Section 115BAC of Income Tax Act: Understanding the New Tax Regime in 2025

If you’ve been reading about the new tax regime and the recent changes in India’s income tax slabs, you’ve probably come across the term “Section 115BAC of the Income Tax Act.”

This section is the legal foundation of the new system. It lays down the rules, slab rates, and conditions under which taxpayers can choose between the old and new regimes. In fact, all the benefits of zero tax up to ₹12–12.75 lakh and the simplified tax structure for FY 2025–26 exist because of Section 115BAC.

Understanding this section is crucial because it helps you decide which tax regime, old or new, suits you better.

What is Section 115BAC of Income Tax Act?

Section 115BAC of the Income Tax Act, 1961 introduced the concept of an optional new tax regime for individuals and Hindu Undivided Families (HUFs).

Here’s what it means in simple terms:

1. Optional choice
   
   • Taxpayers can choose between:
     
     • The old regime (with higher rates but more deductions/exemptions), or
       
     • The new regime (with lower rates, fewer deductions).
       
2. Defined slab rates
   
   • Section 115BAC specifies the new slab rates that apply under this regime.
     
   • For FY 2025–26, income up to ₹12 lakh (₹12.75 lakh for salaried with standard deduction) is tax-free under this section.
     
3. Default regime
   
   • From FY 2025–26, the new tax regime under Section 115BAC is the default system.
     
   • If you want the old regime, you must specifically opt for it while filing your ITR.
     
4. Restrictions on deductions
   
   • Popular exemptions like HRA, LTA, 80C, 80D, 24(b) are not available under this section.
     
   • Only limited benefits like standard deduction, employer NPS/EPF contributions, and a few allowances remain.
     

👉 In short: Section 115BAC = new tax regime. It gives you a choice, but also changes the way you plan your taxes.

What are the slab rates under Section 115BAC for FY 2025–26?

Section 115BAC clearly defines the new income tax slab rates that apply if you choose the new tax regime. These slab rates were revised in Budget 2025, making them much more favourable for middle-class taxpayers.

Here are the 115BAC slab rates for FY 2025–26:

Annual Income	Tax Rate (115BAC New Tax Regime)
Up to ₹4,00,000	Nil
₹4,00,001 – ₹8,00,000	5%
₹8,00,001 – ₹12,00,000	10%
₹12,00,001 – ₹16,00,000	15%
₹16,00,001 – ₹20,00,000	20%
₹20,00,001 – ₹24,00,000	25%
Above ₹24,00,000	30%

👉 Thanks to the enhanced Section 87A rebate, income up to ₹12 lakh is completely tax-free under Section 115BAC. And if you’re salaried, the ₹75,000 standard deduction raises this limit to ₹12.75 lakh.

This means that a majority of India’s salaried taxpayers don’t need to pay any income tax under the new system.

What deductions are allowed under Section 115BAC?

One of the most important things to understand about Section 115BAC is its stance on deductions and exemptions. Unlike the old regime, which allowed dozens of ways to save tax, the new regime is much simpler.

✅ Deductions Allowed Under Section 115BAC

• Standard deduction: ₹75,000 (for salaried and pensioners).
  
• Employer’s contribution to NPS (Section 80CCD(2)): Up to 10% of salary (14% for government employees).
  
• Employer’s contribution to EPF (within prescribed limits).
  
• Transport/conveyance allowance for specially-abled employees.
  
• Deduction under Section 80JJAA for businesses generating new employment.
  

❌ Deductions Not Allowed Under Section 115BAC

• Section 80C (PPF, ELSS, tax-saving FDs, life insurance, etc.).
  
• Section 80D (health insurance premiums).
  
• HRA and LTA exemptions.
  
• Home loan interest deduction under Section 24(b).
  
• Education loan interest under Section 80E.
  
• Savings interest under 80TTA/80TTB.
  

👉 In short: Section 115BAC removes most exemptions but keeps a few core ones that matter for salaried taxpayers and retirement planning.

Who should opt for Section 115BAC (new regime)?

Section 115BAC is designed to make taxation simpler, but it’s not the best choice for everyone. Here’s who benefits the most from opting for the 115BAC new tax regime:

• Middle-class salaried employees

With the enhanced rebate, income up to ₹12–12.75 lakh is tax-free. This makes Section 115BAC ideal for most salaried earners.

• Young professionals just starting out

If you don’t have many investments or deductions, the new regime ensures higher take-home salary without complex tax planning.

• Freelancers and gig workers

The simplicity of filing under Section 115BAC makes it convenient for those without structured salary packages.

• People who don’t claim deductions

If you don’t use Section 80C, 80D, or HRA benefits, Section 115BAC is almost always better.

👉 In short: Section 115BAC suits those who value simplicity and higher in-hand income over deductions.

What is the difference between Section 115BAC and the old regime?

The core difference is tax philosophy:

• Section 115BAC (new regime)
  
  • Lower tax rates, more slabs.
    
  • Very few deductions (standard deduction, NPS, EPF, employer benefits).
    
  • Default regime from FY 2025–26.
    
  • Zero tax up to ₹12–12.75 lakh.
    
• Old Regime
  
  • Higher slab rates: 5%, 20%, 30%.
    
  • Multiple deductions and exemptions like 80C, 80D, HRA, LTA, and home loan interest.
    
  • Optional choice for those who invest in tax-saving schemes.
    
  • Encourages long-term savings and planning.
    

👉 Think of it like this:

• Section 115BAC is a discount plan, straightforward, no effort needed.
  
• The old regime is a loyalty program, you save only if you use all the deductions.

Conclusion

Section 115BAC of the Income Tax Act is the backbone of India’s new tax regime. It sets out the slab rates, deductions, and rules that now apply to most taxpayers by default. With zero tax up to ₹12–12.75 lakh, it has made life easier for middle-class earners who don’t want the hassle of managing investment proofs and exemptions.

At the same time, taxpayers still have the option to choose the old regime if they rely heavily on deductions like 80C, 80D, or housing loan interest.

💡 In simple words: Section 115BAC is all about choice. It gives you the flexibility to pick between simplicity (new regime) and savings through planning (old regime).

FAQs on Section 115BAC of Income Tax Act

1. What is Section 115BAC of the Income Tax Act?

It is the section that defines India’s new tax regime. It lays down slab rates, conditions, and deductions allowed under this system.

2. What are the 115BAC slab rates for FY 2025–26?

• Up to ₹4 lakh – Nil
  
• ₹4–8 lakh – 5%
  
• ₹8–12 lakh – 10%
  
• ₹12–16 lakh – 15%
  
• ₹16–20 lakh – 20%
  
• ₹20–24 lakh – 25%
  
• Above ₹24 lakh – 30%
  

3. Is income up to ₹12 lakh tax-free under Section 115BAC?

Yes. Thanks to the Section 87A rebate, income up to ₹12 lakh is tax-free. For salaried taxpayers, the ₹75,000 standard deduction raises this limit to ₹12.75 lakh.

4. What deductions are allowed under Section 115BAC?

• Standard deduction (₹75,000)
  
• Employer’s NPS contribution (Section 80CCD(2))
  
• Employer’s EPF contribution (within limits)
  
• Certain allowances for specially-abled employees
  
• Deduction under Section 80JJAA for businesses hiring new employees
  

5. What deductions are not allowed under Section 115BAC?

Deductions like 80C (PPF, ELSS), 80D (health insurance), HRA, LTA, home loan interest (24b), and education loan interest (80E) are not available.

6. Is Section 115BAC mandatory?

From FY 2025–26, the new regime under Section 115BAC is the default system. However, taxpayers can still opt for the old regime while filing their ITR.

7. Who should opt for Section 115BAC?

Middle-class earners, salaried employees without many deductions, and freelancers who prefer simplicity benefit the most from Section 115BAC.

8. Can I switch between Section 115BAC (new regime) and the old regime?

• Salaried taxpayers can switch each year when filing ITR.
  
• Business income taxpayers can switch only once in a lifetime.