Key Updates on Tax Benefits in India: LTA Exemption, NPS Contributions, Housing Loan Interest, and Indexation on Property Gains

Tax laws and benefits often evolve, impacting how salaried individuals and property owners plan their finances. This article breaks down some crucial updates and provisions as of August 2025, focusing on Leave Travel Allowance (LTA) exemptions, National Pension System (NPS) employer contributions, housing loan interest deductions, and changes to indexation benefits for property capital gains.

Leave Travel Allowance (LTA) Exemption: Old vs New Tax Regime

Old Regime

• Available Exemption: Under Section 10(5), salaried employees can claim LTA exemption for travel expenses incurred on domestic trips for themselves and their family (spouse, children, dependent parents, and siblings).
• Block Period: The exemption applies for two journeys within a block of four calendar years (currently 2022–2025).
• Conditions: Only travel expenses on transport (rail, air, bus) qualify, excluding hotel or food expenses.
• Documentation: Travel proofs such as tickets must be submitted.
• Carry Forward: If unused, one journey can be carried forward to the first year of the next block.

New Tax Regime

• No Exemption: LTA exemption is fully disallowed if an employee opts for the new tax regime. The entire LTA amount is taxable.
• Trade-off: The new regime offers lower tax rates but no allowance of standard exemptions like LTA.

Implication: To benefit from LTA exemption, continuing with the old regime is necessary.

NPS Employer Contribution Limits: Private vs Government Employees

Private Sector

• Recent Change (FY 2025-26 onwards): Employer contribution limit increased from 10% to 14% of Basic + Dearness Allowance for private employees opting for the new tax regime.
• Old Regime: Limit remains at 10%.
• Tax Benefit Cap: Combined tax-free contributions to NPS, PF, and Superannuation are capped at ₹7.5 lakh per financial year.

Government Employees

• Contribution Limit: 14% of Basic + DA.
• Uniformity: This increase was introduced earlier for government employees for parity and now applies to private employees opting for the new regime.

These amendments enable higher employer contributions to employees’ retirement funds, enhancing retirement savings potential.

Housing Loan Interest Deduction and Cost of Acquisition

Section 24(b) Deduction

• Deduction allowed up to ₹2 lakh per year on interest paid on housing loans for self-occupied property.
• Applies to loans taken on or after April 1, 1999.
• Property must be acquired or constructed within 5 years from the end of the loan year.

Interaction with Cost of Acquisition for Capital Gains

• Recent Amendment (Effective April 1, 2024): If home loan interest is claimed as a deduction under Section 24(b), the same amount cannot be added to the cost of acquisition or cost of improvement for capital gains purposes.
• This amendment was introduced via the Finance Act, 2023 to eliminate the double benefit loophole.
• Interest not claimed under Section 24(b)—such as unclaimed pre-construction interest—can still be added to the cost of acquisition when calculating capital gains.

Indexation Benefit on Cost of Improvement: A Major Change from July 2024

What is Indexation?

• Indexation adjusts the purchase or improvement cost of an asset for inflation, reducing taxable long-term capital gains.

Change from July 23, 2024

• For property transfers on or after this date, indexation benefit is no longer allowed on the cost of improvement.
• For transfers before July 23, 2024, taxpayers can still claim indexation.
• This means improvement costs will be considered at their original value without inflation adjustment, increasing the taxable gain.

Conclusion

Taxpayers must navigate evolving rules around exemptions and deductions carefully:

• LTA exemptions offer a valuable benefit only in the old tax regime.
• Increased NPS contribution limits allow higher retirement savings contributions, especially for private employees under the new tax regime.
• Housing loan interest benefits are more tightly regulated to prevent overlapping deductions, emphasizing careful claim tracking.
• The removal of indexation on improvement costs for recent property sales signals a higher tax liability for long-term capital gains.

Stay informed and consult tax professionals to optimize planning under the latest rules.