Section 115BAC New Tax Regime 2025: Slabs, Benefits, Exemptions & Deductions

Section 115BAC of the Income Tax Act introduces a new tax regime that features lower tax slab rates in exchange for foregoing most deductions and exemptions. This section allows taxpayers to select the most beneficial tax regime for themselves each financial year, with specific conditions applying. If no regime is selected, the new tax regime will automatically be considered the default.

While this simplifies tax compliance and is advantageous for those who don't use many deductions, taxpayers still have the choice to opt for the old regime if it proves more favorable. Continue reading to learn more about the new tax regime under Section 115BAC.

What is the Section 115BAC New Tax Regime?

Section 115BAC provides more favorable slab rates starting from FY 2023-2024, with this new regime serving as the default under Section 115BAC. Under this regime, several deductions and exemptions are disallowed. Individuals or HUF (Hindu Undivided Families) can choose the old tax regime when filing their returns.

If they have business income, they submit Form 10-IEA before the filing ITR deadline. You must note that the old regime cannot be selected after the due date; consequently, the taxpayer will only be able to file their ITR under the new regime.

Who is Eligible for Section 115BAC?

Section 115BAC applies only to individuals and HUFs (Hindu Undivided Families). If you choose to file under the new regime, you must not claim the following deductions and exemptions:

• Depreciation under Section 32
• Special allowance under Section 10(14)
• House rent allowance under Section 10(13A)
• Allowance to a politician under Section 10(17)
• Expenses incurred on scientific research under Section 35
• Interest on housing loan on self-occupied property under Section 24
• Deductions under Chapter VI-A (excluding deduction on NPS under Section 80CCD(2), contribution to Agniveer Scheme under Section 80CCH(2), additional employee cost deduction under Section 80JJAA.

Eligibility is computed without considering losses from the above deductions.

What are the Tax Rates Under the New Tax Regime?

The income tax slabs were later eased for FY 2025-2026 (AY 2026-2027). The table below shows the tax slabs and their respective rates under the new regime for Financial Year 2025-2026 (AY 2026-2027):

The table below shows the new tax slabs under the new tax regime for FY 2024-2025 (AY 2025-2026).

The income tax slabs and rates remain the same without any changes under the old tax regime.

Rebate

• Rebate offers tax relief to resident individuals who earn a lower income, regardless of whether their taxable income exceeds the basic exemption limit.
• Non-residents, companies, HUFs, and other assesses don't qualify for rebates.
• The following are the rebates for FY 2024-25:
  • Under the new tax regime, individuals who have a taxable income of up to Rs. 7 lakh can claim a rebate of Rs. 25,000.
  • Under the old tax regime, a rebate of Rs. 12,500 is provided to individuals having a taxable income of up to Rs. 5 lakhs.
• The rebate under the new regime is Rs. 60,000 for FY 2025-2026. There are no rebates available under the old regime.

Old Vs New Tax Regime Slabs

The table below lists the comparison between the tax rates under the new tax regime and the old tax regime for FY 2024-2025 (AY 2025-2026):

Although the new tax regime has enhanced tax slabs, it doesn't permit most of the deductions and exemptions that a taxpayer can take advantage of when choosing the old regime.

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

Under the new tax regime, you are allowed to claim tax exemptions and deductions for the following:

Residential Property

• Interest on housing loan on rented property (Section 24)

Salary

• Perquisites for official purposes.
• Voluntary retirement 10(10C), gratuity under section 10(10), and leave encashment under section 10(10AA) are eligible for exemptions.
• Under Section 80CCD(2), you can claim a deduction of up to 14% of your salary from your employer's contribution towards pension funds.
• Under the new tax regime, a standard deduction of Rs. 75,000 is provided as compared to Rs. 50,000 under the old regime.
• Certain allowances like transport allowance for specially-abled employees, conveyance allowance for job-related travel, travel compensation for tours or transfers. Additionally, daily allowance for duty-related expenses away from the workplace is exempt under specific conditions.

Chapter VI A Deductions

• Additional employee cost deduction (Section 80JJA)
• Deductions for employer's contributions to NPS account [Section 80CCD(2)]. An individual can claim 14% of their salary under the new regime as compared to 10% under the old regime.
• Under the Budget 2023, a deduction of the amount paid or deposited in the Agniveer Corpus Fund Under Section 80CCH(2) was introduced.

Other Sources

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

What are the Exemptions and Deductions Not Available Under the New Tax Regime?

Below are some of the main deductions and exemptions you are not allowed to claim under the new tax regime:

Residential Property

• Home loan interest on self-occupied property or vacant property (Section 24)

Salary

• Helper allowance

• Allowance to MPs/MLAs

• Leave Travel Allowance (LTA)

• House Rent Allowance (HRA)

• Education allowance for children

• Allowance on salaries for professional tax and entertainment

• Other special allowances [Section 10(14)]

Chapter VI: A Deductions

• Employee's own contribution to NPS

• Making donations to a political party/trust, etc.

• Deductions under Section 80TTA/80TTB are not permitted

• Section 80C, 80D, 80E, and so on. However, Section 80CCD(2) and Section 80JJAA are exceptions.

• Deduction or exemptions for any other perquisites or allowances, including food allowance of Rs. 50/ meal, subject to 2 meals per day.

Business or Profession

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

Other Sources

• Allowance for minor child income

Comparing Deductions Between Old and New Tax Regime Slabs for FY 2024-2025

The table below lists the main differences between the deductions available under the old tax regime and the new tax regime (Section 115BAC) for the financial year 2024-2025:

What are the Form 10 IEA and Switching Between the Tax Regimes Requirements?

Although the default tax regime is the new regime, the taxpayer still has the option to file under the old regime.

For Salaried Taxpayer

• You must decide the regime at the start of the financial year.
• The choice made by the employee at the start of the FY is only for TDS deduction purposes. Also, it can be changed while filing the return.
• Since the new regime is the default regime, the employer will deduct TDS under the new regime if the employee doesn't choose at the start of the financial year.
• A salaried employee can file under the new regime in one year and the old regime in the next year, or vice versa.

Non-Salaried Taxpayer

• Taxpayers who receive income from a business or profession, basically non-salaried, are not allowed to take part in and withdraw from the new tax regime every year.
• A non-salaried individual cannot select to opt-in for the new regime again in the future, once they choose to opt-out.
• When the taxpayer chooses to file under the old regime, they must file Form 10 IEA.
• You can use the same Form 10 IEA for filing under the old regime in the future.
• If you wish to file under the new regime again in the upcoming financial year, you can do that by filing Form 10 IEA.
• However, you can opt back for the regime again only once in your lifetime.
• You are not required to announce or disclose your choice to anyone during the year.

For the FY 2024-25 (AY 2025-2026), the deadline to file taxes is extended to 15th September 2025. If you haven't filed your return within the due date, you can submit your belated return until 31st December 2025.

How Can I Choose the New Tax Regime for Tax Planning?

• You need to choose the tax regime at the start of the financial year if talking about a tax planning perspective.
• A taxpayer should ensure to differentiate the income tax under the new tax regime from the old regime.
• A taxpayer's investment and payable TDS, or advance tax, are computed according to the tax regime they opt for at the beginning of the year.
• If the taxpayer wishes to opt for the old tax regime, they must submit Form 10 IEA to the income tax department before filing their return.

Examples Showing the Best Tax Regime Under Different Situations

Here are a few examples showing the situations where the new and old regimes are better in case of tax outflow:

Example 1: New Regime Benefit in Tax Outflow (FY 2024-2025)

In this example, for an income of Rs. 12.5 lakh, the new tax regime is beneficial by Rs. 52,551. However, if you claim more deductions for interest on housing loans for SOP, health insurance, investment in NPS, education loans, and more, the old regime would be beneficial in terms of saving tax.

Example 2: Old Tax Regime Benefit in Terms of Tax Outflow (FY 2024-2025)

In this example, the old tax regime is beneficial by Rs. 5,741 for an income of Rs. 10 lakh, having an HRA exemption and 80D deduction.

The new regime will be beneficial if you claim lower deductions for saving tax towards health, investment in NPS, and so on, against individuals who use the tax-saving investments.

Additionally, the new regime will benefit those individuals more who fall into the income bracket between Rs. 5-15 lakh with reduced deduction claims. On the contrary, individuals can benefit from the old regime by making tax-saving investments.

The table below shows the tax payable under both the new and the old regime without claiming any deductions and exemptions for FY 2024-2025 (AY 2025-2026):

How are House Property Deductions and Business Losses Treated Under the New Tax Regime?

Final Thoughts

Understanding the complexities of Section 115BAC and the difference between the old and new tax regimes is important. Based on the information in the blog, it is evident that the current tax regime is more beneficial for the specified income level. The new tax regime offers more benefits to individuals who choose to claim fewer deductions for tax savings, like investment in NPS or health insurance.

Moreover, don't let the tax complexities overwhelm you. For tailored guidance and maximizing your tax benefits, connect with our expert team at Savetaxs. Our team carries years of knowledge, and they can help you plan your taxes with confidence while aligning with the latest regulations.