Section 115BAC — New Tax Regime FY 2025-26

Complete Guide: Tax Slabs, Deductions, Exemptions & How to Save Maximum Tax

Assessment Year 2026-27  |  As per Income Tax Act, 1961  |  Updated for Finance Act 2025

new tax regime 2025-26  |  section 115BAC  |  new tax regime slab rates  |  new vs old tax regime  |  zero tax on 12 lakh income  |  new tax regime deductions  |  section 87A rebate  |  standard deduction new regime  |  how to opt out of new tax regime  |  income tax calculator FY 2025-26

💡 Did you know? A salaried individual earning ₹12.75 lakh pays ZERO income tax under the New Tax Regime for FY 2025-26. No investments needed. No HRA calculations. No proofs required. Just file your ITR and you're done — courtesy Section 115BAC and Section 87A.

The New Tax Regime under Section 115BAC of the Income Tax Act, 1961 has fundamentally changed how millions of taxpayers in India pay income tax. Introduced in Budget 2020 and made the default tax regime from FY 2023-24 onwards, it offers relaxed slab rates, a generous Section 87A rebate, and simplified compliance — making it the go-to choice for salaried employees, pensioners, and individuals with straightforward income who don't rely heavily on deductions like Section 80C, HRA, or home loan interest.

But choosing the right tax regime isn't always obvious. While the New Regime wins for most taxpayers with income below ₹15–17 lakh, those with large deductions — ELSS, home loans, HRA, NPS — may still find the Old Tax Regime more beneficial. This comprehensive guide by TaxGen Solutions breaks down everything you need to know — in plain language — so you can make an informed decision before your ITR filing deadline.

What Is Section 115BAC and Why Does It Matter?

Section 115BAC offers a simpler tax structure with highly relaxed slab rates and limited deductions. This allows taxpayers to pay lesser taxes with less investment, documentation, and compliance requirements. It offers more beneficial surcharge rates, rebate, and standard deduction, allowing taxpayers to derive tax advantage without elaborate tax planning, investment in tax-saving instruments, or cumbersome documentation.

In simple terms: under the New Tax Regime, you don't need to invest in PPF, buy LIC, or claim HRA to reduce your tax. The lower slab rates — and the powerful Section 87A rebate of ₹60,000 — do the heavy lifting for you. For most salaried individuals earning up to ₹12.75 lakh, the result is zero income tax.

Who Can Opt for Section 115BAC?

Both Individuals and HUFs (Hindu Undivided Families) can opt for the New Tax Regime under Section 115BAC. Residents, Non-Residents, and Senior Citizens are all eligible for the beneficial slab rates. The New Regime is the default tax regime from FY 2023-24 onwards — meaning if you do nothing, you are automatically placed under it.

📌 Important: The choice to file under the Old Regime must be exercised BEFORE the ITR due date (31st July for non-audit cases). If the due date passes, you cannot switch to the Old Regime even if it would save you more tax.

New Tax Regime Slab Rates for FY 2025-26 (AY 2026-27)

Under Section 115BAC, the following income tax slab rates apply for FY 2025-26 (Assessment Year 2026-27):

Standard Deduction Under New Tax Regime

The New Tax Regime offers a Standard Deduction of ₹75,000 to salaried individuals and pensioners — increased from ₹50,000 in the previous year. This means:

●       A salaried individual with gross salary of ₹12,75,000 has taxable income of ₹12,00,000 after standard deduction

●       Tax on ₹12,00,000 = ₹60,000 — fully offset by the Section 87A rebate

●       Net tax payable = ZERO. No HRA, no 80C, no investments needed

✅ Bottom Line: Salaried employees earning up to ₹12,75,000 gross pay ZERO income tax under the New Tax Regime for FY 2025-26.

Section 87A Rebate — Zero Tax on Income Up to ₹12 Lakh

This is the most powerful feature of the New Tax Regime. Under Section 87A, resident taxpayers whose total taxable income does not exceed ₹12,00,000 are eligible for a full tax rebate of up to ₹60,000. Since the tax on ₹12 lakh under the new regime is exactly ₹60,000, the rebate wipes it out completely — resulting in zero tax liability.

⚠️ Critical: The Section 87A rebate is NOT available on income taxable at special rates — e.g., crypto/VDA gains (30% under Section 115BBH), short-term capital gains under Section 111A, or long-term capital gains under Section 112A. Even if your total income is below ₹12 lakh, if it includes such special-rate income, the rebate does not apply to that portion.

Deductions & Exemptions Allowed Under Section 115BAC

Contrary to popular belief, the New Tax Regime is not a 'zero deduction' regime. Several important deductions and exemptions are still available. Here's the complete list of what you CAN claim under the New Regime:

Chapter VI-A Deductions Allowed

●       Section 80CCD(2) — Employer's contribution to NPS account: up to 14% of Basic + DA (for Central Govt employees) or 10% for others. This is a powerful deduction still available under the New Regime.

●       Section 80JJAA — Deduction for additional employee cost (for businesses hiring new employees)

●       Section 80CCH(2) — Deduction for amounts paid or deposited in the Agniveer Corpus Fund

Salary-Related Exemptions Allowed

●       Standard Deduction of ₹75,000 for salaried employees and pensioners

●       Section 10(10C) — Exemption on Voluntary Retirement Scheme (VRS) compensation

●       Section 10(10) — Exemption on Gratuity received from employer

●       Section 10(10AA) — Exemption on Leave Encashment received on retirement

●       Transport allowance for specially-abled employees — exempt under specific conditions

●       Conveyance allowance for job-related travel

●       Travel compensation for official tours or transfers

●       Daily allowances for duty-related expenses away from the workplace

●       Perquisites provided for official purposes

House Property

●       Interest on Home Loan on a LET-OUT property (Section 24) — can be claimed without any limit

Other Sources

●       Gifts received up to ₹50,000 — exempt

●       Deduction of ₹25,000 against Family Pension income

📌 New Income Tax Act 2025: The provisions of the new tax regime are now governed under Section 202 of the Income Tax Act 2025. However, Section 202 applies from April 2027 (AY 2027-28 onwards). For the current ITR season (April–July 2026), the provisions under Section 115BAC of the Income Tax Act, 1961 continue to apply.

Deductions & Exemptions NOT Allowed Under Section 115BAC

The New Tax Regime disallows most popular deductions that taxpayers have traditionally relied on. Here is the complete list of what you CANNOT claim if you opt for Section 115BAC:

Chapter VI-A — Not Allowed

●       Section 80C — PPF, NSC, LIC premium, ELSS, home loan principal, tuition fees, etc. (up to ₹1.5L in Old Regime)

●       Section 80D — Health insurance premium for self, family, and parents

●       Section 80E — Interest on education loan

●       Section 80G — Donations to charitable institutions

●       Section 80TTA / 80TTB — Interest on savings bank account / interest income for senior citizens

●       Employee's own contribution to NPS (Section 80CCD(1B))

●       Donations to Political parties or trusts

Salary — Not Allowed

●       House Rent Allowance (HRA) — Section 10(13A)

●       Leave Travel Allowance (LTA) — Section 10(5)

●       Professional Tax paid to state government

●       Entertainment Allowance

●       Children's Education Allowance

●       Helper Allowance

●       Allowances to MPs/MLAs

●       Other Special Allowances under Section 10(14)

●       Food allowance of ₹50 per meal (2 meals per day)

House Property — Not Allowed

●       Interest on Housing Loan on SELF-OCCUPIED property (Section 24) — NO deduction in New Regime

●       Interest on Housing Loan on VACANT property — not deductible

●       Set-off of house property losses against other income — not permitted

Business / Profession — Not Allowed

●       Additional depreciation under Section 32(1)(iia)

●       Deductions under Sections 32AD, 33AB, 33ABA

●       Scientific research deductions under Sections 35(2AA), 35(1)(ii), (iia), (iii)

●       Deduction under Section 35AD or Section 35CCC

●       SEZ unit exemption under Section 10AA

●       Minor child income allowance

⚠️ Business Loss / Unabsorbed Depreciation: Under the New Regime, business losses linked to deductions NOT available under Section 115BAC (e.g., Section 35 deductions) CANNOT be set off or carried forward. This is a critical consideration for business owners and high earners with significant depreciation claims.

New Tax Regime vs Old Tax Regime — Complete Comparison for FY 2025-26

The most common question every taxpayer asks: 'Which tax regime is better for me?' The answer depends on your income level, investment patterns, and lifestyle expenses. Here's the definitive comparison:

Side-by-Side Deduction Comparison

House Property & Business Loss Treatment

How to Switch — Form 10-IEA

The New Tax Regime is the default from FY 2023-24. To opt out and file under the Old Regime:

⚠️  Non-salaried taxpayers (freelancers, business owners, professionals) who switch to the Old Regime can switch back to the New Regime ONLY ONCE in their lifetime. Salaried employees have flexibility to switch every year.

Practical Tax Calculation Under New Tax Regime — FY 2025-26

Example: Mr. Rakesh — Salary ₹25 Lakh

Mr. Rakesh has a salary income of ₹25 lakhs for FY 2025-26 (AY 2026-27).

✅ By opting for the New Tax Regime, Mr. Rakesh saves ₹2,49,600 in taxes — without making any additional investments!

Quick Reference: Zero Tax Scenarios

Which Tax Regime Should You Choose? — Decision Guide

Choose New Tax Regime if:

●       Your total income is below ₹12 lakh (zero tax guaranteed via Section 87A rebate)

●       You are a salaried employee with gross salary up to ₹12.75 lakh (zero tax with standard deduction)

●       You do not have significant HRA, home loan interest, or 80C investments

●       Your combined deductions under the Old Regime are less than ₹3.5–4 lakh

●       You want a simplified filing process with no investment proofs

●       You are a senior citizen with income primarily from pension, FDs, or dividends

Stick with Old Tax Regime if:

●       You have a home loan on a self-occupied property with interest deduction of ₹2 lakh

●       You pay significant HRA (especially in metro cities)

●       Your Section 80C investments (PPF, ELSS, LIC) are maxed out at ₹1.5 lakh

●       You claim Section 80D health insurance premium for family and parents (up to ₹50,000+)

●       Your total deductions (80C + HRA + home loan + 80D + others) exceed ₹4–5 lakh

●       You have NPS contributions, education loan interest, or other significant deductions

📌 TaxGen Solutions Tip: Run a quick comparison every year before filing. The break-even point typically falls at ₹3.5–5 lakh of combined deductions. If your deductions are below this, New Regime almost always wins. Visit taxgensolutions.com for a free tax regime comparison tool.

New Income Tax Act 2025 — Key Changes for Section 115BAC

The Income Tax Act 2025 has reorganised the provisions. While Section 115BAC applies for AY 2026-27 (the current ITR season), the new Act introduces corresponding sections that will apply from AY 2027-28 onwards:

📌 For ITR filing April–July 2026 (AY 2026-27): Income Tax Act 1961 provisions under Section 115BAC apply. Section 202 of the Income Tax Act 2025 will be applicable from AY 2027-28 onwards.

File Your ITR with TaxGen Solutions — Expert Guidance, Zero Errors

Choosing between the New Tax Regime and Old Tax Regime is not always straightforward. A wrong choice can mean paying thousands of rupees more in tax than necessary. At TaxGen Solutions, our expert Chartered Accountants ensure you are always in the most tax-efficient regime.

What TaxGen Solutions Offers:

●       Free tax regime comparison (New vs Old) based on your actual income and deductions

●       Expert CA-assisted ITR filing for salaried employees, freelancers, and business owners

●       Section 87A rebate verification and maximum refund filing

●       NPS contribution optimization under Section 80CCD(2) — applicable in both regimes

●       Advance tax calculation and quarterly payment assistance

●       Form 26AS and AIS reconciliation before filing

●       Capital gains computation — equity, mutual funds, property, VDA/crypto

●       GST registration and return filing for freelancers and business owners

🏆 TaxGen Solutions Promise: Maximum tax savings. Zero penalties. 100% accurate filing. Expert CA review on every return. Visit taxgensolutions.com or email support@taxgensolutions.com to get started.

Frequently Asked Questions (FAQs)

Section 115BAC New Tax Regime FY 2025-26  |  Tax Slabs  |  87A Rebate  |  New vs Old Regime  |  TaxGen Solutions

  Q1. What is the new tax regime under Section 115BAC for FY 2025-26?

The new tax regime under Section 115BAC is an optional (but default) income tax framework that offers lower slab rates with limited deductions. For FY 2025-26 (AY 2026-27), it provides zero tax on income up to ₹4 lakh, a progressive slab structure up to 30%, and a Section 87A rebate of ₹60,000 that makes income up to ₹12 lakh completely tax-free for resident taxpayers. TaxGen Solutions helps you determine if the New Regime is the right choice for your income profile.

  Q2. What are the income tax slab rates under Section 115BAC for FY 2025-26?

The new tax regime slab rates for FY 2025-26 are: Nil up to ₹4L; 5% from ₹4–8L; 10% from ₹8–12L; 15% from ₹12–16L; 20% from ₹16–20L; 25% from ₹20–24L; and 30% above ₹24L. A standard deduction of ₹75,000 is also available for salaried employees and pensioners, making the effective zero-tax limit ₹12.75 lakh for salaried individuals.

  Q3. Is the new tax regime mandatory for FY 2025-26?

No, the new tax regime is not mandatory — it is the default regime from FY 2023-24 onwards. You can opt out and file under the Old Tax Regime by choosing it at the time of ITR filing (salaried individuals) or by filing Form 10-IEA before the ITR due date (non-salaried taxpayers). If you take no action, you are automatically taxed under the New Regime.

  Q4. Can I claim Section 80C deduction under the new tax regime?

No. Section 80C deductions — PPF, NSC, ELSS, LIC premium, home loan principal repayment, tuition fees, etc. — are not available under the New Tax Regime. The New Regime disallows most Chapter VI-A deductions. To claim 80C, you must opt for the Old Tax Regime. TaxGen Solutions can help you calculate which regime saves you more tax based on your actual 80C investments.

  Q5. What is the Section 87A rebate under the new tax regime?

The Section 87A rebate under the New Tax Regime for FY 2025-26 is up to ₹60,000 for resident taxpayers whose total income does not exceed ₹12,00,000. This rebate fully offsets the tax computed on ₹12 lakh (which is also ₹60,000 under the new slabs), resulting in zero net tax payable. For salaried individuals, the standard deduction of ₹75,000 further extends the zero-tax limit to ₹12.75 lakh.

  Q6. Is HRA allowed under the new tax regime?

No. House Rent Allowance (HRA) exemption under Section 10(13A) is not available under the New Tax Regime. If you pay significant rent and wish to claim HRA, you must opt for the Old Tax Regime. This is one of the most common reasons salaried employees — especially those living in metro cities — choose the Old Regime over the New one.

  Q7. Can I claim home loan interest deduction in the new tax regime?

It depends on the property type. Interest on home loan for a self-occupied property is NOT allowed under the New Regime (the Section 24 deduction of up to ₹2 lakh is not available). However, interest on let-out property under Section 24 can be claimed without any upper limit even under the New Regime. Set-off of excess loss is still not permitted.

  Q8. Which deductions are allowed under the new tax regime?

The key deductions still available under Section 115BAC are: Standard Deduction of ₹75,000 (salaried); Employer's NPS contribution under Section 80CCD(2) (up to 14% of salary); Section 80JJAA (additional employee cost); Section 80CCH(2) (Agniveer Corpus Fund); home loan interest on let-out property; gratuity, VRS, and leave encashment exemptions; and transport allowance for specially-abled employees. TaxGen Solutions ensures you claim every allowable deduction under your chosen regime.

  Q9. Is standard deduction available in the new tax regime?

Yes! The standard deduction of ₹75,000 is available for salaried employees and pensioners under the New Tax Regime — which is actually higher than the ₹50,000 standard deduction available under the Old Regime. This was enhanced from ₹50,000 in the Union Budget 2024 and continues for FY 2025-26.

  Q10. Can HUFs opt for the new tax regime under Section 115BAC?

Yes. Hindu Undivided Families (HUFs) are eligible to opt for the New Tax Regime under Section 115BAC, just like individual taxpayers. The same slab rates and deduction rules apply. HUFs opting for the New Regime must also follow the same rules for switching back to the Old Regime via Form 10-IEA.

  Q11. Can I switch from new tax regime to old tax regime every year?

It depends on your income source. Salaried employees can switch between New and Old Regime every year when filing their ITR. However, non-salaried taxpayers (freelancers, business owners, professionals) who have opted out of the New Regime using Form 10-IEA can switch back to the New Regime only once in their lifetime. This is a critical point to consider before making the switch.

  Q12. What is Form 10-IEA and when is it required?

Form 10-IEA is the form non-salaried taxpayers must file to opt out of the New Tax Regime and choose the Old Regime. It must be filed before the ITR due date (generally 31st July for non-audit cases). Salaried employees do not need to file Form 10-IEA — they can simply select the Old Regime while filing their ITR. Once filed, Form 10-IEA remains valid for future years unless the taxpayer switches back.

  Q13. Is the new tax regime better than the old tax regime?

It depends entirely on your income and deductions. The New Regime is generally better if your total deductions (80C + HRA + home loan + 80D + others) are less than ₹3.5–4 lakh. It is especially beneficial for income up to ₹12 lakh (zero tax). The Old Regime is better if you have large HRA claims, home loan interest, maxed-out 80C, and health insurance premiums. TaxGen Solutions offers a free comparison — visit taxgensolutions.com.

  Q14. What is the zero tax limit under the new tax regime for FY 2025-26?

For non-salaried taxpayers: income up to ₹12,00,000 is completely tax-free via the Section 87A rebate of ₹60,000. For salaried employees: income up to ₹12,75,000 is tax-free — thanks to the ₹75,000 standard deduction bringing taxable income to ₹12 lakh, which is then fully covered by the 87A rebate. This is the most attractive feature of the New Tax Regime for FY 2025-26.

  Q15. Can I claim employer's NPS contribution in the new tax regime?

Yes! The employer's contribution to NPS under Section 80CCD(2) is one of the most valuable deductions available in both the New and Old Tax Regimes. Under the New Regime, you can claim up to 14% of Basic + DA as a deduction if your employer contributes to your NPS Tier 1 account. For private sector employees, the limit is 10% of salary. This is a great tax planning tool even within the New Regime. TaxGen Solutions helps optimise your NPS contribution strategy.

  Q16. Is Section 87A rebate available on capital gains under the new tax regime?

No. The Section 87A rebate is not available on income taxable at special rates. This includes short-term capital gains under Section 111A (15%/20%), long-term capital gains under Section 112A (12.5% above ₹1.25 lakh), and VDA/crypto gains under Section 115BBH (30%). Even if your total income is below ₹12 lakh, the 87A rebate will not offset tax on these special-rate components.

  Q17. How is the new tax regime beneficial for salaried employees?

The New Tax Regime is particularly beneficial for salaried employees because: (1) The ₹75,000 standard deduction is higher than the Old Regime's ₹50,000; (2) Zero tax for gross salary up to ₹12.75 lakh; (3) No need to maintain investment proofs, submit rent receipts, or plan HRA claims; (4) Lower slab rates for income above ₹12 lakh; and (5) Simplified ITR filing with fewer documentation requirements. TaxGen Solutions makes salaried ITR filing under the New Regime quick and error-free.

  Q18. Is Section 80D (health insurance) allowed in the new tax regime?

No. Section 80D deductions — health insurance premium for self, spouse, children, and parents — are not available under the New Tax Regime. Under the Old Regime, you can claim up to ₹25,000 for self/family and an additional ₹25,000 (₹50,000 for senior citizen parents) for parents' health insurance. If you pay substantial health insurance premiums, this may tip the balance in favour of the Old Regime.

  Q19. What is the surcharge rate under the new tax regime?

The surcharge rates under the New Tax Regime are more beneficial than the Old Regime for high-income taxpayers. For income above ₹5 crore, the surcharge rate is capped at 25% under the New Regime, compared to 37% under the Old Regime. This makes the New Regime significantly more tax-efficient for ultra-high-net-worth individuals. Standard surcharge rates: 10% for income ₹50L–₹1Cr; 15% for ₹1Cr–₹2Cr; 25% for above ₹2Cr (New Regime).

  Q20. Can non-residents (NRIs) opt for the new tax regime?

Yes. Non-Residents (NRIs) can opt for the New Tax Regime under Section 115BAC. The same slab rates and deduction rules apply. However, NRIs are not eligible for the Section 87A rebate, which means the zero-tax benefit on income up to ₹12 lakh is available only to resident taxpayers. NRIs must also ensure that only India-sourced income is reported in their ITR.

  Q21. How do I calculate my tax under the new tax regime?

To calculate tax under the New Tax Regime for FY 2025-26: (1) Start with your gross total income; (2) Subtract standard deduction (₹75,000 if salaried); (3) Subtract employer's NPS contribution under 80CCD(2) if applicable; (4) Apply the new slab rates on the net taxable income; (5) Apply Section 87A rebate (if taxable income ≤ ₹12L); (6) Add 4% Health & Education Cess on final tax. TaxGen Solutions offers a free tax calculator at taxgensolutions.com.

  Q22. What happens to brought-forward losses under the new tax regime?

Business losses and unabsorbed depreciation that are linked to deductions not available under the New Regime (such as Section 35 deductions) cannot be set off or carried forward under the New Regime. However, losses that arose independently of restricted deductions may still be eligible. House property losses cannot be set off against any income under the New Regime. TaxGen Solutions advises businesses on the optimal regime considering their loss carry-forward position.

  Q23. Is LTA (Leave Travel Allowance) allowed in the new tax regime?

No. Leave Travel Allowance (LTA) exemption under Section 10(5) is not available under the New Tax Regime. LTA allows salaried employees to claim exemption on travel expenses within India for themselves and their family. If you have significant LTA claims (particularly with the block year benefit), this could make the Old Regime more attractive for you.

  Q24. What is Section 202 of the Income Tax Act 2025?

Section 202 of the Income Tax Act 2025 is the new equivalent of Section 115BAC of the Income Tax Act, 1961 — governing the new tax regime provisions under the revamped tax law. However, Section 202 is applicable from AY 2027-28 (for income earned from April 1, 2026 onwards). For the current ITR season April–July 2026 (AY 2026-27), Section 115BAC of the 1961 Act continues to apply. TaxGen Solutions keeps you updated on all legislative changes.

  Q25. How can TaxGen Solutions help me choose and file under the right tax regime?

TaxGen Solutions offers end-to-end assistance for income tax filing under both regimes: (1) Free New vs Old Regime comparison based on your actual income, salary structure, investments, and deductions; (2) Expert CA-assisted ITR filing for salaried employees, freelancers, and business owners; (3) Section 87A rebate verification and maximum refund claims; (4) NPS optimization under Section 80CCD(2); (5) Capital gains computation and disclosure; (6) All-year tax planning to minimise your liability. Visit taxgensolutions.com or write to support@taxgensolutions.com for a free consultation.

 © 2025 TaxGen Solutions  |  taxgensolutions.com  |  support@taxgensolutions.com

This document is for informational purposes only. Provisions of the Income Tax Act, 1961 apply for AY 2026-27. Consult a qualified Chartered Accountant for personalised advice.