What Deductions Are Allowed Under New Tax Regime (Section 115BAC)?

The Income Tax Act of India allows taxpayers to choose between two tax regimes—the old tax regime, which offers various exemptions and deductions, and the new tax regime, which provides lower tax rates but eliminates most exemptions and deductions. In the Financial Year (FY) 2025-26, the government continues to offer the new tax regime under Section 115BAC, which was introduced to simplify the tax process and make compliance easier. However, while the new regime is designed to offer lower tax rates, it comes with limitations on deductions and exemptions. Let us explore the key features of the new tax regime, focusing on the deductions available under Section 115BAC, eligibility criteria, and the differences between the old and new regimes.

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Table of Contents

• Key Deductions Allowed Under Section 115BAC (FY 2025-26)

• Is Standard Deduction Allowed in the New Tax Regime?

• Is Section 80C Deduction Allowed in the New Tax Regime?

• How Do Deductions Under the New Tax Regime Compare to the Old Regime?

• Who Can Opt for Section 115BAC?

• How to Opt for Section 115BAC?

• Conclusion

• FAQs

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Key Deductions Allowed Under Section 115BAC (FY 2025-26)

Section 115BAC offers significant relief for taxpayers opting for the new tax regime by providing a reduction in tax rates. However, this comes with the trade-off of losing many deductions and exemptions that are available under the old regime. Despite these limitations, there are still a few key deductions allowed under Section 115BAC for FY 2025-26:

• Employer’s Contribution to NPS (National Pension Scheme): One of the most prominent deductions allowed under the new tax regime is the employer's contribution to the National Pension Scheme (NPS). Under Section 80CCD(2), the employer’s contribution is deductible up to 10% of the employee’s salary. This deduction is available even under the new tax regime and is a notable benefit.
  

• Gratuity: The exemption available for gratuity received by employees is still valid under the new tax regime. While the deduction under Section 10(10) continues, it is subject to the applicable limits based on the employee’s tenure and salary.
  

• Income from Savings Accounts: The deduction under Section 80TTA for interest earned on savings accounts up to ₹10,000 is allowed in the new tax regime. This is an exception, as most other deductions are not available.

These are some of the limited deductions that individuals opting for the new tax regime can still claim. While the new tax regime reduces taxable income through lower tax slabs, it offers fewer opportunities for reducing tax liability via exemptions and deductions.

Is Standard Deduction Allowed in the New Tax Regime?

The standard deduction for salaried individuals and pensioners, which was ₹50,000 under the old tax regime, is now available at ₹75,000 under the new tax regime from FY 2024-25 onwards. This means that if you opt for taxation under Section 115BAC (the new tax regime), you can claim a higher standard deduction of ₹75,000 compared to ₹50,000 in the old regime. However, the new regime requires you to forgo most other deductions and exemptions available in the old regime, which may result in a different taxable income calculation. The trade-off is that the new tax regime offers lower tax rates across income slabs, potentially yielding overall tax savings for some taxpayers despite fewer deductions.

In summary:

Feature	Old Tax Regime	New Tax Regime (Section 115BAC)
Standard Deduction	₹50,000	₹75,000 (from FY 2024-25)
Other Deductions (80C, 80D, HRA)	Allowed	Mostly disallowed
Tax Rates	Higher	Lower
Taxable Income Calculation	After deductions	Fewer deductions, higher deduction for standard deduction

Is Section 80C Deduction Allowed in the New Tax Regime?

No, the popular Section 80C deduction, which includes deductions for investments in instruments like Public Provident Fund (PPF), Employee Provident Fund (EPF), National Savings Certificates (NSC), and life insurance premiums, is not allowed under the new tax regime. If you opt for Section 115BAC, you will lose the ability to claim deductions for contributions to these tax-saving instruments. The new regime, in exchange, provides a simpler tax structure with lower rates, but it does so at the expense of losing several deductions that the old regime offers.

How Do Deductions Under the New Tax Regime Compare to the Old Regime?

The new tax regime significantly limits the number of deductions and exemptions available to taxpayers compared to the old regime. The old regime allows a wide range of deductions under various sections, including Section 80C (for savings and investments), Section 80D (for insurance premiums), and Section 10(14) (for house rent allowance), among others. Additionally, taxpayers can claim exemptions for allowances like house rent, medical reimbursements, and others.

In contrast, the new tax regime under Section 115BAC offers reduced tax rates but removes most of these deductions and exemptions. The only key deductions allowed in the new tax regime are those related to employer contributions to NPS, gratuity, and income from savings accounts. Therefore, taxpayers who have significant deductions under the old regime (such as those for insurance premiums, home loan interest, and other investments) might prefer sticking with the old regime. However, for those who don't claim many deductions, the new tax regime with its lower tax rates may offer better tax savings.

Who Can Opt for Section 115BAC?

Section 115BAC is available to individual taxpayers and Hindu Undivided Families (HUFs) whose total income is subject to tax under the head "Income from Salaries" or "Income from House Property." The provision is applicable to:

• Salaried individuals: Those whose income is derived from salary can opt for the new tax regime.
  

• Pensioners: Individuals who receive pensions can also choose to avail of the benefits under Section 115BAC.
  

• Hindu Undivided Families (HUFs): HUFs can also opt for the new tax regime if they meet the eligibility criteria.

Importantly, businesses and professionals cannot opt for Section 115BAC if their income comes from business or profession. Taxpayers who earn income from business or profession and are eligible for deductions under sections such as 35AD or deductions for business expenses will have to continue with the old tax regime.

How to Opt for Section 115BAC?

Opting for Section 115BAC is simple, but it requires a conscious decision when filing your Income Tax Return (ITR). You can opt for the new tax regime while filing your return by selecting the relevant option on the ITR form. The following steps are typically involved:

• Choose the ITR Form: Select the appropriate ITR form based on your income type. For individuals with income from salary, ITR-1 or ITR-2 will typically apply.
  

• Select Tax Regime: When filling out the form, you will be prompted to choose between the old tax regime and the new tax regime (Section 115BAC). Opt for the new tax regime if it suits your financial situation.
  

• Recalculate Taxable Income: Ensure that your taxable income is calculated without claiming the deductions and exemptions you would under the old regime. This includes not claiming deductions under Sections 80C, 80D, and likewise.
  

• Submit the ITR: Once you’ve completed your return with the new tax regime selected, submit it. If you decide to opt for the new tax regime, you cannot change your choice for the same financial year. However, you can opt for the old regime in the following year if it’s more beneficial.

Conclusion

The new tax regime under Section 115BAC offers taxpayers the benefit of lower tax rates but comes at the cost of eliminating many deductions and exemptions. While the new regime is beneficial for individuals who do not claim significant deductions or have simple financial situations, it may not be the best option for those who benefit from deductions like Section 80C. Taxpayers need to carefully evaluate their financial situation to decide which tax regime suits them best. Understanding these nuances and making an informed decision is key to minimizing tax liability while maximizing savings. For anyone looking for assistance in tax filing, it is highly recommended to download theTaxBuddy mobile app for a simplified, secure, and hassle-free experience.

FAQs

Q1: Can I switch between the old and new tax regime every year?

Yes, taxpayers have the flexibility to switch between the old and new tax regimes every financial year. If you choose the new tax regime in a given year, you will not be able to claim any of the deductions and exemptions available under the old regime, such as those for home loan interest, insurance premiums, and investment in specified savings schemes. However, if you find that the new regime is not beneficial or doesn’t suit your financial situation, you can revert to the old regime in the next financial year. This flexibility allows you to adjust your tax strategy each year based on changes in income and expenses.

Q2: How do I calculate my taxes under the new tax regime?

Under the new tax regime, taxes are calculated based on reduced tax slabs with no deductions or exemptions available. The income tax slabs in the new regime are lower than those in the old regime, which can benefit individuals who don’t claim many deductions. To calculate taxes under the new tax regime, simply apply the applicable tax rate to your taxable income. However, since you won't be able to claim deductions like those under Section 80C, 80D, or 80G, it is important to weigh the tax rate savings against the deductions you would otherwise lose out on under the new system.

Q3: Is there any benefit for senior citizens in the new tax regime?

No, the new tax regime does not provide any specific benefits or preferential tax slabs for senior citizens. While the old tax regime offers higher exemptions and deductions for senior citizens, such as higher limits under Section 80D for medical insurance and exemptions for interest income, these benefits are not available under the new tax regime. Senior citizens opting for the new regime will not be able to claim these deductions, and they will be taxed according to the same reduced tax slabs as any other taxpayer.

Q4: Can I claim deductions under Section 80C if I choose the new tax regime?

No, Section 80C deductions are not available under the new tax regime. This means that taxpayers who choose the new regime will not be able to claim deductions for investments in schemes like Public Provident Fund (PPF), National Savings Certificates (NSC), tax-saving Fixed Deposits, and Life Insurance Premiums. This is one of the trade-offs of the new tax regime – it offers lower tax rates but does not allow any deductions or exemptions. Therefore, if you are making substantial investments in tax-saving instruments, the old tax regime might be more beneficial.

Q5: How can I make an informed decision between the old and new tax regimes?

To make an informed decision between the old and new tax regimes, you should evaluate your total income and the deductions you claim. If you claim substantial deductions under sections like 80C (e.g., for PPF or EPF), 80D (for insurance premiums), or 24(b) (for home loan interest), the old tax regime may be more advantageous as it allows these deductions to reduce your taxable income. On the other hand, if you do not claim many deductions and your income is primarily from salary with fewer investments, the new tax regime with lower tax slabs might result in lower taxes overall. Comparing both regimes using an online tax calculator can help you determine which is more beneficial based on your specific financial situation.

Q6: Can I opt for the new tax regime if I receive income from business or profession?

No, businesses and professionals cannot opt for the new tax regime under Section 115BAC. This option is only available to individuals and Hindu Undivided Families (HUFs). If you are a salaried individual, you have the option to choose the new tax regime, but business owners and professionals who file ITR-3 or ITR-4 are not eligible to avail themselves of the new tax slabs. This means that if you are a self-employed person or a small business owner, you will need to continue filing under the old tax regime and will not benefit from the new tax regime’s lower tax rates.

Q7: Can I claim deductions under 80G (charitable donations) under the new tax regime?

No, deductions under Section 80G for charitable donations are not available under the new tax regime. If you make donations to qualifying charities, you cannot claim a deduction for them if you have opted for the new tax regime. Under the old regime, such donations could reduce your taxable income. However, the trade-off for opting for the new regime is the benefit of lower tax rates, which might still result in lower overall taxes if you do not rely heavily on these deductions.

Q8: How is the new tax regime beneficial for people without many deductions?

The new tax regime is particularly beneficial for individuals who do not claim many deductions or exemptions. The primary advantage of the new regime is that it offers lower tax rates across various income brackets. This is ideal for individuals who do not make significant tax-saving investments or claim deductions for insurance, home loan interest, or medical expenses. Since the new regime is simpler and more straightforward, it also reduces the complexity of filing taxes, making it an attractive option for those who don’t have complex financial situations.

Q9: Can I use both regimes for different types of income?

No, you cannot use both tax regimes for different types of income. If you choose the new tax regime for one source of income, such as salary, you must apply it to all your income sources. This means that if you are an individual who has income from both salary and business, you must opt for the same tax regime (either the old or the new regime) for all income streams. You cannot mix and match tax regimes within the same assessment year.

Q10: What happens if I forget to opt for the new tax regime?

If you forget to opt for the new tax regime, the Income Tax Department will automatically process your tax return under the old regime. This will allow you to claim deductions and exemptions as per the old tax rules, which could result in higher taxes if you do not actively plan your tax-saving investments. It’s important to carefully choose your preferred tax regime at the time of filing your return to ensure that your taxes are calculated in the most beneficial way for your financial situation.

Q11: Can I switch between the old and new tax regime every year?

Yes, you can switch between the old and new tax regimes each financial year, depending on your financial situation. However, once you choose the new tax regime, you will lose out on various deductions and exemptions available under the old regime for that year. Each year, you will need to evaluate your financial situation and determine which regime is most beneficial based on your income and deductions. The flexibility to switch annually allows you to optimize your tax filing strategy based on changes in your financial profile.

Q12: What is the tax rate for individuals opting for the new tax regime?

For FY 2024-25 (AY 2025-26), the new tax regime slab rates for individuals are:

• Income up to ₹3,00,000: Nil

• Income between ₹3,00,001 and ₹7,00,000: 5%

• Income between ₹7,00,001 and ₹10,00,000: 10%

• Income between ₹10,00,001 and ₹12,00,000: 15%

• Income between ₹12,00,001 and ₹15,00,000: 20%

• Income above ₹15,00,000: 30%

The basic exemption limit has been increased to ₹3 lakh from ₹2.5 lakh.