Section 115BAC: New Tax Regime

Section 115BAC introduced the new tax regime in FY 2020-21 (AY 2021-22), offering lower tax rates in exchange for fewer deductions and exemptions. In Budget 2023, the government made this regime the default tax regime from FY 2023-24, encouraging taxpayers to shift to a simpler tax structure. Budget 2024 further revised the Income tax rates, refining the regime to make it more attractive. Over the years, these changes have aimed to provide taxpayers with a straightforward alternative to the old tax system while maintaining a balance between reduced tax rates and limited benefits.

What are the Tax Rates Under the New Regime?

In Budget 2025, the government revised the income tax slabs under the new tax regime, while keeping the slabs and rates unchanged under the old tax regime.

Tax Rates under section 115BAC applicable for FY 2025-2026 (AY 2026-2027):

Tax Rates under section 115BAC applicable for FY 2024-2025 (AY 2025-2026):

Tax Rates under section 115BAC applicable for FY 2023-2024 (AY 2024-2025):

Rebate under Section 87A

As per Budget 2025, the rebate limit has been raised from ₹ 25,000 to ₹ 60,000 meaning those earning up to ₹ 12 lahk will pay no tax. This rebate is only applicable to incomes taxable at the slab rates. For Income taxed at special rate, like capital gains, this rebate is not allowed.

Tip

As per Budget 2025, the rebate limit has been raised from ₹ 25,000 to ₹ 60,000 meaning those earning up to ₹ 12 lahk will pay no tax. This rebate is only applicable to incomes taxable at the slab rates. For Income taxed at special rate, like capital gains, this rebate is not allowed.

Under the new tax regime, a resident individual can claim a rebate under Section 115BAC if their total income (after all deductions and exemptions) does not exceed ₹7,00,000. This rebate covers the tax payable along with cess, but it is capped at ₹25,000.

For those opting for the old tax regime, the rebate applies if total income (after deductions and exemptions) does not exceed ₹5,00,000. In this case, the maximum rebate allowed is ₹12,500. Like the new regime, the old regime also restricts this rebate to resident individuals.

The following additional benefits have been extended to the taxpayers who opt for the new regime for FY 2024-25 (AY 2025-26):

• The new regime will be the default tax regime. However, taxpayers can still opt for and file ITR under the old tax regime.
• As the new regime is the default regime, any return filed after the due date will be processed under the New regime.
• The limit of Standard Deduction against salaried income has been increased from Rs. 50,000 to Rs. 75,000.
• The limit of 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 as per Section 80CCD (2) has been increased from 10% of salary to 14% of salary. 
• The highest rate of surcharge on income above INR 5 crore has been reduced to 25% from 37%. As a result, the maximum marginal rate is reduced to 39% from 42.74%.
• Marginal tax relief has been introduced for taxpayers whose taxable income is between INR 7 lakhs – INR 7.5 lakhs after claiming eligible deductions. So you only need to pay taxes for income slightly above INR 7 lakhs.

Changes in Deductions and Exemptions under section 115BAC

According to the announcement made in the Budget 2020, there have been major removal of tax exemptions and deductions under the new tax regime. This has made tax compliance less tedious. Here’s a list of deductions that have been removed as per clause (i) of sub-section (2) of section 115BAC:

1. Leave travel concession as per section 10(5);
2. House rent allowance as per section 10(13A);
3. Official and personal allowances (other than those as may be prescribed) as per section 10(14);
4. Allowances to MPs/MLAs as per section 10(17);
5. Allowance for income of minors as per section 10(32);
6. Exemption for SEZ unit as per section 10AA;
7. The standard deduction, the deduction for entertainment allowance and employment/professional tax as per section 16;
8. Interest under section 24 in respect of self-occupied or vacant property as per section 23(2).
9. Additional depreciation under clause (iia) of sub-section (1) of section 32;
10. Deductions u/s 32AD, 33AB, 33ABA;
11. Various deductions for donation or expenditure on the scientific research are available in section 35;
12. Deduction u/s 35AD or section 35CCC;
13. Deduction from family pension under clause (iia) of section 57;
14. Any deduction under chapter VIA (like section 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA,etc). However, deduction under sub-section (2) of section 80CCD (employer contribution on account of the employee in notified pension scheme), 80CCH investment in agni veer fund, and section 80JJAA (for new employment) can be claimed.

Set-off of Losses and Unabsorbed depreciation as per section 115BAC

As per section 115BAC of the Income Tax Act, losses from house property can only be set off against other income from house property. Moreover, losses from income from house property cannot be carried forward in the new income tax regime.

In the case of a business income, an individual or HUF cannot claim set-off of the brought forward business loss or unabsorbed depreciation and also cannot carry forward the same to the extent they relate to deductions/exemptions withdrawn in clause (i) of sub-section (2) of section 115BAC.

Can I Choose Between the New Tax Regime and the Old Tax Regime?

The new regime is the default tax regime. The assess can still choose to file under the old regime:

• Business Income
  1. A taxpayer with business income can choose the new tax regime while filing their tax return.
  2. They cannot switch between the old and new tax regimes every year.
  3. If they opt out of the new tax regime, they can opt back in only once in the future.
  4. To opt out, they must submit Form 10IEA before the due date for filing their ITR on the IT Portal.
  
• Non-Business Income
  1. Employees must choose their tax regime at the start of the financial year.
  2. This choice is only for TDS deduction and can be changed while filing the tax return in July.
  3. If an employee does not choose, the employer deducts TDS under the new regime, as it is the default.
  4. A salaried employee can switch between the new and old regimes every year.

For individuals not having any income from Business and Profession, filing of Form 10-IEA is not required.

Tip

For individuals not having any income from Business and Profession, filing of Form 10-IEA is not required.

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