Section 115BAC of the Income Tax Act: 2025 Updates, New Tax Regime, and Key Compliance for Taxpayers

Introduction

The Finance Act, 2023 and subsequent Budget 2025 have transformed the Indian tax landscape, making the new tax regime under Section 115BAC of the Income Tax Act, 1961 the default for most taxpayers from Assessment Year (AY) 2024-25 onwards. These reforms aim to simplify tax filing, enhance transparency, and provide greater clarity for both salaried and non-salaried individuals, Hindu Undivided Families (HUFs), and other eligible entities.

1. Section 115BAC: The New Default Tax Regime for AY 2024-25 Onwards Who is Covered?

• The new tax regime is now the default for individuals, HUFs, Associations of Persons (AOPs) other than co-operative societies, Bodies of Individuals (BOIs), and Artificial Juridical Persons.
• Companies, partnership firms, and co-operative societies are not covered under Section 115BAC.

Expanded Applicability (2025):

• The regime now also applies to AOPs, BOIs, and AJPs, broadening its reach beyond just individuals and HUFs.

2. New vs. Old Tax Regime: Slab Rates and Key Features

• Income Range (₹) Old Regime Rate New Regime Rate (AY 2024-25) New Regime Rate (AY 2025-26 onwards)
• Up to 2,50,000 Nil Nil Nil (up to 3,00,000)
• 2,50,001 – 5,00,000 5% 5% (3,00,001 – 6,00,000) 5% (3,00,001 – 6,00,000)
• 5,00,001 – 10,00,000 20% 10% (6,00,001 – 9,00,000) 10% (6,00,001 – 9,00,000)
• Above 10,00,000 30% 15% (9,00,001 – 12,00,000) 15% (9,00,001 – 12,00,000)
• 20% (12,00,001 – 15,00,000) 20% (12,00,001 – 15,00,000)
• 30% (Above 15,00,000) 30% (Above 15,00,000)

Budget 2025 Update:

• Section 87A rebate limit increased to ₹12 lakh (from ₹7 lakh), making annual income up to ₹12.75 lakh effectively tax-free after standard deduction.
• Standard deduction for salaried individuals under the new regime is now ₹75,000 (was ₹50,000 in FY 2023-24).
• No tax on income up to ₹12.75 lakh for salaried individuals after standard deduction and rebate.

3. Deductions and Exemptions: What’s Allowed and What’s Not Allowed under New Regime (2025):

• Standard deduction: ₹75,000 for salaried individuals and pensioners.
• Family pension deduction: ₹25,000.
• Long-term capital gains exemption: Up to ₹1.25 lakh.

Not Allowed:

• Major deductions under Sections 80C, 80D, 80E, 80G, 24(b), and others are not available.
• No HRA, LTA, or interest on home loan deduction under the new regime.
• No set-off of losses from house property or previous years’ deductions.

4. How to Choose or Opt Out: Form 10-IEA and Compliance Steps For Non-Business/Non-Professional Income:

• Flexibility: Taxpayers can choose between the new and old regimes each year while filing their ITR under Section 139(1).
• Selection: Simply select the preferred regime in the ITR before the due date.

For Business/Professional Income:

• Default Regime: New regime is default.
• Opting Out: File Form 10-IEA before the due date for filing return under Section 139(1) to opt for the old regime.
• Lifetime Limitation: Once opted out, switching back is allowed only once in a lifetime.
• No regime change allowed for the same assessment year even if a revised return is filed.

Step-by-Step to File Form 10-IEA:

• Log in to the e-filing portal.
• Go to ‘e-File’ > ‘Income Tax Forms’ > ‘File Income Tax Forms’ > Select Form 10-IEA.
• Select the relevant assessment year.
• Provide required details and confirm your regime selection.
• Complete e-verification (Aadhaar OTP, DSC, or EVC).
• Save the acknowledgment number for future reference.

5. Key Nuances and Practical Scenarios

• Revised Returns: Once the tax regime is chosen for a year, it cannot be changed by filing a revised return.

Switching Regimes:

• Non-business taxpayers can switch regimes every year.
• Business/professional taxpayers can opt out of the default regime only once; after returning to the new regime, they cannot choose the old regime again in future years.
• Employer TDS: Employers must deduct TDS based on the employee’s chosen regime, as per CBDT clarifications.
• Updated Returns: From FY 2025-26, taxpayers have up to 4 years to file updated returns (ITR-U), extended from the previous 2 years.

7. Key Takeaways for Taxpayers The new tax regime under Section 115BAC is now the default for most individuals and HUFs from AY 2024-25.

• Taxpayers with business/professional income must use Form 10-IEA to opt out.
• Non-business taxpayers can switch regimes every year via ITR.
• The new regime offers lower rates but fewer deductions—choose wisely based on your eligible exemptions and financial planning.