Clipped from: https://cleartax.in/s/section-115bac-features-new-tax-regime-benefits
Section 115BAC of the Income Tax Act introduces the new tax regime, which offers reduced slab rates in exchange for forgoing most deductions and exemptions. This regime has now become the default tax regime for individuals and Hindu Undivided Families (HUFs) from FY 2023-24 onwards. While it simplifies tax compliance and benefits taxpayers who do not claim many deductions, individuals still have the option to opt for the old regime if it is more beneficial for them.
What is Section 115BAC – The New Tax Regime Slabs?
- The income tax slabs are relaxed under the new regime, with reduced deductions and exemptions.
- Section 115BAC was amended in Budget 2023, making the new tax regime the default from FY 2023–24 onwards.
- If an individual or HUF wants to opt for the old tax regime, he can do so at the time of filing the returns.
- If such individual or HUF has business income, then he must file Form 10-IEA before the due date of filing ITR.
- Old regime cannot be chosen after due date, the taxpayer can file ITR only under the new regime.
What are the Tax Rates Under the New Tax Regime?
- For FY 2025-26 (AY 2026-27), the income tax slabs was further relaxed. The tax slabs and their respective rates under the new regime for FY 2025-26 (AY 2026-27) is presented in the table below.
| Tax Slab for FY 2025-26 | Tax Rates |
| Up-to Rs. 4 lakh | NIL |
| Rs. 4 lakh – Rs. 8 lakh | 5% |
| Rs. 8 lakh – Rs.12 lakh | 10% |
| Rs.12 lakh – Rs.16 lakh | 15% |
| Rs.16 lakh – Rs. 20 lakh | 20% |
| Rs. 20 lakh – Rs.24 lakh | 25% |
| Above Rs. 24 lakh | 30% |
- The new tax slabs under the new tax regime for FY 2024-25 (AY 2025-26) are shown in the table below.
| Tax Slab for FY 2024-25 | Tax Rate |
| Up to Rs. 3 lakh | NIL |
| Rs. 3 lakh – Rs. 7 lakh | 5% |
| Rs. 7 lakh – Rs.10 lakh | 10% |
| Rs. 10 lakh – Rs.12 lakh | 15% |
| Rs.12 lakh – Rs.15 lakh | 20% |
| Above Rs.15 lakh | 30% |
- Under the old tax regime, the income tax slabs and rates remain unchanged.
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Rebate
- Rebate provides tax relief for resident individuals who earn a lower income, even if their taxable income crosses the basic exemption limit.
- Non-residents, companies, HUF, and other assessees are not eligible for rebates.
- Rebate for FY 2024 – 25 is as follows:
- Under the new tax regime, individuals with taxable income up to ₹7 lakhs are eligible for a rebate of ₹25,000.
- Under the old tax regime, individuals with taxable income up to ₹5 lakhs are eligible for a rebate of ₹12,500.
- For FY 2025-26, the rebate under the new regime is Rs. 60,000. There is no rebate change under the old regime.
Comparison of Old and New Tax Regime Slabs
The tax rates under the new tax regime and the old tax regime 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% |
The New Tax Regime, though with enhanced tax slabs, does not allow most of the deductions and exemptions that a taxpayer can benefit when opting for the old tax regime.
Exemptions and Deductions Available Under the New Tax Regime
Under the New tax regime, you can claim tax exemptions and deductions for the following:
Chapter VI A Deductions
- Deduction for employer’s contribution to NPS account [Section 80CCD(2)] (14% of salary can be claimed under the new regime as compared to 10% under the old regime)
- Deduction for additional employee cost (Section 80JJA)
- Budget 2023 further introduced deduction of amount paid or deposited in 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 deduction
- Standard deduction of Rs 75,000 under New Tax Regime as compared to Rs. 50,000 under the old regime.
- Exemption on voluntary retirement 10(10C), gratuity u/s 10(10) and Leave encashment u/s 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 on let-out property (Section 24)
Other Sources
- Gifts up to Rs 50,000
- Budget 2023 also introduced deduction under Section 57(iia) of family pension income. In Budget 2024 Limit of maximum Deduction under Family Pension has been increased from Rs. 15,000 to Rs. 25,000.
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Exemptions and Deductions Not Available under the New Tax Regime
The following are some of the major deductions and exemptions you cannot claim under the new tax regime:
Chapter VI A Deductions
- The deduction under Section 80TTA/80TTB
- Section 80C, 80D, 80E and so on, except Section 80CCD(2) and Section 80JJAA
- Exemption or deduction for any other perquisites or allowances including food allowance of Rs 50/meal subject to 2 meals a day
- Employee’s (own) contribution to NPS
- Donation to Political party/trust, etc
Salary
- Professional tax and entertainment allowance on salaries
- Leave Travel Allowance (LTA)
- House Rent Allowance (HRA)
- Allowances to MPs/MLAs
- Helper allowance
- Children education allowance
- Other special allowances [Section 10(14)]
House Property
- Interest on housing loan on the self-occupied property or vacant property (Section 24)
Other Sources
- Minor child income allowance
Business or Profession
- Additional depreciation under section 32(1)(iia)
- Deductions under section 32AD, 33AB, 33ABA
- Various deductions for donation for 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 SEZ units
Comparison of Deductions: Old and New Tax Regime Slabs for FY 2024-25
The below table outlines the key differences in available deductions between the Old Tax Regime and the New Tax Regime (Section 115BAC) for the financial year 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 |
| House Rent Allowance (HRA) | Available (based on actuals) | Not available |
| Standard Deduction (for salaried individuals) | Rs. 50,000 | Rs. 75,000 (FY 2024-25) and Rs. 50,000 (FY 2023-24) |
| Section 80D (Health insurance premium) | Available | Not available |
| Interest on Housing Loan (Section 24) (for self-occupied property) | Deduction up to Rs. 2 lakh | Not available |
| Section 80G (Donations to charitable institutions) | Available | Not available |
| Leave Travel Allowance (LTA) | Available | Not available |
| Section 80E (Interest on education loan) | Available | Not available |
| Section 80TTA/80TTB (Interest on savings bank account/interest for senior citizens) | Available | Not available |
| Professional Tax (for salaried individuals) | Available | Not available |
| Entertainment Allowance | Available | Not available |
| Transport Allowance (for specially abled) | Available | Available |
| Children’s Education Allowance | Available | Not available |
| Income from House Property Loss Set-off | Allowed (set off with other income) | Not available |
| Additional Depreciation (Section 32(1)(iia)) | Available | Not available |
Can I switch Between Tax Regimes?
The new regime is default tax regime. The assess can still choose to file under old regime.
For Salaried Taxpayer
- Choice needs to be made in the beginning of the financial year.
- The choice made by the employee at the beginning of the FY is only for the purpose of deducting TDS and it is changeable while filing the return i.e., July 2025.
- If no choice is made by the employee at the beginning of the financial year, TDS deducted by the employer under new regime as it is default regime.
- Salaried employee can choose to file under new regime in one year and old regime in the next year, or vice versa.
Non Salaried Taxpayer
- Taxpayers with an income from business or profession (non-salaried) cannot opt-in and opt-out of the new tax regime every year.
- Once a non-salaried opts out of the new tax regime, they cannot opt-in again for the new tax regime in the future.
- They need not declare or intimate their choice to anyone during the year.
The due date for tax filing for the FY 2024-25 (AY 2025-26) is extended to 15th September 2025. If you have not filed your return within 15th September, you have until 31st December, 2025 to submit your Belated Return.
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How Do I Choose the New Tax Regime and Plan My Taxes?
- From a tax planning perspective, choosing the tax regime at the beginning of the financial year is essential.
- A taxpayer must compare the income tax under the new tax regime with the old regime.
- Once the taxpayer chooses the tax regime at the beginning of the year, the investments and TDS or advance tax payable calculations are made accordingly.
- Also, the taxpayer has to furnish Form 10IEA to the income tax department before filing the return if the taxpayer intends to opt for the old tax regime.
Illustrations showing the Best Tax Regime under Different situations
Below are a few illustrations explaining the situations wherein the new and old regimes are better in terms of tax outflow.
Example 1: New Regime Advantage in Tax Outflow (FY 2024-25)
| Income | Amount (Rs) | Old regime (Rs) | New regime (Rs) |
| Salary | 12,50,000 | 12,50,000 | 12,50,000 |
| Less: Standard deduction | 50,000 | 50,000 | 75,000 |
| Less: Professional tax | 2,400 | 2,400 | – |
| Gross total income | 11,97,600 | 11,97,600 | 11,75,000 |
| Less: Deduction u/s 80C | 1,50,000 | 1,50,000 | – |
| Total income | 10,47,600 | 10,47,600 | 11,75,000 |
| Income tax (Including 4% cess) | 1,31,851 | 79,300 |
In the above example, for an income of Rs 12.5 lakhs, the new tax regime is significantly beneficial by Rs 52,551. However, if you claim further deductions for interest on housing loan for SOP, health insurance, investment in NPS, education loans and so on, the old regime will be helpful in respect of tax savings.
Example 2: Where the old regime is better in respect of tax outflow (FY 2024-25)
| Income | Old regime (Rs) | New regime (Rs) |
| Salary | 10,00,000 | 10,00,000 |
| Less: HRA Exemption | 70,000 | – |
| Less: Standard deduction | 50,000 | 75,000 |
| Less: Professional tax | 2,400 | – |
| Gross total income | 8,77,600 | 9,25,000 |
| Less: Deduction u/s 80C | 1,50,000 | – |
| Less: Deduction u/s 80D | 50,000 | – |
| Total income | 6,77,600 | 9,25,000 |
| Income tax | 48,020 | 42,500 |
| Add: Education cess @ 4% | 1,921 | 1,700 |
| Total tax | 49,941 | 44,200 |
In Example 2, for an income of Rs 10 lakh having HRA exemption and 80D deduction, the old tax regime is beneficial by Rs 5,741.
If an individual claims lower deductions for tax savings towards health insurance, investment in NPS and so on, the new regime will be more beneficial against individuals who utilize the tax-saving investments.
Also, individuals with an income bracket between Rs 5-15 lakh with lower deductions claims will benefit from the new regime. In contrast, individuals can benefit more from the old regime by making tax-saving investments.
The tax payable under both the new and the old regimes without claiming deductions and exemptions for FY 2024-25 (AY 2025-26) is as below:
| Annual income* | Tax under the old regime (Rs) (A) | Tax under the new regime (Rs) (B) | Tax savings under the new regime (Rs) (A – B) |
| Rs 7,50,000 | 54,600 | 0 | 54,600 |
| Rs 10,00,000 | 1,06,600 | 44,200 | 62,400 |
| Rs 12,50,000 | 1,79,400 | 79,300 | 1,00,100 |
| Rs 15,00,000 | 2,57,400 | 1,30,000 | 1,27,400 |
*Assumed that the annual income is after reducing the standard deduction under both old and new regimes.
The above table shows that the new tax regime generally saves taxes for taxpayers who don’t claim any deductions or exemptions.
Treatment of House Property Deductions and Business Losses Under the New Tax Regime
| Deduction / Loss claimed | Old Regime | New Regime |
| Self-Occupied House Property | Interest on housing loan up to ₹2 lakh deductible; loss can be set off. | No deduction for interest; no set-off of loss. |
| Let-Out House Property | Interest fully deductible; excess loss can be set off/carry forward. | Deduction limited to taxable rent; no set-off or carry forward of excess loss |
| Business Loss / Unabsorbed Depreciation | Set-off and carry forward allowed if conditions are met | Not allowed if linked to deductions not available under the new regime.(e.g., Sec. 35) |
| Example: Sec. 35 Deduction Loss | Can be carried forward and set off in future years | Cannot be set off if deduction not allowed under new regime |
Conclusion
Based on the provided information, it is evident that the current tax regime offers advantages for the specified income level. If an individual chooses to claim fewer deductions for tax savings, such as investments in NPS or health insurance, the new regime becomes more advantageous compared to individuals who rely on tax-saving investments.
It is important to consider that individuals with an income ranging from Rs.5 lakh to Rs.10 lakh, who opt for lower deductions, will benefit from the new regime. Conversely, individuals falling into higher income tax brackets, earning more than Rs.15 lakh annually, can benefit from the old regime by utilizing tax-saving investments.
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