Section 115BAC of Income Tax Act: New Tax Regime Slabs, Deductions and Exemptions

The new tax regime under Section 115BAC of the Income-tax Act was introduced in the 2020 Budget and was made the default regime in the 2023 Budget. This regime offers lower tax rates but fewer exemptions and deductions compared to the old regime. 

The new regime is the default tax regime. However, the tax payers can still opt out and file their returns under the old regime if they want to claim these deductions.

Popular deductions like 80C, HRA, Medical Insurance Premium u/s 80D, cannot be claimed on opting new-tax regime. But certain deduction like employer's contribution to NPS, exemption on gifts received up to Rs. 50,000, exemption on pension money received by the family can still be claimed under the new regime

Section 115BAC aims to simplify the tax filing process and make tax compliance easier for taxpayers. Keep reading to learn more about Section 115BAC of the Income-tax Act, 1961.

What is Section 115BAC – The New Tax Regime?

• The new tax regime introduced concessional tax rates with reduced deductions and exemptions. 
• Section 115BAC was amended in Budget 2023, making the new tax regime the default from FY 2023–24 onwards. 
• The tax rates under the new regime was again revised in Budget 2024. 
• If an individual or HUF wants to opt for the old tax regime, 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 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.

• In Budget 2024, the income tax slabs under the new tax regime have been revised. The new tax slabs under the new tax regime for FY 2024-25 (AY 2025-26) are shown in the table below.

The new tax regime does not allow 70+ deductions and exemptions (discussed in para 4).

What are the Exemptions and Deductions Available Under the New 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.

What are the Exemptions and Deductions Not Claimable under the New 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 Regime vs. New Regime 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:

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

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 31st July 2025, unless extended. If you have not filed your return within 31st July, you have until 31st December, 2025 to submit your Belated Return. 

How Do I Choose the New 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.

Example 1: Where the new regime is better in respect of tax outflow (FY 2024-25)

In the above example, for an income of Rs 12,50,000, 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)

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:

*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.

House Property Loss Under the New Tax Regime

Self Occupied Property

• Deduction against  interest on housing loan paid up to Rs. 2 lakhs not allowed.
• Set off the loss of Rs 2 lakh from house property from salary income not allowed.

Let Out Property

• If you have let out house property, you can claim a deduction for interest paid on the housing loan.
• New tax regime restricts the deduction to the taxable rent received from the property.
• Loss arising due to excess interest paid over rental income not allowed under new regime.
• Carry forward of house property loss to set off in future years not allowed.

Unabsorbed Depreciation and Business Loss Under the New 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.

The deductions are not available under the new regime to the extent they relate to deductions/exemptions not available under the new regime.

For example, consider the taxpayer has business losses because he has claimed deduction under section 35 - scientific research expenditure. This loss, will be carried forward to the future assessment years.

When he opts for new tax regime in the future, he cannot set off the losses as scientific research expenditure cannot be claimed as deduction under the 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.