Section 115BAC of Income Tax Act – Features of the New Tax Regime and its Benefits

As per Section 115BAC of the Income Tax Act that came into effect from the 2024-25 fiscal, you would now be able to pay your income tax under a new regime that happens to be optional.

The new tax framework would apply to both HUFs (Hindu undivided families) and individuals. It has lower tax rates but the exemptions and deductions over there are fewer. Over here we would talk about the new tax framework along with its features. We would also discuss how you can benefit from the same.

Income Tax Slabs for FY 2025-26 (AY 2026-27)

Under the Budget 2025, individuals with income up to Rs. 12,00,000 will have zero tax liability for FY 2025-26 (AY 2026-27) under the new tax regime. The revised tax slabs are as follows:

Income Tax Slabs	Income Tax Rates
Upto 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%

With the revised tax structure, individuals earning up to Rs.12,00,000 will have no tax liability due to the increased rebate of Rs.60,000. For salaried individuals, the tax liability will be zero for incomes up to Rs.12,75,000, due to the Rs.75,000 standard deduction.

Note: The marginal relief on the rebate is still applicable. 
The rebate is not available for income that is taxed at special rates (e.g., capital gains under section 112A).

Tax Savings Across Various Income Levels

The revisions to the tax slabs will lead to substantial savings for taxpayers. Here's a breakdown of the tax savings across different income levels:

Taxable Income	New Regime (Pre Budget 2025)	New Regime (Post Budget 2025)	Savings	Savings %
10,00,000	44,200	0	44,200	100%
12,00,000	71,500	0	71,500	100%
15,00,000	1,30,000	97,500	32,500	25%
18,00,000	2,15,800	1,50,800	65,000	30%
20,00,000	2,78,200	1,92,400	85,800	31%
25,00,000	4,34,200	3,19,800	1,14,400	26%
30,00,000	5,90,200	4,75,800	1,14,400	19%
40,00,000	9,02,200	7,87,800	1,14,400	13%

Please understand that the calculations provided in the table above do not include any tax exemptions and deductions that may be claimed under either of the regimes. So, as you can see from above, the new regime is primarily beneficial for people who do not claim any tax exemption.

Deductions and Exemptions that you cannot Claim Under the New Tax Framework

Following are some of the most prominent exemptions that cannot be claimed under Section 115BAC of income tax act:

• standard deductions provided by sections 80TTB and 80TTA, entertainment allowance, and professional tax on salaries
• special allowances offered by Section 10 (14)
• LTA or leave travel allowance
• interest paid on home loans for vacant and self-occupied properties according to Section 24
• HRA or house rent allowance
• deductions provided in Chapter VI-A
• minor child income allowance
• deductions and exemptions for allowances and perks
• helper allowance
• deduction from family pension income
• children education allowance

Deductions and Exemptions that you can Claim Under the New Tax Framework

Following are some of the most prominent exemptions that cannot be claimed under Section 115BAC of Income Tax Act:

• transport allowance for specially-abled people
• daily allowance for ordinary regular expenses and costs you have incurred because you were absent from your regular place of duty
• conveyance allowance to cover the costs covered in daily commuting and traveling for your profession
• deduction for contributions made by the employers to the NPS (National Pension Scheme) account
• compensation for costs of travel incurred during transfer or tour
• deduction for extra employee costs as provided by Section 80JJA

Which one should I choose in this case?

Are you a salaried taxpayer? In that case, you could choose anyone from among these, and you can also change your choice the next year if you want to. All you have to do is inform your employer of your choice. However, if you are a non-salaried taxpayer the decision to abide by Section 115BAC of income tax act could prove to be a tricky one for you. This is because unlike a salaried taxpayer you would not be able to opt-out and in every year. Once you take any decision in this case you would not be allowed to change it in the future.

How to plan my taxes in this case?

If you want to go with the new tax framework u/s 115BAC of income tax act you should ideally do it at the beginning of a financial year as that would help you plan your investments accordingly. In fact, this would also help you get a good idea of the TDS (tax deducted at source) that would be applicable in your case. You must compare both the frameworks in question and decide the one that suits you better based on your analysis.

A comparison of the two tax frameworks based on tax outflow

The present framework is better than Section 115BAC in terms of the tax deductions that it allows you from your earnings. This includes the likes of health insurance, education loans, and NPS, to name a few. The new regime is more beneficial for people who have not invested in the tax-saving instruments that we have alluded to above. The difference, in this case, lies in making those investments. So, keep this in mind when you are selecting the tax framework that you want to go with.

Losing out on housing property benefits under the new regime

Section 115BAC of Income Tax Act would not allow you to claim deductions that you could previously claim for paying the loan on self-occupied housing property. In the existing regime, you could claim a maximum deduction of two lakh rupees a year. In fact, you would not be able to adjust this loss with your salary under the new system. In case you have given your house on rent and are paying a loan on it you can claim a deduction on the interest of the same.

Deductions Not Allowed in the New Regime against Business Income

As per Section 115BAC, you would also not be able to claim the following:

• extra depreciation as per Section 32
• expenses for scientific research provided by Section 35
• investment allowance as per Section 32AD
• capital expenses according to Section 35AD
• sector-wise business deductions as granted by sections 33ABA and 33AB
• exemptions provided to SEZ (special economic zone) units by Section 10AA