Understanding India's New Tax Regime: Key Provisions of Section 115BAC for FY 2025-26

Section 115BAC of the Income Tax Act introduced a new tax framework, offering reduced slab rates while requiring taxpayers to forgo most deductions and exemptions. This section also grants individuals the flexibility to select their most advantageous tax regime each financial year, subject to specified conditions. If no explicit choice is made, the new regime automatically becomes the default. While this framework simplifies tax compliance and benefits those who claim fewer deductions, individuals retain the option to choose the old regime if it proves more beneficial for their financial situation.

What is Section 115BAC – The New Tax Regime Slabs?

Section 115BAC provides for relaxed slab rates under an alternative tax system. From Financial Year (FY) 2023-24, the new tax regime is established as the default under Section 115BAC. Numerous deductions and exemptions are not permitted under this new framework. If an individual or Hindu Undivided Family (HUF) wishes to opt for the old tax regime, they can do so when filing their tax returns. Taxpayers with business income must submit Form 10-IEA before the Income Tax Return (ITR) due date. After the due date, the old regime cannot be selected; taxpayers can only file under the new regime.

Eligibility for Section 115BAC

This section is applicable solely to individuals and HUFs. To choose the new regime, individuals must not claim specific deductions and exemptions. These include:

• House Rent Allowance under Section 10(13A)
• Special Allowance under Section 10(14)
• Allowances for politicians under Section 10(17)
• Home loan interest on self-occupied property under Section 24
• Additional depreciation under Section 32
• Expenses for scientific research under Section 35
• Chapter VI-A deductions, with exceptions for National Pension System (NPS) contributions under Section 80CCD(2), contributions to the Agniveer scheme under Section 80CCH(2), and deductions for additional employee costs under Section 80JJAA.

Moreover, individuals choosing the new regime should not carry forward any losses linked to the aforementioned deductions.

What are the Tax Rates Under the New Tax Regime?

For FY 2025-26 (Assessment Year 2026-27), the income tax slabs were further eased. The tax slabs and their corresponding rates under the new regime for FY 2025-26 are as follows:

The new tax slabs under the new tax regime for FY 2024-25 (Assessment Year 2025-26) are presented below:

Under the old tax regime, the income tax slabs and rates remain unchanged.

Rebate

Rebate offers tax relief to resident individuals with lower incomes, even if their taxable income exceeds the basic exemption limit. Non-residents, companies, HUFs, and other entities are not eligible for rebates.

The rebate for FY 2024-25 is as follows:

• Under the new tax regime, individuals with taxable income up to ₹7 lakhs qualify for a rebate of ₹25,000.
• Under the old tax regime, individuals with taxable income up to ₹5 lakhs qualify for a rebate of ₹12,500.

For FY 2025-26, the rebate under the new regime is ₹60,000. The rebate under the old regime remains unchanged.

Comparison of Old and New Tax Regime Slabs

The tax rates under the new and old tax regimes for FY 2024-25 (AY 2025-26) are compared below:

Old Tax Regime (FY 2024-25)|New Tax Regime (FY 2024-25) ---|---|--- Income Slabs|Age < 60 years & NRIs|Age of 60 Years to 80 years|Age above 80 Years|FY 2024-25 Up to Rs 2.5 lakhs|NIL|NIL|NIL|NIL Rs 2.5 lakhs - Rs 3 lakhs|5%|NIL|NIL|NIL Rs 3 lakhs - Rs 5 lakhs|5%|5%|NIL|5% Rs 5 lakhs - Rs 6 lakhs|20%|20%|20%|5% Rs 6 lakhs - Rs 7 lakhs|20%|20%|20%|5% Rs 7 lakhs - Rs 7.5 lakhs|20%|20%|20%|10% Rs 7.50 lakhs - Rs 9 lakhs|20%|20%|20%|10% Rs 9 lakhs - Rs 10 lakhs|20%|20%|20%|10% Rs 10 lakhs- Rs 12 lakhs|30%|30%|30%|15% Rs 12 lakhs- Rs 12.5 lakhs|30%|30%|30%|20% Rs 12.5 lakhs - Rs 15 lakhs|30%|30%|30%|20% Above Rs 15 lakhs|30%|30%|30%|30%

While the new tax regime offers enhanced tax slabs, it disallows most deductions and exemptions available under the old tax regime.

Exemptions and Deductions Available Under the New Tax Regime

Under the new tax regime, you can claim the following tax exemptions and deductions:

Chapter VI A Deductions

• Deduction for employer’s contribution to an NPS account [Section 80CCD(2)] (up to 14% of salary can be claimed under the new regime, compared to 10% under the old regime).
• Deduction for additional employee cost (Section 80JJA).
• Budget 2023 introduced a deduction for amounts paid or deposited into the Agniveer Corpus Fund under Section 80CCH(2).

Salary

• Section 80CCD(2) - Employer's Contribution towards pension fund - up to 14% of the salary can be claimed as a deduction.
• Standard deduction of Rs 75,000 under the New Tax Regime, compared to Rs. 50,000 under the old regime.
• Exemption on voluntary retirement under Section 10(10C), gratuity under Section 10(10), and leave encashment under Section 10(10AA).
• Certain allowances, such as transport allowance for specially-abled employees, conveyance allowance for job-related travel, travel compensation for tours or transfers, and daily allowances for duty-related expenses away from the workplace, are exempt under specific conditions.
• Perquisites for official purposes.

House Property

• Interest on Home Loan for let-out property (Section 24).

Other Sources

• Gifts up to Rs 50,000.
• Budget 2023 also introduced a deduction under Section 57(iia) for family pension income. In Budget 2024, the maximum deduction limit for family pension was increased from Rs. 15,000 to Rs. 25,000.

Exemptions and Deductions Not Available under the New Tax Regime

The following are some significant deductions and exemptions that cannot be claimed under the new tax regime:

Chapter VI A Deductions

• The deduction under Section 80TTA /80TTB.
• Section 80C, 80D, 80E, and so on, with the exception of Section 80CCD(2) and Section 80JJAA.
• Exemption or deduction for any other perquisites or allowances, including food allowance of Rs 50/meal (subject to two meals a day).
• Employee's (own) contribution to NPS.
• Donation to a Political party/trust, etc.

Salary

• Professional tax and entertainment allowance on salaries.
• Leave Travel Allowance (LTA).
• House Rent Allowance (HRA).
• Allowances to Members of Parliament/Members of Legislative Assembly (MPs/MLAs).
• Helper allowance.
• Children's education allowance.
• Other special allowances [Section 10(14)].

House Property

• Interest on housing loan for self-occupied or vacant property (Section 24).

Other Sources

• Minor child income allowance.

Business or Profession

• Additional depreciation under Section 32(1)(iia).
• Deductions under Sections 32AD, 33AB, 33ABA.
• Various deductions for donations or expenditure on scientific research contained in Section 35(2AA) or 35(1)(ii) or (iia) or (iii).
• Deduction under Section 35AD or Section 35CCC.
• Exemption under Section 10AA for Special Economic Zone (SEZ) units.

Comparison of Deductions: Old and New Tax Regime Slabs for FY 2024-25

The table below highlights the primary differences in available deductions between the Old Tax Regime and the New Tax Regime (Section 115BAC) for the financial year 2024-25:

Switching Between Tax Regimes - Form 10 IEA Requirements

The new regime is the default tax system. Taxpayers can still choose to file under the old regime.

For Salaried Taxpayer

• The choice must be made at the beginning of the financial year.
• The employee's selection at the start of the FY is solely for TDS deduction purposes and can be changed when filing the return (e.g., in July 2025).
• If no choice is made by the employee at the beginning of the financial year, TDS will be deducted under the new regime as it is the default.
• Salaried employees can opt to file under the new regime in one year and the old regime in the next, or vice versa.

Non-Salaried Taxpayer - Form 10 IEA Requirements

• Taxpayers earning income from a business or profession (non-salaried) cannot switch between the new and old tax regimes annually.
• Once a non-salaried individual opts out of the new tax regime, they cannot choose it again in the future.
• The taxpayer must file Form 10 IEA when electing to file under the old regime.
• The same Form 10 IEA can be used for filing under the old regime in subsequent years.
• If they wish to file under the new regime again in future financial years, they can do so, but they must file Form 10 IEA again to opt into the new regime.
• This option to return to the new regime is available only once in a lifetime.
• Non-salaried taxpayers do not need to declare or inform anyone of their choice during the year.

The tax filing due date for FY 2024-25 (AY 2025-26) is extended to September 15, 2025. If you miss this deadline, you have until December 31, 2025, to submit a belated return.

How Do I Choose the New Tax Regime and Plan My Taxes?

From a tax planning perspective, choosing the tax regime at the start of the financial year is crucial. A taxpayer must compare the income tax liability under both the new and old regimes. Once the regime is chosen early in the year, investments and calculations for Tax Deducted at Source (TDS) or advance tax are made accordingly. Additionally, taxpayers intending to opt for the old tax regime must furnish Form 10IEA to the income tax department before filing their return.

Illustrations showing the Best Tax Regime under Different situations

Below are examples illustrating situations where either the new or old regimes offer greater tax benefits.

Example 1: New Regime Advantage in Tax Outflow (FY 2024-25)

In this example, for an income of Rs 12.5 lakhs, the new tax regime provides a significant benefit of Rs 52,551. However, if additional deductions are claimed for interest on housing loans for self-occupied property, health insurance, NPS investments, education loans, etc., the old regime could yield greater tax savings.

Example 2: Where the old regime is better in respect of tax outflow (FY 2024-25)

In Example 2, for an income of Rs 10 lakh with HRA exemption and 80D deduction, the old tax regime is more beneficial by Rs 5,741.

If an individual claims fewer deductions for tax savings, such as for health insurance or NPS investments, the new regime will be more advantageous compared to those who heavily utilize tax-saving investments.

Individuals within the Rs 5-15 lakh income bracket who claim fewer deductions will generally benefit from the new regime. Conversely, individuals can benefit more from the old regime by making strategic tax-saving investments.

The tax payable under both the new and old regimes, without claiming deductions and exemptions for FY 2024-25 (AY 2025-26), is as follows:

*Assumed that the annual income is after reducing the standard deduction under both old and new regimes.

The table above demonstrates that the new tax regime generally results in tax savings for taxpayers who do not claim significant deductions or exemptions.

Treatment of House Property Deductions and Business Losses Under the New Tax Regime

Conclusion

Based on the provided information, the current tax regime presents advantages for specific income levels. If an individual chooses to claim fewer deductions for tax savings, such as investments in NPS or health insurance, the new regime proves more beneficial compared to individuals who heavily rely on tax-saving investments.

It is important to note that individuals with an income between Rs. 5 lakh and Rs. 10 lakh, who opt for lower deductions, will benefit from the new regime. Conversely, individuals in higher income tax brackets, earning more than Rs. 15 lakh annually, can benefit more from the old regime by strategically utilizing tax-saving investments.

Frequently Asked Questions

Which is better between the old tax regime and the new tax regime?

The optimal choice depends on your income level and the deductions you can claim. For middle-income earners with few deductions, the new regime is often more beneficial. However, if you have significant tax-saving deductions, the old regime may be more advantageous. It is always recommended to compare both regimes to determine the most beneficial option for your situation.

Is 80C applicable in new tax regime?

No, Section 80C deductions are not available under the new tax regime.

How to calculate tax in new regime?

For FY 2024-25 (AY 2025-26), the tax slabs under the new tax regime have been updated. First, calculate your gross total income after accounting for the standard deduction of Rs. 75,000. Next, if applicable, claim deductions such as those under Section 80CCD(2) or Section 80JJA, then compute tax based on the applicable slabs on your net taxable income. If eligible, claim a rebate under Section 87A. Finally, add a 4% cess to the computed tax to arrive at your total tax payable.

Is HRA allowed in new tax regime?

No, House Rent Allowance (HRA) exemption is not permitted under the new tax regime.

Is standard deduction allowed in new tax regime?

Yes, a standard deduction of Rs. 75,000 is allowed under the new regime from FY 2024-25 (AY 2025-26).

Which deductions are allowed in new tax regime?

Some allowed deductions include standard deduction, amounts paid to the Agniveer Corpus Fund, expenses related to family pension income under Section 57(iia), transport allowance for specially-abled persons, employer’s contribution to an NPS account, and additional employee costs, among others listed in the article above.

Which deductions are not allowed in new tax regime?

Many deductions are not allowed, such as those under Chapter VIA—including Section 80C, 80D (for health insurance premiums), 80E, and so on, with the exceptions of Section 80CCD(2) and Section 80JJAA. A comprehensive list is provided in the relevant section of this article.

What is Section 115BAC – The New Tax Regime?

Budget 2020 introduced Section 115BAC as a new tax regime featuring lower tax rates but fewer exemptions and deductions. It was further amended in Budget 2023, which revised the slab rates and established the new regime as the default.

Is there any change in the new tax regime?

Budget 2025 introduced changes to the new tax regime's tax slabs, as detailed in the table below:

What is the new deduction on family pension for pensioners?

In Budget 2024, the Finance Minister proposed increasing the deduction on family pension for pensioners from Rs 15,000 to Rs 25,000 for FY 2024-25. This increase is specifically applicable under the new tax regime.

Has the deduction on Employers contribution to a pension scheme has increased?

Yes. For FY 2024-25, the deduction for employer's contributions to a pension scheme under Section 80CCD(2) was increased in Budget 2024 to 14% of salary plus Dearness Allowance (DA), up from 10% of salary plus DA.

What is the difference between new and old tax regime?

The primary differences between the new and old tax regimes lie in their slab rates and available deductions. The new tax regime offers more relaxed tax slabs but disallows many deductions available under the old regime, generally resulting in a lower tax burden.

Can I claim deduction on interest on home loan for self occupied property under the new regime?

No. Under Section 115BAC, interest on a housing loan for self-occupied property cannot be claimed as a deduction under the new tax regime.

Are there relaxed slab rates for senior citizens under the new tax regime?

No. Unlike the old regime, the new tax regime does not offer specific relaxed slab rates for senior citizens.

Is there a difference in the rebate between old and new regime?

Yes, the new regime provides a higher rebate compared to the old regime. A rebate of Rs. 25,000 can be claimed under the new regime, whereas the maximum rebate under the old regime is limited to Rs. 12,500. Additionally, the new regime allows marginal relief on the rebate, which is not applicable in the old regime.

Should I file Form 10-IEA before filing ITR if I have to opt for old regime?

You are mandatorily required to file Form 10-IEA only if you have business income and wish to opt for the old regime. In other cases, it is not required.