Section 115 BAC of the Income Tax Act, 1961

Section 115 BAC of the Income Tax Act introduces concessional tax rates for individual taxpayers. The rules, however, vary based on the tax regime a taxpayer selects. Choosing the old regime or the new regime depends on the taxpayer during a financial year. 

If no choice is made, the new tax regime will be considered the default. It is important to understand the provisions of Section 115 BAC in detail before deciding which tax regime is best suited for you.

Section 115 BAC of the Income Tax Act - New Regime

Section 115 BAC of the Income Tax Act, or the new tax regime system, came into effect in the financial year 2020-21 or the assessment year 2021-22. The new tax regime prioritised the introduction of concessional tax rates with reduced exemptions and deductions.

Section 115 BAC of the Income Tax Act Slab Rate

According to the recent updates in the Union Budget 2025, the Union Finance Minister, Mrs. Nirmala Sitaraman, amended the tax rates in Section 115 BAC of the Income Tax Act. 

Under the new tax regime, income up to ₹12 lakh is tax-free for all resident individual taxpayers, including senior citizens, effectively providing a higher exemption threshold compared to the old regime. 

Here are the income tax slab rates under the new tax regime of Section 115 BAC of the Income Tax Act for the financial year 2024-25 and assessment year 2025-26:

Moreover, the rebate under Section 87A has been increased to ₹60,000 for individuals with taxable incomes up to ₹12 lakh. As a result, those earning up to ₹12 lakh will have their tax liability effectively reduced to zero.

Here is the list of additional benefits that taxpayers can reap with the new tax regime for the financial year 2024-25 or assessment year 2025-26:

• The maximum limit of standard deduction against salary has been revised from ₹50,000 to ₹75,000.
• For family pension, the maximum limit of deduction has been revised from ₹15,000 to ₹25,000.
• The deduction on the employer's contribution to the pension scheme has been revised from 10% of salary to 14% of salary under Section 80CCD(2).

Eligibility Criteria for the New Tax Regime Under Section 115 BAC of the Income Tax Act

Here are the eligibility criteria for the new tax regime under Section 115 BAC of the Income Tax Act:

• Individuals
• HUF (Hindu Undivided Families)

However, the below-mentioned deductions are unavailable under the new tax regime of Section 115 BAC of the Income Tax Act:

• Deductions under Chapter VI - A excluding deductions under Section 80CCD and 80JJAA, which are contributions to the National Pension Scheme and Deductions on expenses that employers incur on new employees, respectively.
• Specific deductions under Section 35, 35AD or 35CCC, include scientific research expenditure.
• Deductions on family pension under Section 57, clause (iia).
• Deductions under Section 24(b), which is a deduction on house loan interest paid.
• Section 10/ 10AA/ 16 clause (5), (13A), (14), (17) and (32).
• Deductions under Section 32(1) which is depreciation, 32AD, 33AB and 33ABA.
• You cannot set off losses under house property which get carried forward from the preceding assessment year.
• Perquisites and allowances are excluded from deductions and exemptions under the new tax regime.
• You cannot claim depreciation under Section 32(1) (iia).

Old Tax Regime Vs New Tax Regime Deduction Comparison

The table below highlights the major differences between the old and new tax regimes under Section 115 BAC of the Income Tax for the financial year 2025-26:

Exemptions and Deductions Under New Tax Regime Under Section 115 BAC of the Income Tax Act - Non-claimable

Here are the deductions and exemptions that you cannot claim under the new tax regime:

Salary:

Here are the deductions and exemptions that you cannot claim on salary:

• Leave travel allowance (LTA)
• Professional tax and entertainment allowance on salaries
• House Rent Allowance (HRA)
• Helper allowance
• Allowances to MPs or MLAs
• Education allowance for children
• Special allowances under Section 10 (14)

House Property:

Interest on a home loan for a self-occupied property or vacant property under Section 24 are excluded from deductions and claims.

Additional Sources:

The income allowance of a minor child is excluded from deductions and exemptions.

Business or profession:

Here are the deductions and exemptions that you cannot claim on business or profession:

• Depreciation under Section 32 (1) (iia).
• Section 32 AD, 33 AB and 33 ABA deductions.
• Deductions for donations and expenditure on scientific research under Section 35 (2AA), Section 35 (1)(ii), (iia) or (iii).
• Exemptions under Section 10AA for SEZ (Special Economic Zone) units.
• Deduction under Section 35 AD or Section 35CCC.

Chapter VI A Deduction:

Here are the deductions under Chapter VI A that you cannot claim:

• Deductions under Section 80TTA/ 80TTB.
• Deductions under Section 80C, 80D, 80E and others excluding Section 80CCD(2) and Section 80JJAA.
• Exemptions and Deductions for perquisites or other allowances which include allowances for food of ₹50/meal up to two meals.
• Contribution of the employee to the National Pension Scheme (NPS).
• Donation to a trust or political party.

Exemptions and Deductions Under New Tax Regime - Available

You can claim the following deductions and exemptions under the new tax regime:

Salary:

Here are the tax exemptions that you can claim under the new tax regime:

• Transport allowances for the specially-abled people.
• If you receive a conveyance allowance for employment to meet conveyance expenditure.
• In case you receive compensation for travel costs or transfer.
• If you receive daily allowances for regular expenditure or charges for absence from your place of work.
• Perquisites provided for official purposes.
• Exemptions that you receive on gratuity under Section 10(10), voluntary retiremnet under Section 10(10C) and leave encashment under Section 10(10AA).
• The limit of standard deduction increased from ₹50,000 to ₹75,000 in Budget 2025 with effect from the financial year 2025-26.

House Property:

Home loan interest on lent-out property under Section 24 is allowed for exemption and deduction.

Additional Sources:

Here are the additional sources on which you can claim deductions and exemptions:

• If you receive a gift of up to ₹50,000
• Deduction to family pension income under Section 57 (iia) as per Budget 2023. Notably, Budget 2024 revised the deduction limit from ₹15,000 to ₹25,000.

Chapter VI A Deductions:

Here are the deductions you can claim under Chapter VI A:

• Under Section 80 CCD(2), the deduction for contribution by the employer to the NPS (National Pension Scheme).
• Section 80 CCH(2) allows the deduction of funds paid in the Agniveer Corpus Fund.
• Under Section 80 CCD(2), you can claim deductions on the contributions made by employers to the pension scheme. Notably, the percentage of deduction allowed has been increased from 10% of salary to 14% of salary based on Budget 2024.

How to Choose Between New and Existing Tax Regime?

Even though the new tax regime is the default regime, as an assessee, you can opt for either the old tax regime or the new tax regime. Here are the rules for salaried employees:

Salaried Individuals:

Here are the rules for salaried individuals:

• You need to choose between the new and old tax regime at the beginning of the financial year.
• The option that an employee chooses is for TDS deduction purposes and can be further changed while filing returns.
• If you do not choose a regime for the financial year, the new regime is the default regime.
• In case you are a salaried individual, you can opt for the new regime in a specific financial year while the old regime in the following financial year.

Non-salaried Individuals:

Here are the regulations for non-salaried individuals:

• If you are a non-salaried individual, you need to choose the new regime when you file your tax return.
• A non-salaried individual might not declare their chosen option during the financial year.
• If you are a business or profession-related taxpayer, you cannot opt for different regimes in different years.

Notably, the last date to file taxes for the financial year 2024-25 or assessment year 2025-26 is 31^st July 2025. In case you fail to file the return within the due date, you need to file it by 31^st December 2025.

Process to Choose the New Regime for Tax Planning

Here is a scenario that illustrates how the new tax regime differs from the old tax regime:

Based on the above illustration, you can distinguish the two tax regimes and choose the one that is beneficial for you. 

Loss of House Property Under the New Tax Regime

Here are the rules applicable for house property loss under the new tax regime:

Property Occupied by Self:

The following are the applicable rules for self-occupied self:

• You cannot avail deductions on housing loan interest up to ₹2 lakh.
• In addition, you cannot compensate the loss of ₹2 lakh from a house property from your income from salary.

Let Out Property:

Here are the rules for letting out properties:

• For a let-out property, you can claim deductions for housing loan interest.
• If you have taxable rent received from property in the old tax regime, you cannot claim the same deduction under the new tax regime.
• In case you have paid additional interest on your rental income, you cannot claim deductions under the new tax regime.
• You cannot use the house property loss that has been carried forward to compensate in the future.

Unabsorbed Description and Business Loss Under the New Regime

If you have income from a business as an individual or a Hindu Undivided Family (HUF), you cannot claim compensation for unabsorbed depreciation carried forward as a business loss. Additionally, under the new tax regime, you are not permitted to avail deductions related to exemptions or previously withdrawn deductions.

Final Word

Section 115 BAC of the Income Tax Act allows an assessee to claim deductions or exemptions during a specific financial year. Based on the new or old tax regime you choose, the deductions and exemptions will differ for parameters such as house rent allowance, leave travel allowance or other parameters. 

Tax deductions help you reduce your tax liabilities and ensure continuous cash flow. Further, if you want to grow your wealth to meet financial goals, you can book fixed deposits at up to a 9.10% interest rate per annum.