Section 115BAC, introduced in Budget 2020 and updated in Budget 2024, offers a simplified tax structure for individuals and HUFs. It aims to reduce tax liability for those with fewer deductions but requires forgoing many exemptions. For FY 2024-25, the slabs range from 0% for income up to ₹3 lakh to 30% above ₹15 lakh. For FY 2025-26, thresholds are higher, starting at 0% up to ₹4 lakh and reaching 30% above ₹24 lakh. A rebate under Section 87A ensures no tax up to ₹12 lakh for FY 2025-26. It applies to individuals and HUFs, with the new regime as default from FY 2023-24. Taxpayers can opt for the old regime by filing Form 10-IEA, with different rules for salaried vs. business income.
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Detailed Analysis of Section 115BAC of the Income Tax Act, 1961
Section 115BAC of the Income Tax Act, 1961 which is introduced through the Finance Act of 2020 further refined in subsequent budgets, notably Budget 2023, where it was made the default regime, and Budget 2024, which adjusted rates and deductions. Now, Section 115BAC is referenced under Section 202 in the proposed Income Tax Bill 2025 which aims to simplify tax compliance by offering lower tax rates at the cost of reduced exemptions and deductions.
Historical Context and Legislative Evolution
Section 115BAC was introduced in Budget 2020 and was designed to provide an optional new tax regime with reduced rates effective from Assessment Year 2021-22. The Finance Act of 2020 inserted this provision and by Budget 2023, it became the default and reflected a shift toward simplifying tax structures. Budget 2024 further refined it, aligning with contemporary economic needs, and is now part of discussions in the new Income Tax Bill 2025, specifically under Section 202.
Applicability and Eligibility
Section 115BAC applies to individuals and Hindu Undivided Families (HUFs), excluding certain entities like companies or firms. It is optional for taxpayers, but since FY 2023-24, the new regime is the default, meaning taxpayers must actively opt for the old regime by filing Form 10-IEA before the ITR due date, typically 31st July, extendable to 31st December for belated filings. This choice is critical, especially for those with business income, as opting out locks them into the old regime with restrictions on switching back annually.
Tax Slabs and Rates
The tax slabs under Section 115 BAC have seen revisions, reflecting economic adjustments. For FY 2024-25 (AY 2025-26), the slabs are as follows:
Income Tax Slabs for FY 2024-25:
Up to Rs. 3 lakh: 0%
Rs. 3 lakh - Rs. 7 lakh: 5%
Rs. 7 lakh - Rs. 10 lakh: 10%
Rs. 10 lakh - Rs. 12 lakh: 15%
Rs. 12 lakh - Rs. 15 lakh: 20%
Above Rs. 15 lakh: 30%
Income Tax Slabs for FY 2025-26 (Updated in Budget 2025):
Up to Rs. 4 lakh: 0%
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%
These rates aim to reduce tax burdens for lower and middle-income groups, with the highest rate aligning with global standards at 30%.
Rebate and Tax Relief
A significant feature is the rebate under Section 87A, increased to ₹60,000 in Budget 2025 from ₹25,000, ensuring nil tax liability for incomes up to ₹12 lakh under the new regime, provided the income is taxed at slab rates and not special rates like capital gains under Section 112A. This rebate, detailed on, enhances the regime's appeal for lower-income taxpayers.
Learn about more Income Tax Rules.
Deductions and Exemptions: What’s In and Out
The new regime trades lower rates for fewer deductions, a trade-off detailed extensively. Deductions not allowed include:
Deductions/Exemptions Availability:
Section 80C (PPF, NSC, up to Rs. 1.5 lakh): Not available
Section 80D (Health insurance): Not available
HRA: Not available
LTA: Not available
Interest on Housing Loan (Section 24, up to Rs. 2 lakh for self-occupied): Not available
Section 80E (Education loan): Not available
Section 80G (Charitable donations): Not available
Additional Depreciation (Section 32(1)(iia)): Not available
Allowed deductions include a standard deduction of ₹75,000 for salaried individuals (increased from ₹50,000 in FY 2023-24, per Budget 2024), interest on home loans for let-out property, and employer’s contribution to NPS under Section 80CCD(2), now at 14% of salary up from 10%. These details highlight the regime’s focus on simplifying tax computation.
Set-off of Losses and Unabsorbed Depreciation
Under Section 115BAC, house property losses can only be set off against other house property income and cannot be carried forward, a restriction also applying to business losses and unabsorbed depreciation related to withdrawn deductions. This limitation is crucial for taxpayers with significant loss carry-forwards.
Key Takeaways:
Section 115BAC is a tax rule started in 2020, made default in 2023, for individuals and HUFs. It gives lower tax rates but cuts out many deductions to keep things simple.
1. Tax Slabs:
FY 2024-25: 0% tax up to ₹3 lakh, 5% for ₹3-7 lakh, 10% for ₹7-10 lakh, 15% for ₹10-12 lakh, 20% for ₹12-15 lakh, 30% above ₹15 lakh.
FY 2025-26: 0% up to ₹4 lakh, 5% for ₹4-8 lakh, 10% for ₹8-12 lakh, 15% for ₹12-16 lakh, 20% for ₹16-20 lakh, 25% for ₹20-24 lakh, 30% above ₹24 lakh.
A ₹60,000 rebate means no tax up to ₹12 lakh in FY 2025-26.
2. Deductions: No deductions for things like PPF (80C), health insurance (80D), or house rent (HRA). But salaried people get a ₹75,000 standard deduction, and NPS contributions are allowed.
3. Choice: It’s the default, but you can switch to the old tax system (with more deductions) by filing Form 10-IEA. Salaried folks can change yearly; business income folks have stricter rules.
4. Updates: 2024 Budget raised family pension deduction to ₹25,000 and lowered surcharges for high earners, making taxes cheaper for some.
Summary
Section 115BAC, started in 2020 and default since 2023, is a simple tax option for individuals and HUFs. It gives lower tax rates but skips deductions like PPF, health insurance, and rent allowance. For 2024-25, tax is 0% up to ₹3 lakh, up to 30% above ₹15 lakh. For 2025-26, it’s 0% up to ₹4 lakh, 30% above ₹24 lakh, with a rebate for no tax up to ₹12 lakh. Salaried folks get a ₹75,000 standard deduction. You can switch to the old tax system by filing Form 10-IEA.
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Section 115BAC of Income Tax Act: FAQs
Q1. What is Section 115BAC of the Income Tax Act, 1961?
Section 115BAC introduces an optional new tax regime for individuals and HUFs with lower tax rates but fewer deductions and exemptions, effective from Assessment Year 2021-22 and made default from FY 2023-24.
Q2. Who is eligible to opt for the new tax regime under Section 115BAC?
Individuals and Hindu Undivided Families (HUFs) are eligible. Companies, firms, and other entities are excluded.
Q3. Who is eligible to opt for the new tax regime under Section 115BAC?
Individuals and Hindu Undivided Families (HUFs) are eligible. Companies, firms, and other entities are excluded.
Q4. Is the new tax regime under Section 115BAC mandatory?
From FY 2023-24, it is the default regime, but taxpayers can opt for the old regime by filing Form 10-IEA before the ITR due date.
Q5. What are the tax slabs under Section 115BAC for FY 2024-25 and FY 2025-26?
For FY 2024-25: 0% up to ₹3 lakh, 5% for ₹3-7 lakh, 10% for ₹7-10 lakh, 15% for ₹10-12 lakh, 20% for ₹12-15 lakh, and 30% above ₹15 lakh.
For FY 2025-26: 0% up to ₹4 lakh, 5% for ₹4-8 lakh, 10% for ₹8-12 lakh, 15% for ₹12-16 lakh, 20% for ₹16-20 lakh, 25% for ₹20-24 lakh, and 30% above ₹24 lakh.
