Section 115BAC New Tax Regime: Deductions, Rebate & Tax-Free Income Explained
- Asharam Swain
- Dec 17, 2025
- 8 min read
Section 115BAC forms the core of India’s new tax regime, designed to simplify taxation by offering lower slab rates in exchange for fewer deductions. Recent updates under the Union Budget FY 2025-26 have significantly changed how taxpayers calculate benefits, especially around the higher standard deduction of ₹75,000 and the increased Section 87A rebate of up to ₹60,000. These changes push the effective tax-free income threshold to ₹12.75 lakh for salaried individuals and pensioners, reshaping how tax planning works under the new regime. Understanding these provisions is essential before choosing between the two regimes.
Table of Contents
Understanding Section 115BAC Under the Income Tax Act
Section 115BAC introduced an optional tax regime that offers concessional slab rates for individuals, HUFs, AOPs, BOIs, and artificial juridical persons. The structure aims to simplify compliance by reducing dependence on deductions and exemptions. While the regime restricts many popular tax-saving tools, it still allows specific statutory or employment-linked deductions. With recent updates, the regime has become more attractive due to a higher tax-free threshold and a more predictable calculation framework.
Is Section 115BAC the Default Tax Regime?
The new tax regime under Section 115BAC is now the default option for all individual taxpayers. Anyone who prefers to continue using the old tax regime must opt out within the prescribed timelines while filing their return. This shift encourages a simplified filing approach where taxpayers do not rely on multiple deductions but instead follow a straightforward rate structure.
Deductions Allowed Under Section 115BAC
Despite the perception that the new regime eliminates deductions entirely, several important deductions are still available:
Standard deduction of ₹75,000 for salaried individuals and pensioners
Family pension deduction up to ₹15,000
Employer’s contribution to NPS up to 10% of salary
Deduction for contributions to the Agniveer Corpus Fund
Transport allowance for employees with disabilities
Section 80JJAA for additional employee cost (applicable in eligible businesses)
These selective allowances ensure that statutory and employment-linked benefits remain accessible even under the simplified structure.
What Deductions Are Not Allowed in the New Tax Regime?
The new regime disallows most of the widely claimed deductions under Chapter VI-A and specific exemptions previously available in the old structure. Notable ineligible deductions include:
Section 80C (PF, ELSS, life insurance, etc.)
Section 80D (health insurance premium)
HRA exemptions
LTA exemptions
Deductions for home loan interest on self-occupied property
Most Chapter VI-A deductions except the few permitted under statutory rules
This forms the basis of the simplified tax framework, focusing on flat benefit allowances instead of investment-dependent incentives.
Is Standard Deduction Allowed in the New Tax Regime?
Yes. The new regime continues to allow the standard deduction for salaried taxpayers and pensioners. What began as a small deduction under earlier rules has now been enhanced to provide significant relief without requiring any investment or documentation.
How the ₹75,000 Standard Deduction Works Under 115BAC
From FY 2024-25 onwards, the standard deduction has been increased to ₹75,000. This amount directly reduces taxable income, offering a fixed benefit to all eligible taxpayers. Combined with the revised Section 87A rebate, this deduction increases the effective tax-free income. For many individuals, this deduction alone significantly reduces their tax burden without needing additional compliance measures.
Rebate Under Section 87A in the New Regime
The rebate has undergone one of the most substantial revisions. Under the updated rules, taxpayers with taxable income up to ₹12 lakh after deductions can now receive a rebate of up to ₹60,000. This effectively eliminates tax liability for a large segment of middle-income earners and makes the new regime more attractive for those who do not claim extensive deductions under the old system.
How Much Income Is Tax-Free Under Section 115BAC?
For FY 2025-26, salaried individuals and pensioners can achieve zero tax liability on income up to ₹12.75 lakh. This calculation assumes the standard deduction of ₹75,000 and the full Section 87A rebate. The increase in the tax-free threshold has made 115BAC a more practical option for many individuals, especially those without significant deductions under traditional tax planning approaches.
Is Section 80C Allowed in the New Tax Regime?
Section 80C is not available under Section 115BAC. All typical deductions such as PPF, ELSS, tax-saving FDs, and life insurance premium fall under ineligible categories for the new regime. This reinforces the regime’s purpose of offering simplified taxation without incentivizing specific investment channels.
How Benefits Differ in the Old Tax Regime
The old tax regime continues to offer a broad range of deductions and exemptions. It includes 80C investments, HRA, LTA, 80D medical insurance, and home loan interest deductions for self-occupied property. Taxpayers with significant investments or housing-loan-related benefits may still find the old regime suitable. A comparison requires evaluating both tax slabs and personal deduction availability before choosing either route.
Section 115BAC Marginal Relief Rules Explained
Marginal relief ensures that taxpayers whose income slightly exceeds the rebate-eligible limit do not face disproportionate tax liability. The rule caps tax payable to ensure the additional tax does not exceed the additional income gained beyond the threshold. This adjustment prevents abrupt jumps in tax liability, maintaining fairness in computation.
Common Mistakes While Claiming Deductions in 115BAC
Common mistakes under Section 115BAC often arise because taxpayers rely on assumptions carried over from the old tax regime. The shift from deduction-heavy filing to a simplified structure requires a different approach, and overlooking the changes can lead to incorrect tax calculations or mismatches in the final return.
One frequent error involves claiming deductions that are no longer allowed. Many taxpayers mistakenly enter Chapter VI-A deductions such as 80C, 80D, or 80G out of habit, unaware that these are not applicable under 115BAC. This results in discrepancies when the Income Tax Department processes the return. Another common misunderstanding occurs when individuals assume benefits like HRA or LTA continue in the new regime. These exemptions are specifically restricted, and entering them can lead to an incorrect computation of taxable income.
The enhanced standard deduction of ₹75,000 is sometimes overlooked, even though it plays a major role in reducing taxable income under the new structure. Missing this deduction may inflate tax liability unnecessarily. Errors also arise in calculating eligibility for the Section 87A rebate. Since the rebate threshold has increased to ₹12 lakh of taxable income, miscalculating this figure can cause taxpayers to lose out on substantial relief or incorrectly expect a rebate they do not qualify for.
Another mistake frequently seen is failing to opt out of the new regime when the old regime might have been more beneficial. The new tax regime is now the default, so taxpayers who prefer the old structure must actively select it while filing. Missing this step may result in unintended tax liability and reduced deductions.
Platforms like TaxBuddy help prevent these issues by identifying disallowed entries, applying the correct deductions automatically, and guiding users through each step with AI-driven checks and expert review. This ensures accurate compliance and reduces the chances of receiving notices for mismatches or computational errors.
How TaxBuddy Helps Navigate Section 115BAC
TaxBuddy provides an intuitive filing experience under both regimes, helping users understand eligible benefits clearly. The platform identifies deductions allowed under Section 115BAC, applies rebates correctly, and prevents disallowed claims from impacting the return. For many taxpayers, this guidance ensures accurate filing while reducing the risk of mismatch notices or computation errors.
Conclusion
Choosing the right tax regime requires understanding which deductions are allowed, how the rebate works, and how the enhanced tax-free threshold applies. Section 115BAC continues to evolve, and taxpayers benefit from a clear view of how each provision affects their final liability. For anyone looking for assistance in tax filing, it is highly recommended to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options? TaxBuddy provides both self-filing and expert-assisted options to suit different filing needs. The self-filing plan uses an AI-enabled interface that reads Form 16, AIS, and TIS automatically and performs real-time accuracy checks. Users who require deeper review—including those with capital gains, multiple income sources, or foreign income—can choose the expert-assisted plan, where a tax professional verifies every detail and prepares the return end-to-end. This dual model ensures flexibility for both simple and complex cases.
Q2. Which is the best site to file ITR? The official income tax portal remains the government-approved platform for filing ITRs. However, platforms like TaxBuddy offer a more guided experience with automated data extraction, error detection, and professional support. Individuals who want a smooth, convenient filing experience often find private platforms more user-friendly, especially when dealing with deductions, capital gains, or compliance-related queries.
Q3. Where to file an income tax return? An income tax return can be filed directly on the Income Tax Department’s e-filing portal or through authorized private services such as TaxBuddy. The department’s portal supports manual entry, while TaxBuddy simplifies the process with automated data mapping, pre-filled details, and expert review options for taxpayers seeking accuracy and support throughout the filing cycle.
Q4. Is the new tax regime automatically applied if no option is selected? Yes. Under the revised rules, the new tax regime under Section 115BAC is the default choice for all individual taxpayers. Anyone wishing to continue under the old regime must actively opt out while filing. This update simplifies the filing process but requires taxpayers to evaluate which regime offers better benefits before final submission.
Q5. Are Chapter VI-A deductions allowed under Section 115BAC? Most Chapter VI-A deductions are not permitted in the new tax regime. Options such as 80C, 80D, 80E, 80G, and several others cannot be claimed. Only a few specific deductions—including employer contributions to NPS and certain employment-linked incentives—remain allowed. This limitation is a key reason why the new regime focuses on concessional slab rates instead of investment-based savings.
Q6. Is HRA or LTA exemption available in the new tax regime? HRA and LTA exemptions are not available under Section 115BAC. These benefits, traditionally useful for salaried taxpayers, are restricted to the old tax regime. The new regime removes these exemptions in exchange for lower tax rates and a higher standard deduction.
Q7. How does the standard deduction impact taxable income under the new regime? The enhanced standard deduction of ₹75,000 directly reduces taxable income for salaried individuals and pensioners. This flat deduction applies universally without the need for documentation or investment. When combined with the increased rebate under Section 87A, it substantially boosts the total tax-free income limit for FY 2025–26.
Q8. What is the maximum income eligible for the Section 87A rebate in the new regime? Under the updated provisions, taxpayers with taxable income up to ₹12 lakh after allowable deductions qualify for a rebate of up to ₹60,000. This rebate completely eliminates tax liability for those within the threshold, making the new regime highly attractive for middle-income groups with fewer deductions.
Q9. How does marginal relief work under Section 115BAC? Marginal relief ensures that taxpayers whose income slightly exceeds ₹12 lakh do not end up paying more tax than the amount by which their income surpasses the threshold. This prevents sudden jumps in tax liability and keeps the system equitable for those just above the limit.
Q10. Should salaried employees always choose the new tax regime? Not necessarily. While the new regime offers higher tax-free limits and fewer compliance requirements, its suitability depends on the individual's deduction portfolio. A salaried person with significant 80C investments, home loan interest, HRA, or health insurance benefits may still gain more under the old tax regime. Tools like TaxBuddy help compare both regimes before filing.
Q11. Is the old tax regime still available for taxpayers who prefer traditional deductions? Yes. The old regime remains available but must be opted into each year for salaried individuals. It continues to offer a wide range of exemptions and deductions, including 80C, 80D, HRA, LTA, and home loan interest benefits. Those who depend on these tax-saving avenues may find the old regime more beneficial despite its higher slab rates.
Q12. How can TaxBuddy help choose between the old and new tax regimes? TaxBuddy’s AI-driven system evaluates income, deductible elements, rebates, and eligible allowances to determine the most beneficial regime. The platform highlights total tax liability under both structures and guides taxpayers with expert-backed recommendations. This ensures accurate filing and helps avoid mismatches, notices, or incorrect tax calculations.
