Section 115BAC: New Tax Regime, Allowable Deductions, Exemption List & Benefits
Updated: 6 days ago
Section 115BAC, introduced in Budget 2020, established a new optional tax regime for individuals and Hindu Undivided Families (HUFs), offering lower tax rates in exchange for foregoing certain exemptions and deductions. This regime became applicable from FY 2020–21 (AY 2021–22) and continued through subsequent financial years, including FY 2023–24 and FY 2024–25.
Initially, there was uncertainty regarding whether employers needed to consider this new tax structure while deducting taxes at source (TDS) from salaries. To clarify, the Central Board of Direct Taxes (CBDT) issued Circular C1 of 2020, confirming that employers must factor in Section 115BAC when calculating TDS, based on a declaration submitted by employees opting for the new tax regime.
An update for FY 2025–26 as per Budget 2025 is provided in this article, reflecting the latest revisions and enhancements to the tax structure under Section 115BAC.
Table of Content
Budget 2025 Update: No Tax for Income Up to Rs. 12 Lakhs!
The Indian government has introduced new income tax slab rates for the financial year 2025-26 under the new tax regime. The best part? If your income is up to Rs. 12,00,000, you won’t have to pay any tax! Let’s break it down in simple terms.
New Income Tax Slabs for FY 2025-26
Annual Income Range | Tax Rate |
Up to Rs. 4,00,000 | NIL (0%) |
Rs. 4,00,001 - Rs. 8,00,000 | 5% |
Rs. 8,00,001 - Rs. 12,00,000 | 10% |
Rs. 12,00,001 - Rs. 16,00,000 | 15% |
Rs. 16,00,001 - Rs. 20,00,000 | 20% |
Rs. 20,00,001 - Rs. 24,00,000 | 25% |
Above Rs. 24,00,000 | 30% |
How is the Tax on Rs. 12 Lakhs Reduced to Zero?
The basic exemption limit is now Rs. 4,00,000. This means no tax is applicable up to this amount.
The government has increased the rebate under Section 87A from Rs. 25,000 to Rs. 60,000.
This rebate is applicable to taxpayers with income up to Rs. 12,00,000.
After applying the rebate, the tax liability becomes zero!
Example Calculation
Let's assume your total income is Rs. 12,00,000. Here’s how your tax is calculated:
Income Slab | Tax Rate | Tax Amount |
Up to Rs. 4,00,000 | NIL (0%) | Rs. 0 |
Rs. 4,00,001 - Rs. 8,00,000 | 5% | Rs. 20,000 |
Rs. 8,00,001 - Rs. 12,00,000 | 10% | Rs. 40,000 |
Total Tax Before Rebate | Rs. 60,000 | |
Less: Rebate under 87A | Rs. 60,000 | |
Final Tax Payable | Rs. 0 |
Since the rebate fully offsets the tax liability, no tax is payable for an income of up to Rs. 12,00,000!
Important Points to Remember
Rebates are not applicable on income taxable at special rates, such as capital gains under Section 112A (like profits from the sale of shares or mutual funds).
Marginal relief on rebate is still applicable. If your income slightly exceeds Rs. 12,00,000, your tax liability won’t increase drastically.
Budget 2024 Update on Section 115BAC: What are the Tax Rates Under the New Regime?
In Budget 2024, the tax slabs under the new tax regime have been proposed to be revised as follows:
Additional Benefits Extended to Taxpayers Opting for the New Regime:
The limit for Standard Deduction against salaried income has been increased from Rs. 50,000 to Rs. 75,000.
The maximum deduction under Family Pension has been increased from Rs. 15,000 to Rs. 25,000.
The deduction on the employer's contribution to the Pension Scheme under Section 80CCD (2) has been increased from 10% of salary to 14% of salary.
What is Section 115BAC of the Income Tax Act - The New Tax Regime?
According to Section 115BAC, any individual or Hindu undivided family (HUF) with income other than that which is derived from a business or profession may elect to be taxed for a previous year about the income return that must be submitted by Section 139(1) of the Income Tax Act. The 2020–21 fiscal year would be the start of this new government. Additionally, it applies to earnings made starting on April 1, 2020.
The notable decrease in income tax bracket rates is one of the key components of the tax regime under Section 115BAC. Furthermore, taxpayers who choose the new tax regime will forfeit several present tax regime deductions and exemptions.
Section 115BAC Income Tax Rates
Tax Rate Reductions: In comparison to the previous system, Section 115 BAC offers reduced tax rates. You will, however, lose access to the majority of the tax exemptions and deductions that were previously offered under the previous tax system if you decide to switch to a new one.
Simplified Calculations: Selecting Section 115 BAC omits the need for intricate calculations and deductions. Simply declare your income and pay the appropriate amount of tax.
New Standard Deduction: Under the new tax system, a standard deduction of Rs. 50,000 is allowed as of FY 2023–2024. This deduction was also available under the previous tax system.
Limited Deductions: Section 115 BAC prohibits the deduction of several items, including HRA, medical costs, interest on student loans, and so forth.
No Carry Forward of Losses: In FY 2023–2024, if you convert to the new tax regime under Section 115 BAC, any losses you incurred under the previous regime will not carry over.
Option to Select: Depending on their income and deductions, individuals have the option to select each year between the old and new tax regimes. Businesses are unable to revert to the previous tax system once they have chosen one during tax return filing.
The Eligibility Criteria for the New Tax Regime for Section 115BAC
Individuals and Hindu Undivided Families (HUFs) may choose to pay income tax for the assessment year 2023–24 at the new tax regime rates, providing that their total income for the applicable financial year satisfies the following requirements:
The income computation process does not take into account the following exclusions or deductions:
The entire Chapter VI-A deductions, excluding those that fall under 80CCD or 80JJAA.
Deductions that fall under Sections 35, 35AD, and 35CCC
Section 57, clause (iia).
Deductions listed in Table 24b
Section 10/10AA/16, clause (5)/(13A)/(14)/(17)/(32)
Deductions listed in 33AB, 33ABA, 32(1), 32AD, and 33AB
There is no need to balance any losses from prior assessment years that came from the aforementioned deductions or losses from real estate. There are no exemptions or deductions for allowances or perks included in the computation. By Section 32 clause (iia), no depreciation is claimed throughout the calculation process. Before submitting an ITR,, Form 10IE is submitted via the income tax portal.
What are the Exemptions and Deductions Available Under the New Regime?
You are eligible for tax exemption under the new tax framework for the following:
Under the New Tax Regime, which will take effect in FY 2023–2024, Budget 2023 introduced a standard deduction of Rs 50,000. However, from FY 2024-2025, the standard deduction under the New Tax Regime is raised to Rs. 75,000.
Additionally, Budget 2023 introduced a family pension income deduction under Section 57(iia)
Section 80CCH(2) of the Budget 2023 further instituted the deduction of amounts paid or deposited in the Agniveer Corpus Fund
Conveyance allowance obtained to cover related transportation costs for work-related travel
Transportation reimbursements if an individual has a specific need
Anything paid to cover the expense of a tour or transfer while travel
Daily stipend obtained to cover the usual costs or expenses you spend due to his absence from his regular place of employment
Requirements for official reasons
Exemptions from 10(10C) for voluntary retirement, 10(10) for gratuities, and 10(10AA) for leave encashment
Section 24 Interest on Home Loan for Rental Property
Section 80CCD(2) specifies the deduction for the employer's NPS account contribution.
Deduction for supplemental labour expenses (Section 80JJA)
Gift up to Rs. 50,000
Exemptions and Deductions Not Claimable under the New Tax Regime
Some of the most significant exemptions and deductions that you are unable to claim under the new tax law include the following:
Updated budget for 2023: Deduction from family pension income up to FY 2022–2023 (deduction permitted starting in FY 2023–2024)
Updated budget for 2023: Standard deduction of Rs. 50,000 is authorised till FY 2022–2023 (after which it can be deducted).
The standard deduction under Sections 80TTA and 80TTB
Leave Travel Allowance (LTA)
Employee's (own) contribution to NPS
Interest on housing loan on the vacant/self-occupied property (Section 24)
Professional tax and entertainment allowance on salaries
Children education allowance
Minor child income allowance
Allowance for helpers
Other special allowances [Section 10(14)]
Chapter VI-A deduction (Section 80C, 80D, 80E and so on, except Section 80CCD(2) and Section 80JJAA)
Donation to Political party/trust, etc
Exemption or deduction for other allowances or perquisites including food allowance of Rs 50/meal subject to two meals a day
Comparison of Deductions: Old Tax Regime vs. New Tax Regime (Section 115BAC) for FY 2024-25
Deduction/Exemption | Old Regime | New Regime (Section 115BAC) |
Section 80C (Investment in PPF, NSC, Life Insurance Premium, ELSS, etc.) | Available up to Rs. 1.5 lakh | Not available |
Section 80D (Health insurance premium) | Available | Not available |
Standard Deduction (for salaried individuals) | Rs. 50,000 | Rs. 75,000 (FY 2024-25) Rs. 50,000 (FY 2023-24) |
House Rent Allowance (HRA) | Available (based on actuals) | Not available |
Leave Travel Allowance (LTA) | Available | Not available |
Interest on Housing Loan (Section 24) (for self-occupied property) | Deduction up to Rs. 2 lakh | Not available |
Section 80E (Interest on education loan) | Available | Not available |
Section 80G (Donations to charitable institutions) | Available | Not available |
Section 80TTA/80TTB (Interest on savings bank account/interest for senior citizens) | Available | Not available |
Entertainment Allowance | Available | Not available |
Professional Tax (for salaried individuals) | Available | Not available |
Additional Depreciation (Section 32(1)(iia)) | Available | Not available |
Income from House Property Loss Set-off | Allowed (set off with other income) | Not available |
Children’s Education Allowance | Available | Not available |
Transport Allowance (for specially abled) | Available | Not available |
This table highlights the broader availability of deductions under the Old Tax Regime compared to the limited exemptions under the New Tax Regime (Section 115BAC).
How Do I Choose the New Regime and Plan My Taxes?
Starting in FY 2023–2024, salaried taxpayers will have the option to select the new tax regime and will need to notify their employer of their decision. During the fiscal year, the employee is unable to modify their selection. They have the option to alter their mind, though, when they file their income tax return in July 2024.
The 31st of July 2023 is the deadline for reporting taxes for the FY 2022–2023 (AY 2023–24). The employer will deduct tax (TDS) in accordance with the current tax regime if the employee does not select the new tax regime at the start of the fiscal year. A salaried taxpayer has the option of selecting the standard tax regime in one year and the new tax regime in another.
When filing their tax return, non-salaried taxpayers are required to select the new regime. During the year, they are not required to disclose or discuss their decision with anyone. Non-salaried taxpayers, on the other hand—those who receive income from a business or profession—are not able to annually choose to opt in or out of the new tax system. A non-salaried person cannot later opt back in for the new tax regime once they have opted out of it.
Example 1: When the New Regime is More Favorable (FY 2025-26)
Example 2: When the New Regime is More Favorable (FY 2024-25)
Particulars | Amount (₹) | Old Regime (₹) | New Regime (₹) |
Salary | 15,00,000 | 15,00,000 | 15,00,000 |
Less: Standard Deduction | 75,000 | 75,000 | 75,000 |
Less: Professional Tax | 2,500 | 2,500 | - |
Gross Total Income | 14,22,500 | 14,22,500 | 14,25,000 |
Less: Deduction u/s 80C | 1,50,000 | 1,50,000 | - |
Less: Deduction u/s 80D | 25,000 | 25,000 | - |
Total Income | 12,47,500 | 12,47,500 | 14,25,000 |
Income Tax | 1,80,500 | 1,42,500 | |
Add: Education Cess @ 4% | 7,220 | 5,700 | |
Total Tax Payable | 1,87,720 | 1,48,200 |
In this scenario, with a salary of ₹15,00,000, the new tax regime results in a tax saving of ₹39,520 compared to the old regime.
Example 3: When the New Regime is More Favorable in Terms of Tax Liability (FY 2023-24)
In this example, for an income of Rs 13,00,000, the new tax regime proves to be more beneficial by Rs 33,436. However, if you are able to claim additional deductions like housing loan interest, health insurance premiums, NPS contributions, and education loans, the old regime might result in greater tax savings.
In this example, for an income of Rs 13,00,000, the new tax regime proves to be more beneficial by Rs 33,436. However, if you are able to claim additional deductions like housing loan interest, health insurance premiums, NPS contributions, and education loans, the old regime might result in greater tax savings.
Example 4: When the Old Regime is More Advantageous in Terms of Tax Liability (FY 2023-24)
Income (Rs) | Amount (Rs) | Old Regime (Rs) | New Regime (Rs) |
Salary | 9,50,000 | 9,50,000 | 9,50,000 |
Less: HRA Exemption | 80,000 | 80,000 | - |
Less: Standard Deduction | 50,000 | 50,000 | 50,000 |
Less: Professional Tax | 2,500 | 2,500 | - |
Gross Total Income | 8,17,500 | 8,17,500 | 9,00,000 |
Less: Deduction u/s 80C | 1,25,000 | 1,25,000 | - |
Less: Deduction u/s 80D | 60,000 | 60,000 | - |
Total Income | 6,32,500 | 6,32,500 | 9,00,000 |
Income Tax | 34,650 | 45,000 | |
Add: Education Cess @ 4% | 1,386 | 1,800 | |
Total Tax | 36,036 | 46,800 |
In this case, for an income of Rs 9,50,000, including HRA exemption and deductions under Section 80D, the old regime is more beneficial by Rs 10,764.
If an individual has fewer deductions for tax savings—like health insurance premiums and NPS contributions—the new regime could prove more favorable. Individuals with incomes between Rs 6–12 lakh, who claim fewer deductions, might benefit from the new regime, while those who can take advantage of multiple tax-saving investments will find the old regime more advantageous.
House Property Loss in the New Tax Regime
For self-occupied property, you cannot claim a deduction for home loan interest in the new tax regime. The Rs 2 lakh deduction available under the old regime is not allowed. Additionally, the loss of Rs 2 lakh from house property cannot be set off against your salary income.
If you have let-out property, you may still claim the deduction for interest paid on a housing loan, but the new regime restricts the deduction to the taxable rent received. Moreover, under the new regime, any loss from house property due to excess interest paid over rental income cannot be set off against other income heads, nor can it be carried forward for future set-off.
Deductions Not Permitted for Business Income in the New Regime
The following deductions and exemptions are not allowed under the new regime for business income:
Additional depreciation under Section 32
Investment allowance under Section 32AD
Sector-specific deductions under Sections 33AB and 33ABA
Expenditure on scientific research under Section 35
Capital expenditure under Section 35AD
Exemption under Section 10AA for SEZ units
Unabsorbed Depreciation and Business Losses Under the New Regime
For individuals with business income, brought-forward business losses and unabsorbed depreciation cannot be set off under the new regime, to the extent they relate to the disallowed deductions and exemptions.
Conclusion
For the designated income level, there are benefits to the current tax system. The new rule becomes more beneficial than it is for those who depend on tax-saving investments if they decide to claim fewer deductions for tax savings, such as health insurance or NPS investments. It is crucial to keep in mind that the new system will help people whose income falls between Rs. 5 lakh and Rs. 10 lakh and who choose smaller deductions. On the other hand, people in higher income tax categories who make more than Rs. 15 lakh per year can take advantage of the current system by using investments that save on taxes.
FAQ
Q1. What is the new tax regime under Section 115BAC?
Section 115BAC of the Income Tax Act offers individuals and Hindu Undivided Families (HUFs) the option to pay income tax at concessional rates, provided they forgo certain exemptions and deductions available under the old tax regime. The Finance Act of 2025 further revised the tax slabs and increased the standard deduction to ₹75,000 in July Budget 2024, enhancing the appeal of the new tax regime.
Q2. Is the new tax regime better than the old one?
The suitability of the new tax regime depends on individual circumstances, including total taxable income and the availability of deductions under Sections 80C, 80D, House Rent Allowance (HRA) exemptions, and home loan interest. For instance, as of FY 2025–26 (AY 2026–27), the new tax regime offers a standard deduction of ₹75,000 and revised tax slabs, making income up to ₹12,75,000 effectively tax-free for salaried individuals. However, if you have substantial deductions and exemptions under the old regime, it may result in greater tax savings. It's advisable to calculate your tax liability under both regimes to determine which is more beneficial for you.
Q3. How is tax calculated in the new regime?
Under the new tax regime for FY 2025–26 (AY 2026–27), tax is calculated as follows:
Compute Gross Total Income: Sum all sources of income (salary, business income, etc.).
Subtract Standard Deduction: Deduct the standard deduction of ₹75,000.
Apply Tax Slabs: Apply the revised tax slabs to the resulting income:
Annual Income Range | Tax Rate |
Up to ₹4,00,000 | Nil |
₹4,00,001 to ₹8,00,000 | 5% |
₹8,00,001 to ₹12,00,000 | 10% |
₹12,00,001 to ₹16,00,000 | 15% |
₹16,00,001 to ₹20,00,000 | 20% |
₹20,00,001 to ₹24,00,000 | 25% |
Above ₹24,00,000 | 30% |
Add Health and Education Cess: Add 4% cess to the calculated tax.
Apply Rebate (if applicable): If your taxable income does not exceed ₹12,00,000, you are eligible for a rebate under Section 87A, reducing your tax liability to zero.
Q4. Is the standard deduction applicable in the new tax regime?
Yes, under the new tax regime, a standard deduction is available. It was increased to ₹75,000 in July Budget 2024, applicable from FY 2025–26 (AY 2026–27).
Q5. What are the new tax slabs under Section 115BAC?
As per the Finance Act of 2025, the revised tax slabs under the new tax regime for FY 2025–26 (AY 2026–27) are:
Annual Income Range | Tax Rate |
Up to ₹4,00,000 | Nil |
₹4,00,001 to ₹8,00,000 | 5% |
₹8,00,001 to ₹12,00,000 | 10% |
₹12,00,001 to ₹16,00,000 | 15% |
₹16,00,001 to ₹20,00,000 | 20% |
₹20,00,001 to ₹24,00,000 | 25% |
Above ₹24,00,000 | 30% |
Q6. Is HRA exempted in the new tax regime?
No, under the new tax regime, exemptions for House Rent Allowance (HRA) are not available.
Q7. When should I choose Section 115BAC?
Consider opting for Section 115BAC if:
Your total income falls within the lower tax brackets.
You do not claim significant exemptions and deductions.
You prefer a simplified tax filing process.
Your employer provides certain taxable allowances.
Avoid Section 115BAC if:
You claim substantial deductions and exemptions under the old regime.
You have income from business or profession.
You have long-term capital gains on listed securities.
You have agricultural income.
Q8. Can I switch between the new and old tax regimes every year?
For salaried individuals, you can choose between the new and old tax regimes each financial year. However, individuals with income from business or profession can opt out of the new tax regime only once and cannot revert to it thereafter.
Q9. Can I claim deductions under Section 80C and still opt for the new tax regime?
No, under the new tax regime, most deductions, including those under Section 80C (e.g., investments in PPF, EPF, LIC), are not allowed. Only a few deductions, such as those under Section 80CCD(2) and Section 80JJAA, are permitted.
Q10. Can I claim home loan interest under Section 24(b) in the new tax regime?
No, under the new tax regime, the deduction for home loan interest under Section 24(b) is not available for a self-occupied house property. This deduction is only applicable under the old tax regime.
Q11. What happens if I don’t submit the declaration for opting for the new tax regime to my employer?
If you don’t submit a declaration to your employer about opting for the new tax regime under Section 115BAC, your employer will deduct TDS based on the old tax regime. However, you can still choose the new regime while filing your income tax return, irrespective of what was considered for TDS by the employer.
Q12. Can senior citizens benefit from the new tax regime?
Yes, senior citizens can opt for the new tax regime. However, they will not be able to claim benefits such as Section 80TTB (interest on savings accounts) or the higher exemption limit available under the old tax regime.
Q13. Is it mandatory to opt for the new tax regime?
No, the new tax regime is optional. Taxpayers can choose between the old and new tax regimes based on what suits them best for a particular financial year.
Q14. Can non-resident Indians (NRIs) opt for the new tax regime?
Yes, NRIs can opt for the new tax regime under Section 115BAC. However, they also need to evaluate their eligibility for exemptions and deductions, as many of these benefits are not available under the new regime.
Q15. Can I claim a rebate under Section 87A in the new tax regime?
Yes, taxpayers can claim a rebate under Section 87A in the new tax regime, provided their total taxable income does not exceed ₹5 lakhs. In such cases, the tax liability will be reduced to zero.
Q16. Is professional tax deductible under the new tax regime?
Employers consist of professional tax paid on behalf of employees as salary perquisite in form 16. Therefore this amount is eligible for the deduction without any limit. However, the deduction is not available in the new tax regime.
Q17. Is PPF included in the new tax regime?
The tax is not applied to the maturity proceeds from the investments in PPF. But the new regime includes investments in these accounts and does not qualify for the section 80C deductions up to Rs. 1.5 lakh provided by the old regime.
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