Income Tax Guide for Central Government Employees — Old vs New Regime (FY 2025-26)

Updated: FY 2025-26 (Assessment Year 2026-27). Ready-to-use, practical, step-by-step guide with examples, AIS & Form 26AS checks and important sections (54-series).

Contents

1. Introduction
2. At a glance — Old vs New Regime
3. Deductions (Old & New) — Full practical list
4. Home loan interest (Section 24(b)) — let-out clarification
5. Capital gains (LTCG & STCG)
6. Section 54 series (54, 54B, 54F, 54EC, 54G, 54GA)
7. Before filing — check AIS & Form 26AS (how-to)
8. Worked example: govt employee (₹12,00,000)
9. Decision checklist — choose the regime
10. FAQs (extra)
11. Official tools & links
12. Disclaimer

Introduction

This guide is written specifically for central government employees to compare the Old Tax Regime and the New Tax Regime (Section 115BAC) for FY 2025-26 (AY 2026-27). It explains allowed deductions, important exemptions (Sections 54-series), capital gains rules (LTCG/STCG), and the critical steps you should do before filing — such as checking AIS and Form 26AS. Examples are included in every major section so you can apply the rules to your case.

1. At a glance — Old vs New Regime

Quick table to help you decide. Later sections explain each item with examples.

Feature	Old Regime	New Regime (FY 2025-26)
Tax slabs	Classic slabs: 0–2.5L, 2.5–5L (5%), 5–10L (20%), >10L (30%)	Revised slabs: up to 4L (nil), 4–8L (5%), 8–12L (10%), 12–16L (15%), 16–20L (20%), 20–24L (25%), >24L (30%)
Deductions (80-series)	Allowed (80C, 80D, 80E, 80TTA, etc.)	Mostly not allowed — limited list: standard deduction ₹75,000; employer NPS (80CCD(2)); Agniveer/Agni contributions if eligible; certain other narrowly defined items
NPS (employer)	Allowed — 80CCD(2)	Allowed — 80CCD(2) (for central government employees employer contribution cap is effectively 14% of basic+DA)
Home loan interest — Section 24(b)	Allowed (self-occupied up to ₹2 lakh; let-out: rules differ)	Allowed only for let-out property (not for self-occupied property). See section below for definition and examples.
Ease of filing	More schedules & paperwork (but potential for larger savings)	Simpler (fewer deductions)

Quick takeaway: If you claim many Chapter VI-A deductions (80C / 80D / home loan interest / HRA), the Old Regime often saves more. If you do not claim such deductions, New Regime is simpler and often better.

2. Deductions — Full practical list (Old regime) & allowed items in New regime

Old Regime — Common Chapter VI-A deductions (practical list for central government employees)

Below are the deductions most CG employees use. If many of these apply to you, calculate tax under Old Regime first.

• Section 80C (up to ₹1,50,000): PPF, EPF/GPF, life insurance premium, ELSS, NSC, principal portion of home loan, Sukanya Samriddhi, tuition fees. Example: if you invest ₹1.5L into PPF + PF, that ₹1.5L reduces your taxable income.
• Section 80CCC: Certain pension fund premiums.
• Section 80CCD(1): Employee contribution to NPS (within 80C limit). Example: employee NPS ₹50,000 claimed within 80C.
• Section 80CCD(1B): Additional NPS deduction up to ₹50,000 (over & above 80C).
• Section 80CCD(2): Employer contribution to NPS (not part of 1.5L limit). For CG employees employer's contribution can be up to around 14% of basic+DA — this is allowed as a deduction on your behalf.
• Section 80D: Health insurance premium (limits vary; higher for senior parents).
• Section 80DD / 80U: Disability-related deductions.
• Section 80E: Interest on education loan (interest portion only).
• Section 80G: Donations to specified relief funds (depending on type, 50%/100% or with limits).
• Section 24(b): Interest on housing loan (self-occupied: up to ₹2,00,000; let-out: rules differ).
• Section 80TTA / 80TTB: Interest on savings / senior citizen interest exemptions.
• Other useful sections: 80EE/80EEA (first-time home buyer benefits — check conditions), 80GGA/80GGC (research & political donations — subject to rules).

New Regime — What is still allowed (short list)

The new regime removes most Chapter VI-A deductions, but the following typically remain (or are specifically allowed):

• Standard deduction (salaried): ₹75,000.
• Employer NPS contribution (80CCD(2)): Allowed — employer contribution remains deductible. For central government employees the employer contribution is commonly capped at ~14% of basic+DA; this employer side contribution is recognized in ITR validation. Keep PRAN proof and employer certificate.
• Certain Agniveer / Agnipath contributions (Section 80CCH / 80C): If you are eligible, confirm by PRAN / scheme docs — these are covered by the tax rule that allows specific corpus deductions. (Check exact wording on Income Tax portal if claiming.)
• Family pension rules and certain salary-linked allowances: A small set of salary particulars remain relevant — follow ITR instructions.
• Note: Most common old-regime deductions (80C general usage, 80D, 80G, standard ₹50k old deduction, HRA exemption) are not available under the new regime.

Example: Employee with ₹12,00,000 gross, employer NPS ₹1,68,000 (14%), standard deduction ₹75,000 — taxable salary under New Regime = 12,00,000 − 1,68,000 − 75,000 = ₹9,57,000. Compare with Old Regime after actual 80C/80D/HRA values to decide.

3. Home loan interest — Section 24(b) & let-out property (important correction)

Key point: Under the New Regime for FY 2025-26, Section 24(b) interest deduction is not available for self-occupied property. It is available for let-out property. This differs from the Old Regime where self-occupied deduction up to ₹2,00,000 is allowed (subject to conditions).

What is a let-out property?

• Actually let-out: A property which you have rented to a tenant and receive rent.
• Deemed let-out: If you own more than one house and you live in one, the other(s) may be deemed let-out for tax purposes even if not physically rented (check specifics).

Example (let-out property): Rent received ₹2,40,000/year. Loan interest ₹3,00,000. Income from house property = 2,40,000 − 3,00,000 = −₹60,000 (a loss). Under both regimes, a house property loss can generally be set off against salary income up to ₹2,00,000 in the year; the rest is carried forward.

If you have a home loan and the property is self-occupied, you cannot claim the ₹2,00,000 interest deduction under the new regime — plan accordingly.

4. Capital Gains — LTCG & STCG (rules & examples)

Short, definitive table and worked examples for typical cases relevant to salaried employees.

Gain Type	Holding Period	Tax Rate	Exemption
Equity — LTCG	> 1 year	12.5% on amount above threshold	First ₹1,25,000 exempt
Equity — STCG	≤ 1 year	20%	Nil
Property — LTCG	> 2 years	20% with indexation	Exemptions under Sections 54 / 54F / 54EC etc.
Property — STCG	≤ 2 years	Taxed as per slab	Nil

Example 1 (Equity LTCG): Bought ₹5,00,000 in equity, sold after 2 years for ₹9,00,000 → gain ₹4,00,000. Exempt first ₹1,25,000 → taxable LTCG ₹2,75,000 at 12.5% = ₹34,375 (plus cess).

Example 2 (STCG): Short-term trading gain ₹50,000 → taxed at 20% = ₹10,000 (plus cess).

Reminder: Date of transfer & STT applicability matter. Some historical rules differ by date — always confirm the transaction date and the Income Tax Department guidance.

5. Section 54 series — exemptions on LTCG (with examples)

Section 54 — Sale of residential house (re-invest in residential house)

If you sell a house (held >2 years) and reinvest gains in a new residential property (purchase within 1 year before or 2 years after sale; or construct within 3 years), LTCG exempt to the extent of reinvestment.

Sold old house → LTCG ₹20,00,000. Reinvested ₹20,00,000 in new house within time → entire ₹20L exempt under Section 54.

Section 54B — Sale of agricultural land

Applies when you sell agricultural land used for agricultural purposes for at least 2 years.

• Urban agricultural land: If you sell urban agricultural land and reinvest proceeds in another agricultural land within 2 years, LTCG exemption under Section 54B applies.
• Rural agricultural land: Note: rural agricultural land is commonly not treated as a capital asset under Section 2(14)(iii) of the IT Act — hence gains on such rural agri land are typically exempt from income tax. Keep supporting documents (land classification, revenue records) in case of departmental scrutiny.

Sold urban agricultural land: gain ₹15,00,000. Bought another agricultural land within 2 years for ₹15,00,000 → ₹15L exempt under 54B.

Section 54F — Sale of any asset (except residential house) and buy residential house

Sell a long-term asset (e.g., land, commercial property, gold) and reinvest entire sale proceeds into a residential house within the specified time — proportionate exemption if partial reinvestment.

Sold commercial plot (LTCG ₹20L), reinvested ₹12L in a new house → exemption = (12/20)*20L = ₹12L exempt; ₹8L taxable.

Section 54EC — Invest LTCG in specified bonds

Invest LTCG in specified bonds (NHAI/REC etc.) within the prescribed time to claim exemption. Max ₹50 lakh investment in a financial year. Bonds have a 5-year lock-in.

LTCG ₹40L; invested ₹40L in NHAI bonds within 6 months → ₹40L exempt under 54EC.

Section 54G / 54GA — Industrial re-investment exemptions

G/GA apply when industrial undertaking or land is transferred and gains are re-invested in replacement industrial undertaking or land (special schemes). These are typically relevant for business/industry rather than salaried taxpayers, but included for completeness.

6. Before you file — check AIS & Form 26AS (step-by-step)

Do this before you file: reconcile AIS and Form 26AS with your Form-16 and bank/broker statements. Fix mismatches to avoid notices.

What are AIS & Form 26AS?

• AIS (Annual Information Statement) — a comprehensive statement maintained by the Income Tax Department; includes transactions reported by third parties (banks, exchanges, mutual funds, property registries etc.).
• Form 26AS — consolidated tax credit statement (TDS, TCS, advance tax, self-assessment tax, refunds).

How to view AIS (exact steps)

1. Go to https://eportal.incometax.gov.in/iec/foservices/#/login and login to the Income Tax e-filing portal.
2. From the menu: e-File → Income Tax Returns → View Annual Information Statement (AIS).
3. Download TIS (Taxpayer Information Summary) and check every reportable transaction: salary, bank interest, mutual funds, share trades, property registrations, etc.

How to view Form 26AS (exact steps)

1. Login to https://eportal.incometax.gov.in/iec/foservices/#/login.
2. From the menu: e-File → Income Tax Returns → View Form 26AS (this view typically redirects to the TRACES/26AS page).
3. Check TDS entries against your Form-16 / bank TDS certificates. If something is missing or incorrect, contact the deductor (employer/bank/broker) to file a correction/rectification.

Common mismatches & how to fix

• Missing TDS in 26AS: Ask the deductor to file correction/rectification return (TDS return correction). After correction, 26AS updates.
• Incorrect transaction in AIS: Use the AIS feedback/mismatch facility to submit evidence and ask the reporting entity to correct.
• Broker/Exchange trade mismatch: Contact the broker for correction of contract note / STT entries.

Example (mismatch): Your broker reported an intraday sale using a wrong PAN. AIS shows the sale but TDS/Tax credit missing from your 26AS. Contact broker to correct the PAN reporting; keep a copy of communications before filing your ITR.

7. Worked example (central government employee, ₹12,00,000)

Full calculation (detailed) to show how to compare regimes — adjust numbers for your case.

Assumptions

• Gross salary: ₹12,00,000
• Employer NPS contribution (80CCD(2)): 14% of basic+DA ≈ ₹1,68,000
• Employee NPS contribution (80CCD(1)) assumed 0 for simplicity
• LTCG (equity) during year: ₹1,00,000 (held >1 yr)
• STCG (equity) during year: ₹50,000 (≤1 yr)

A) New Regime (step-by-step)

1. Gross salary: ₹12,00,000
2. Less employer NPS (80CCD(2)): − ₹1,68,000
3. Less standard deduction: − ₹75,000
4. Taxable salary income = ₹9,57,000

Tax on salary (new slabs):

• 0–4,00,000 → Nil
• 4,00,001–8,00,000 → 5% on ₹4,00,000 = ₹20,000
• 8,00,001–9,57,000 → 10% on ₹1,57,000 = ₹15,700

Tax on salary = ₹35,700

Capital gains:

• LTCG ₹1,00,000 → within ₹1,25,000 exemption → ₹0
• STCG ₹50,000 → 20% → ₹10,000

Total tax (before cess) under New Regime = ₹35,700 + ₹10,000 = ₹45,700

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B) Old Regime (step-by-step) — example with 80C investment ₹1,00,000

1. Gross salary: ₹12,00,000
2. Less employer NPS (80CCD(2)): − ₹1,68,000
3. Less standard deduction (old): − ₹50,000
4. Less 80C investments (example): − ₹1,00,000
5. Taxable income = ₹8,82,000

Tax on salary (old slabs):

• 0–2,50,000 → Nil
• 2,50,001–5,00,000 → 5% on ₹2,50,000 = ₹12,500
• 5,00,001–8,82,000 → 20% on ₹3,82,000 = ₹76,400

Tax on salary = ₹88,900

Capital gains:

• LTCG ₹1,00,000 → within exemption → ₹0
• STCG ₹50,000 → 20% → ₹10,000

Total tax (before cess) under Old Regime = ₹88,900 + ₹10,000 = ₹98,900

In this sample calculation the New Regime gives significantly lower tax due to high employer NPS. If you have higher 80C, 80D, HRA, home loan interest etc., the Old Regime may be better — always compute both with your actual amounts.

8. Decision checklist — how to choose (step-by-step)

1. Collect documents: Form-16, Form-16A, bank TDS certificates, investment proof (PPF/ELSS/NPS), home loan interest certificate, purchase/sale deeds.
2. Download AIS & Form 26AS, reconcile with Form-16 and bank/broker statements. Fix mismatches before filing.
3. List exact deduction amounts: 80C total, 80D, 80CCD(1)/80CCD(1B), home-loan interest, HRA exemption amount.
4. Compute tax under Old Regime (with all deductions).
5. Compute tax under New Regime (standard ₹75k, employer NPS allowed, other allowed items).
6. Compare final tax (including cess & rebate adjustments). Choose the regime with lower tax liability.
7. File ITR and keep scanned proofs of all claimed exemptions (especially Sections 54/54F/54EC investments).

9. FAQs

Q1. Can salaried employees switch between regimes each year?

Yes — salaried employees can choose annually. For business/profession incomes, switching rules differ.

Q2. Is employer NPS contribution allowed in New Regime?

Yes — employer contribution under Section 80CCD(2) is allowed. For central government employees the employer contribution validation commonly uses a 14% figure (basic+DA). Keep employer certificate and PRAN.

Q3. Is rural agricultural land taxable?

Usually not. Section 2(14)(iii) of the Income Tax Act excludes rural agricultural land from being a capital asset in many cases; gains from such land are typically not taxable. But keep proper records for departmental verification.

Q4. Does Section 87A rebate apply to capital gains taxed at special rates?

It depends on the interaction of the rebate rules and the special rate. Some special-rate incomes (like STCG/LTCG) may not benefit from the rebate. Always check the rebate calculation rules in the official ITR/Finance Act wording or the Income Tax Department guidance for AY 2026-27.

Q5. Which ITR form should a central government employee use?

Usually ITR-1 (SAHAJ) if income is salary/pension + one house property + other sources (≤ ₹50,000). Use ITR-2 if you have capital gains or multiple house properties. Refer to official ITR applicability guidance.

10. Official tools & links

• Income Tax — Official Tax Calculator (use to compute New vs Old regime)
• Income Tax e-filing Portal (login for AIS & Form 26AS)
• Refer to Income Tax Department ITR instructions & Budget FAQs for definitive lists of allowed items in New Regime.

11. Disclaimer

Important: This article is for informational purposes only. We have taken utmost care to present accurate details for FY 2025-26, but tax laws and government notifications can change. Always verify specific details on the official Income Tax Department website (incometax.gov.in) and consult a chartered accountant if needed. govtemployeeshub.com and the author assume no legal responsibility for actions taken based on this article.

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