor’s Relief Fund meeting the conditions of the Act.
  • National Sports Development Fund, National Cultural Fund and Fund for Technology Development and Application.
  • National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities.
  • Swachh Bharat Kosh and Clean Ganga Fund (not for CSR spending).
  • National Fund for Control of Drug Abuse.

Donations eligible at 100% subject to the 10% limit

  • Donations to the Government or an approved local authority, institution or association to promote family planning.
  • Donations by a company to the Indian Olympic Association or a notified association for sports infrastructure or sponsorship.

Donations eligible at 50% with no limit

  • Prime Minister’s Drought Relief Fund.

Donations eligible at 50% subject to the 10% limit

  • A fund or institution established in India for a charitable purpose that is a registered non-profit organisation (or approved as the Act provides).
  • The Government or a local authority, for any charitable purpose other than family planning.
  • An authority constituted for housing or for the planning and development of cities, towns and villages.
  • A corporation set up by the Central or a State Government to promote the interests of a minority community.
  • Repairs or renovation of a notified temple, mosque, gurudwara, church or other place of renown.

A purpose that is wholly or substantially religious is not a charitable purpose.

The 10% qualifying limit

The ceiling is 10% of the adjusted gross total income, which is gross total income less income on which tax is not payable and less other Chapter VIII deductions.

  1. Allow the donations eligible at 100% or 50% without a limit in full.
  2. For the donations subject to the limit, take the lower of the total of such donations and 10% of adjusted gross total income.
  3. Set off the 100% donations first. Any balance of the limit is used for the 50% donations, at 50%.
  4. Add the amounts to get your section 80G deduction.

Example

Mr X has an income of ₹7,00,000 and donates ₹1,60,000 to a charitable trust (50% with the limit). He is in the old regime.

Particulars Amount in ₹
Income before 80G 7,00,000
Donation 1,60,000
Qualifying limit (10% of 7,00,000) 70,000
Amount eligible (lower of donation and limit) 70,000
Deduction at 50% 35,000
Income after 80G 6,65,000
Tax comparison Amount in ₹
Tax before donation, with cess 54,600
Tax after donation, with cess 47,320
Tax saved 7,280

Proof and reporting of the donation

  • Ask the charity for a donation receipt with your name and address, the amount, the mode of payment and the charity’s PAN and registration details.
  • A registered charity must report your donation to the Income Tax Department every year and issue you a donation certificate. For FY 2025-26 these are the statement in Form 10BD and the certificate in Form 10BE. Under the Income-tax Rules, 2026 the statement is Form 113 and the certificate is Form 114.
  • Under section 133(6), your claim for a donation to such a charity is allowed only on the basis of the information the charity has reported, and is subject to verification. If the charity does not report it, you may lose the deduction. Check the donation in your pre-filled return data or the annual information statement.
  • In your return give the donee’s name, address and PAN, the amount, and the split between cash and other modes.

Section 80GGA: research donations

Section 80GGA (section 135 in the 2025 Act) allows a deduction of the full amount paid to:

  • a research association, university, college or other approved institution for scientific research, or
  • a research association, university, college or other approved institution for social science or statistical research.

Conditions:

  • It is not allowed if your gross total income includes business or professional income.
  • A cash donation above ₹2,000 does not qualify.
  • The claim is allowed on the basis of information reported by the payee, subject to verification.
  • The same amount cannot be claimed under any other provision.

The old section 80GGA also covered rural development, afforestation and poverty eradication funds. The 2025 Act does not list these, so do not rely on older articles for them.

Section 80G vs section 80GGA

Basis Section 80G Section 80GGA
Purpose Charity and relief funds Scientific and social science research
Rate 100% or 50% 100%
Limit 10% limit for some donations No limit
Business income Allowed Not allowed if GTI includes business or profession income
Cash Up to ₹2,000 Up to ₹2,000
Regime Old regime only Old regime only

Frequently asked questions

Who can claim section 80G?

Any taxpayer, including individuals, HUFs, firms and companies, but only if the donation is to an eligible fund or institution and the taxpayer is in the old tax regime where that applies.

Can I claim 80G for a cash donation?

Only up to ₹2,000. A donation above ₹2,000 must be paid by cheque, draft or online mode.

Are donations in kind allowed?

No. The deduction is allowed only for a donation made as a sum of money.

What is the 10% qualifying limit?

For certain donations, the amount eligible is limited to 10% of adjusted gross total income.

Is section 80G available in the new tax regime?

No. It is available only in the old tax regime.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Section 80U: Tax Deduction for Individuals with Disability

Posted on by CA Meet Dhrangadhariya

Last updated: 06 August 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Section 80U gives a resident individual who is certified as a person with disability (40% or more) a flat deduction of ₹75,000, or ₹1,25,000 for severe disability (80% or more).
  • No bills are needed, but the disability certificate from the prescribed medical authority must be furnished with the return.
  • If the certificate needs reassessment after a period, the deduction stops after the year it expires until a new certificate is furnished.
  • From Tax Year 2026-27 it is section 154 of the Income-tax Act, 2025, and it is available only in the old tax regime.

Section 80U gives a fixed deduction from total income to a resident individual who has a certified disability. The amount does not depend on how much the person spends. It is available only under the old tax regime.

From Tax Year 2026-27 the provision is section 154 of the Income-tax Act, 2025. For FY 2025-26 (assessment year 2026-27) it is section 80U of the 1961 Act.

Amount of deduction

Condition Deduction
Person with disability (40% or more) ₹75,000
Person with severe disability (80% or more, including severe autism, cerebral palsy and multiple disabilities) ₹1,25,000

Who can claim?

A resident individual who is certified by the prescribed medical authority, at any time during the year, as a person with disability or severe disability. A HUF cannot claim.

The disabilities covered include blindness, low vision, leprosy-cured, hearing impairment, locomotor disability, mental retardation, mental illness, autism, cerebral palsy and multiple disabilities.

Disability certificate

  • You do not need bills or proof of expenses. You need the certificate.
  • A copy of the certificate from the prescribed medical authority must be furnished with your return of income. Up to FY 2025-26 the form for autism, cerebral palsy and multiple disabilities was Form 10-IA. Under the Income-tax Rules, 2026 the certificate form is Form 30.
  • If the certificate says the disability must be reassessed after a stipulated period, the deduction is not allowed for the years after the year in which the certificate expires, until you get and furnish a new certificate.
  • The medical authority can be a civil surgeon or chief medical officer of a government hospital, or a specialist as notified, for example a neurologist.

Old regime and the due date

Section 80U works only in the old regime. A person without business income chooses the old regime along with the return furnished by the due date. If you file late, the new regime applies and you lose the deduction. File on time.

Section 80U vs section 80DD

Parameter Section 80DD Section 80U
Who claims Resident individual or HUF supporting a dependant with disability Resident individual who has the disability
Spending needed? Yes, spent on care or paid into an approved scheme No
Amount ₹75,000 or ₹1,25,000 ₹75,000 or ₹1,25,000
Both for the same person? Not allowed Not allowed
Regime Old regime only Old regime only

Frequently asked questions

How much is the deduction under section 80U?

₹75,000 for a person with disability (40% or more) and ₹1,25,000 for severe disability (80% or more). It is a fixed amount.

Who can claim section 80U?

A resident individual who is certified by the medical authority, at any time during the year, as a person with disability or severe disability. A HUF cannot claim it.

Is a disability certificate required?

Yes. A copy of the certificate from the prescribed medical authority has to be furnished with the return.

Can I claim 80U and 80DD together?

Not for the same person. A person who claims 80U for themselves means nobody can claim 80DD for them.

Is section 80U available in the new tax regime?

No. It is available only in the old tax regime, and the old regime must be chosen when you file your return on time.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Section 80EE: Extra Deduction of Up to ₹50,000 on Home Loan Interest

Posted on by CA Meet Dhrangadhariya

Last updated: 26 September 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Section 80EE gives first-time home buyers an extra deduction of up to ₹50,000 a year on home loan interest, on top of the ₹2 lakh under section 24(b).
  • It applies only to loans sanctioned between 01/04/2016 and 31/03/2017, for a house worth up to ₹50 lakh with a loan up to ₹35 lakh, if you owned no house on the sanction date.
  • The deduction can still be claimed each year while that loan runs, only in the old tax regime.
  • From Tax Year 2026-27 it is section 130 of the Income-tax Act, 2025.

Section 80EE gave first-time home buyers an extra deduction of up to ₹50,000 a year on home loan interest. It was a limited-period scheme for loans sanctioned in FY 2016-17, but if you have such a loan you can still claim it every year until the loan ends, if you are in the old tax regime.

From Tax Year 2026-27 the provision is section 130 of the Income-tax Act, 2025. For FY 2025-26 (assessment year 2026-27) it is still section 80EE of the 1961 Act.

Conditions

  • Only an individual can claim (resident or non-resident). HUFs, firms and companies cannot.
  • The loan must be taken from a financial institution (a bank or housing finance company) to buy a residential house in India.
  • The loan must have been sanctioned between 01/04/2016 and 31/03/2017.
  • The loan amount must not exceed ₹35 lakh.
  • The value of the house must not exceed ₹50 lakh.
  • You must not have owned any residential house on the date the loan was sanctioned.
  • The same interest cannot be claimed under another section for that year or any other year.
  • It is available only in the old tax regime.

How much?

Up to ₹50,000 a year. Claim the interest first under section 24(b) (section 22 in the 2025 Act), which allows up to ₹2 lakh for a self-occupied house. If the interest is more, the balance can be claimed under 80EE, up to ₹50,000, so the total is up to ₹2,50,000. The total cannot exceed the interest you actually pay.

For a let-out house section 24(b) has no ₹2 lakh ceiling on interest, though the loss from house property that can be set off against other income is limited to ₹2 lakh a year.

Examples

  1. Sunita bought her first home for ₹45 lakh with a loan of ₹30 lakh sanctioned on 15/01/2017. She owned no house. She can claim up to ₹50,000 under section 80EE each year for the interest in excess of the section 24(b) limit.
  2. Rohan paid ₹2,40,000 as interest in a year. He claims ₹2,00,000 under section 24(b) and the remaining ₹40,000 under section 80EE. Total ₹2,40,000.
  3. Sonia’s house cost ₹52 lakh. She cannot claim, because the value exceeds ₹50 lakh.
  4. Ajay’s loan was ₹38 lakh. He cannot claim, because the loan exceeds ₹35 lakh.
  5. Two friends buy their first home together, each with a loan of ₹15 lakh, for a house worth ₹40 lakh. If each meets the conditions, each can claim up to ₹50,000.

Documents

  • The interest certificate from the lender, showing the principal and interest for the year.
  • The sanction letter and loan agreement, showing the sanction date and amount.
  • Papers that show the value of the house.

Section 24(b) vs section 80EE

Feature Section 24(b) Section 80EE
Interest allowed Up to ₹2 lakh for self-occupied house Extra up to ₹50,000
Who Individuals and HUFs Individuals only
Loan period Any Sanctioned 01/04/2016 to 31/03/2017
House value and loan limits None ₹50 lakh and ₹35 lakh
Regime Self-occupied house: old regime only. Let-out house: interest is also allowed in the new regime Old regime only

Section 80EE vs section 80EEA

Basis Section 80EE Section 80EEA
Loan sanctioned 01/04/2016 to 31/03/2017 01/04/2019 to 31/03/2022
Deduction ₹50,000 ₹1,50,000
Loan limit ₹35 lakh No limit
House value ₹50 lakh Stamp duty value up to ₹45 lakh

In the 2025 Act, section 80EE is section 130 and section 80EEA is section 131.

Frequently asked questions

Can I claim section 80EE for a loan taken now?

No. It is only for loans sanctioned between 01/04/2016 and 31/03/2017. If your loan was sanctioned then and meets the conditions, you can still claim it each year.

What is the limit under section 80EE?

₹50,000 a year, in addition to section 24(b).

Who can claim 80EE?

Only individuals who owned no residential house on the date the loan was sanctioned. HUFs and companies cannot.

Is it available if the house is let out?

The section does not require self-occupation, but the interest cannot be claimed twice under different sections.

Is section 80EE available in the new tax regime?

No. It is available only in the old tax regime.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Difference Between Exemption, Deduction and Rebate in Income Tax

Posted on by CA Meet Dhrangadhariya

Last updated: 29 July 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • An exemption keeps a particular income out of tax altogether, a deduction reduces your taxable income, and a rebate reduces the tax you have to pay.
  • Examples: agricultural income is exempt, section 80C is a deduction, and the section 87A rebate cuts your computed tax.
  • For Tax Year 2026-27 the new regime gives a rebate of up to ₹60,000 if taxable income is up to ₹12 lakh; the old regime gives up to ₹12,500 if income is up to ₹5 lakh.
  • Most exemptions and deductions (HRA, 80C, 80D) work only in the old regime.

Exemption, deduction, rebate and relief are often used as if they mean the same thing. They do not. Each works at a different stage of the tax calculation, and knowing which is which helps you plan your tax and read your Form 16 correctly.

Exemption

An exemption makes a particular income tax-free. That income is left out of your total income, so it never enters the calculation.

Examples:

  • Agricultural income.
  • House rent allowance (HRA), within the prescribed limit, in the old regime.
  • Leave travel allowance (LTA), on the conditions of the rules, in the old regime.
  • Scholarships granted to meet the cost of education.
  • Gratuity and leave encashment on retirement, up to the limits allowed.

In the Income-tax Act, 2025, which applies from 01/04/2026, most of these exemptions are listed in the Schedules to the Act, while the old section 10 no longer exists as a single section.

Deduction

A deduction is an amount you subtract from your income, because you invested in or spent on something the law encourages. It reduces your taxable income, so the tax saved depends on your slab rate.

Examples:

  • Standard deduction on salary and pension.
  • Section 80C: up to ₹1.5 lakh for PPF, ELSS, life insurance and more.
  • Section 80D: health insurance premium. In the old regime, up to ₹25,000 for self, spouse and children (₹50,000 if a senior citizen), and the same again for parents.
  • Section 80E: interest on an education loan.
  • Section 24(b): home loan interest, up to ₹2 lakh for a self-occupied house.

Rebate

A rebate reduces the tax itself, after it has been computed on your taxable income. The main one is section 87A, available to resident individuals.

New regime (default) Old regime
Taxable income limit ₹12,00,000 ₹5,00,000
Maximum rebate ₹60,000 ₹12,500

These limits apply to Tax Year 2026-27 and to FY 2025-26. Marginal relief is available in the new regime for income slightly above ₹12 lakh. The rebate does not apply to special rate income, such as tax on short term capital gains under section 111A, so read the conditions before relying on it. See our article on the section 87A rebate for a full explanation.

Exemption vs deduction vs rebate: comparison table

Feature Exemption Deduction Rebate
Meaning A specific income is tax-free An amount subtracted from income An amount subtracted from tax
Stage Before total income is arrived at Before taxable income is arrived at After tax is computed
Effect Income is not taxed at all Reduces taxable income Reduces tax payable
Examples Agricultural income, HRA Section 80C, 80D, 80E Section 87A
Most are available in Mostly the old regime Mostly the old regime Both regimes

A note on tax deducted at source (TDS) and tax relief

Rebate, deduction and exemption are not the same as TDS. TDS is tax collected in advance by the payer, such as an employer or bank, on salary, interest, commission, rent or professional fees. It is later adjusted against your final tax, and any excess is refunded to you.

“Tax relief” is a general term for any provision that lowers your tax, including the three above and relief for double taxation. “Tax benefit” is used in the same loose way.

Which is better?

All three help, but they act differently. An exemption removes income completely. A deduction saves tax at your slab rate. A rebate saves a fixed amount of tax. Because most deductions and exemptions work only in the old regime, compare your tax under both regimes every year.

Frequently asked questions

What is the difference between a deduction and an exemption?

An exemption excludes a specific income from tax, for example agricultural income. A deduction is subtracted from your income, for example the section 80C deduction, to reach taxable income.

What is a tax rebate?

A rebate reduces the tax computed on your taxable income. Section 87A is the common example.

Is a rebate the same as a refund?

No. A rebate cuts your tax liability before you pay. A refund is money returned to you when your tax paid or deducted is more than your tax liability.

Which comes first in the calculation?

Exemptions are left out of income first, then deductions are subtracted, tax is calculated on the taxable income, and the rebate is applied to that tax.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.