Section 115BAC of the Income Tax Act has completely redefined how Indians look at their annual tax planning. Originally introduced as an alternative, it has now become the default tax regime for everyone from salaried employees to Hindu Undivided Families (HUFs). For the 2025-26 fiscal year, the government has further sweetened the deal by pushing the basic exemption limit to ₹4 lakh and increasing the tax-free threshold for salaried individuals to a staggering ₹12.75 lakh. While it asks you to give up traditional favorites like HRA and LIC deductions, the trade-off is a much simpler, lower-rate structure that removes the end-of-year rush to invest just to save tax.

What is Section 115BAC?

Section 115BAC represents the New Tax Regime. Its main philosophy is Lower Rates, Fewer Deductions. In the 2025-26 tax cycle, this regime is automatically applied to your income unless you specifically tell the tax department (or your employer) that you want to stick with the Old Regime.

For most middle-income earners, this section offers a clean, hassle-free way to file returns. You don't need to track rent receipts or keep insurance premium copies to lower your tax bill; the lower rates are built directly into the slabs.

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

The Finance Act 2025 has revised the slabs under Section 115BAC to provide even more relief. The basic exemption limit has been raised from ₹3 lakh to ₹4 lakh.

Income Tax Slab Table (New Regime)

Income Range (₹)

Tax Rate (%)

0 to 4,00,000

NIL

4,00,001 to 8,00,000

8,00,001 to 12,00,000

10%

12,00,001 to 16,00,000

15%

16,00,001 to 20,00,000

20%

20,00,001 to 24,00,000

25%

Above 24,00,000

30%

The Zero Tax Magic: Rebates & Deductions

One of the most exciting updates for the 2025-26 year is how much you can earn without paying a single paisa in tax.

Standard Deduction: Salaried individuals and pensioners get a flat ₹75,000 deduction (increased from ₹50,000).
Section 87A Rebate: The tax rebate has been increased to ₹60,000. This means if your taxable income is up to ₹12 lakh, your tax becomes zero.
The Math: For a salaried person, ₹12,00,000 (Taxable Income) + ₹75,000 (Standard Deduction) = ₹12,75,000. If you earn up to this amount, your net tax is NIL under the new regime.

Eligibility: Who can use Section 115BAC?

The eligibility for the new regime is quite broad. It is available to:

Individuals: (Including Salaried, Self-employed, and Seniors)
Hindu Undivided Families (HUF)
Association of Persons (AOP)
Body of Individuals (BOI)
Artificial Juridical Persons (AJP)

Note for Business Owners: If you have business income, you can choose the new regime, but once you opt out of it to go to the old regime, you can only switch back to the new regime once in your lifetime. Salaried people without business income can switch every single year.

What you must give up (Disallowed Deductions)

To enjoy these lower rates, Section 115BAC requires you to sacrifice most of the common deductions available in the Old Regime.

List of Disallowed Items:

Section 80C: (LIC, PPF, ELSS, Tuition fees, etc.)
Section 80D: (Health Insurance premiums)
HRA (House Rent Allowance): You cannot claim tax-free rent.
LTA (Leave Travel Allowance): Vacation reimbursements become taxable.
Interest on Home Loan: You cannot deduct ₹2 lakh for a self-occupied house (Section 24b).
Section 16(ii) & (iii): Entertainment allowance and Professional Tax.

What you can still claim (Allowed Deductions)

Contrary to popular belief, the new regime isn't zero-deduction. You can still claim:

Standard Deduction: ₹75,000 for salary/pension.
Employer's Contribution to NPS: Under Section 80CCD(2) (up to 14% of salary).
Family Pension Deduction: ₹25,000 or 1/3rd of the pension (whichever is less).
Agniveer Corpus Fund: Contributions under Section 80CCH.
Transport Allowance: For specially-abled persons.

Conclusion

The 2025-26 version of Section 115BAC is clearly designed to be the preferred choice for the majority of Indian taxpayers. By raising the tax-free limit for salaried staff to ₹12.75 lakh, the government has removed the need for complex tax-saving investments for a huge chunk of the population. Unless you have massive home loan interest and high HRA that exceed the benefits of the lower slabs, the new regime is likely your best bet. It’s simple, predictable, and puts more take-home cash in your pocket every month.

Frequently Asked Questions (FAQs)

Is Section 115BAC the default tax regime now?

Yes. From FY 2024-25 onwards, the new regime is the default. If you don't choose, you are automatically taxed under this section.

Can I change my mind and switch back to the Old Regime?

Yes. While filing your ITR, you can opt out of the new regime. If you are salaried, you can do this every year.

What is the tax rate for Senior Citizens under Section 115BAC?

Under the new regime, there are no separate slabs for seniors. Everyone whether you are 25 or 85 follows the same slabs starting with a ₹4 lakh exemption.

Can I claim HRA in the new tax regime?

No. House Rent Allowance is fully taxable under Section 115BAC.

How much is the late fee if I file after the deadline?

If you file after July 31st, you face a penalty of up to ₹5,000 (Section 234F). Also, you will automatically be taxed under the new regime as it is the default for belated returns.

Is the ₹75,000 Standard Deduction available for everyone?

It is only for salaried individuals and pensioners. It is not available for those whose only income is from business or Other Sources (like only bank interest).

Can I still save tax using PPF or LIC under 115BAC?

You can still invest in them for your future, but you cannot claim a tax deduction for those investments under this section.

What is Marginal Relief in the new regime?

If your income is just slightly over ₹12 lakh, the government ensures that the tax you pay isn't more than the extra income you earned over ₹12 lakh.

Can I set off my home loan loss against my salary?

No. Loss from a self-occupied house property cannot be set off against salary or any other income under the new regime.

Do I need to submit investment proofs to my employer for the new regime?

No. Since most deductions are disallowed, you don't need to submit proof for 80C, 80D, or HRA if you are under Section 115BAC.

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