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

The new regime under Section 115BAC gives individuals and HUF taxpayers an option to pay income tax at lower rates with fewer exemptions and deductions to claim. Keep reading to learn more about Section 115BAC of the Income-tax Act, 1961.

Budget 2025 Update

The income gained up-to Rs.12 Lakhs will ultimately have Nil tax liability. The grounds are explained as follows. The modified slab rates for new tax regime applicable for FY 2025-2026 is as follows:

Income Tax Slabs	Tax Rates
Up-to Rs. 4,00,000	NIL
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%

So as per the above table, the Basic Exemption Limit is extended to Rs.4,00,000. The rebate allowed under section 87A has now been increased to Rs.60,000 for new regime. This was Rs.25,000 before the change. Since the rebate allowed has been increased, tax incidence for income up-to Rs.12,00,000 will be zero. 

Rebate is not allowed for income taxable at special rates. For example, capital gain u/s 112A.

Marginal relief on rebate is still applicable. 

 

What is Section 115BAC – The New Tax Regime?

Section 115BAC - the new tax regime system came into force from FY 2020-21 (AY 2021-22). The new tax regime introduced concessional tax rates with reduced deductions and exemptions. Section 115BAC was amended in the Budget 2023, and the new regime was made the default regime from FY 2023-24. This Section was further amended with revised tax rates 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. With the upcoming Budget 2025, there are many expectations for changes in tax slabs to further adjust for current economic conditions.

What are the Tax Rates Under the New Regime?

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

The tax rates under the new tax regime and the old tax regime for FY 2022-23 (AY 2023-24), FY 2023-24(AY 2024-25) and FY 2024-25(AY 2025-26) are compared below:

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

The tax payable under both the new and the old regimes without claiming deductions and exemptions for FY 2023-24 (AY 2024-25) is as below:

*Assumed that the annual income is after considering 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.

The Eligibility Criteria for the New Tax Regime on Section 115BAC

For the assessment year 2024-25, individuals and Hindu Undivided Families (HUFs) have to pay the taxes under the new tax regimes unless they choose to opt in for the old regime while filing the return of income before the due date. Under the new tax regime, the total income should meet the below-mentioned conditions:

• The following deductions or exemptions are not available under the new regime:
  • All deductions under Chapter VI-A, except those specified in section 80CCD (Contribution to National Pension Scheme) 80JJAA.(Deduction on expenses incurred on new employees)
  • Deductions specified in Section 35/35AD/35CCC. (Scientific research expenditure)
  • Clause (iia) of Section 57. (Deduction on family pension)
  • Deductions specified in Section 24(b). (Deduction of interest paid for housing loan)
  • Clause (5)/(13A)/(14)/(17)/(32) of Section 10/10AA/16.
  • Deductions specified in Section 32(1)(Depreciation)/32AD/33AB/33ABA.
• Losses under house property carried forward from previous assessment year cannot be set off under new regime.
• No deductions and exemptions are allowed for perquisites and allowances for new regime.
• Additional depreciation u/s 32(1) (iia) is not claimed.

Comparison of Deductions: Old Tax Regime vs. New Tax 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:

What are the Exemptions and Deductions Not Claimable under the New Tax Regime?

The following are some of the major deductions and exemptions you cannot claim under the new tax regime:

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

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

What are the Exemptions and Deductions Available Under the New Regime?

Under the New tax regime, you can claim tax exemption for the following:

Salary:

• Transport allowances in case of a specially-abled person.
• Conveyance allowance received to meet the conveyance expenditure incurred as part of the employment.
• Any compensation received to meet the cost of travel on tour or transfer.
• Daily allowance received to meet the ordinary regular charges or expenditure you incur on account of absence from his regular place of duty.
• Perquisites for official purposes
• Exemption on voluntary retirement 10(10C), gratuity u/s 10(10) and Leave encashment u/s 10(10AA)
• Budget 2023 introduced a standard deduction of Rs 50,000 under New Tax Regime applicable from FY 2023-24. This has been increased to Rs.75,000 in Budget 2024 applicable from FY 2024-25 

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. 

Chapter VI A deductions:

• Deduction for employer’s contribution to NPS account [Section 80CCD(2)]
• 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)
• The deduction on employers contribution to pension Scheme as per Section 80CCD (2) has been increased from 10% of salary to the 14% of salary in Budget 2024.

Here's a detailed list of exemptions and deductions available under the Old vs New Regime.

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 employees:

• 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 2024. 
• 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 employee:

• A non-salaried taxpayer has to choose the new regime when filing the tax return
• They need not declare or intimate their choice to anyone during the year.
• 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.

The due date for tax filing for the FY 2023-24 (AY 2024-25) is 31st July 2024, unless extended. If you have not filed your return within 31st July, you have until 31st December, 2024 to summit 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 2023-24)

In the above example, for an income of Rs 12,50,000, the new tax regime is significantly beneficial by Rs 38,251. 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 2023-24)

In Example 2, for an income of Rs 10 lakh having HRA exemption and 80D deduction, the old tax regime is beneficial by Rs 4,659.

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.

It is important to note that each taxpayer should calculate income tax, consider their tax-saving investments and then choose the regime. Refer to this page for a detailed comparison between the old tax regime and the new tax regime.

House Property Loss Under the New Tax Regime

Self occupied property:

• Deduction against  interest on housing loan paid upto 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 against the old regime.
• 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 withdrawn.

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.  
Related Articles:
Old Tax Regime vs New Tax Regime: Which is Better 
Income Tax Slabs
Income Tax Deductions List 
House Rent Allowance (HRA) 
Section 80D