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Published on 29 July 2025
New Income Tax Regime Explained: Slabs, Deductions, and Exemptions Under Section 115BAC
Understanding the New Income Tax Regime (Section 115BAC) for FY 2025–26
The new tax regime under Section 115BAC continues as the default system for individuals and HUFs in FY 2025–26 (AY 2026–27). It offers lower tax rates, but in exchange, you give up most traditional tax deductions and exemptions.
1. Latest Income Tax Slabs (New Regime – FY 2025–26)
| Annual Income | Tax Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
2. Section 87A Rebate: ₹0 Tax Up to ₹12.75 Lakh
If your income is up to ₹12 lakh, you qualify for a rebate of up to ₹60,000, making your net tax zero.
For salaried or pensioned taxpayers, add a standard deduction of ₹75,000—making income up to ₹12.75 lakh tax-free in practice.
3. Old vs New Regime: A Quick View
| Income Slab | Old Regime | New Regime (FY 2025–26) |
|---|---|---|
| Up to ₹2.5 lakh | Nil | - |
| ₹4–₹8 lakh | 5–20% | 5% |
| ₹8–₹12 lakh | 20–30% | 10% |
| ₹12–₹16 lakh | 30% | 15% |
| ₹20–₹24 lakh | 30% | 25% |
4. What’s Allowed Under the New Regime?
Only select deductions are permitted:
- Standard deduction: ₹75,000 (salaried/pensioners)
- Employer NPS contribution (80CCD(2)): up to 10% of salary (14% for govt employees)
- Agniveer Corpus Fund (Section 80CCH)
- Family pension deduction: ₹25,000
- Official allowances: Travel, transfer, conveyance (actuals)
- Home loan interest on let-out property only (not self-occupied)
- Transport allowance for specially-abled employees
5. What’s NOT Allowed?
The following common deductions and exemptions are disallowed:
- Section 80C: PPF, LIC, ELSS, tuition fees
- Section 80D: Health insurance
- Section 80E: Education loan interest
- HRA, LTA, Children’s Education Allowance
- Self-occupied home loan interest (Section 24)
- Charity donations (80G)
- Employee’s NPS (own contribution)
- Depreciation and many business deductions
6. Can You Switch Between Regimes?
- Salaried individuals: Yes, you can choose each year at filing time.
- Business or professional taxpayers: Can opt in/out once by filing Form 10-IEA. Frequent switching is not allowed.
7. When Does the New Regime Work Better?
Use New Regime if:
- You don’t claim many deductions
- You rent a house but don’t get HRA
- You’re a first-jobber or have a simple tax profile
- You want cleaner, lower-rate taxation without paperwork
Use Old Regime if:
- You fully utilize 80C/80D/80G deductions
- You pay EMIs on a home loan
- You receive HRA, or claim tuition, medical, or donation deductions
- You prefer greater flexibility in planning
8. FAQs
- Is 80C allowed in the new regime? No
- HRA or home loan for self-occupied property? Not allowed
- Standard deduction? Yes, ₹75,000 from FY 2025–26
- Can salaried switch every year? Yes
- What is the new rebate limit? Up to ₹12 lakh (Section 87A), with effective relief till ₹12.75 lakh
9. Summary & Filing Tip
| Regime | Default? | Can switch? | Major Benefit |
|---|---|---|---|
| New Regime | Yes | Salaried: Every Year<br>Business: Limited | Lower tax rates, simple filing |
| Old Regime | No | Must opt-in manually | Deductions for 80C, HRA, home loan, etc. |