Section 115BAC

Section 115BAC of the Income-tax Act 1961 is the repealed provision that created the new personal income-tax regime and, from the assessment year 2024-25, made it the default basis on which an individual is taxed. It governs the assessment year 2026-27 and every year before it. It governs nothing after that: Section 536(1) of the Income-tax Act 2025 repealed the Income-tax Act 1961 with effect from 1 April 2026, and income earned from that date is charged under Section 202 of the Income-tax Act 2025.

That split decides which provision a reader needs. A central government employee revising a return for the assessment year 2026-27, on salary drawn in the financial year 2025-26, is working under Section 115BAC, because Section 536(2)(c) of the Income-tax Act 2025 keeps the repealed Act applicable to any proceeding in respect of a tax year beginning before 1 April 2026, including a proceeding started after that date. The same employee looking at the salary slip for September 2026 is under Section 202.

The section took its present shape from four Finance Acts, not one. It began in 2020 as an option that withdrew the standard deduction and was little used, acquired a new sub-section (1A) in 2023 that made it the default, had its bands widened and its standard deduction raised to Rs. 75,000 in 2024, and was recalibrated in 2025 so that a total income up to Rs. 12 lakh bears no tax. Each amendment sits in a separate clause of sub-section (1A), and the clause that applies decides both the rate and the deduction.

For the regime as it applies to income being earned today, read the new tax regime explainer; for the head-to-head choice, see old versus new tax regime.

Status of Section 115BAC after the repeal

Section 115BAC is a provision of a repealed statute that remains the operative law for one open assessment year. Section 536(1) of the Income-tax Act 2025 repealed the Income-tax Act 1961 outright. Section 536(2)(c) then provided that the repealed Act continues to apply to any proceeding pending on 1 April 2026, and to any proceeding initiated on or after that date, in respect of any tax year beginning before 1 April 2026, and that such proceedings are carried out under the procedure in the repealed Act.

The assessment year 2026-27 covers income of the financial year 2025-26, a tax year that began on 1 April 2025. It therefore falls inside that saving. Filing, assessment, reassessment, rectification, penalty and appeal for that year all run under the Income-tax Act 1961, and the rate at which the income is charged comes from Section 115BAC(1A) read with Section 2 of the Finance Act 2026.

One further saving matters to anyone who had already elected the old regime. Section 536(2)(f) deems an option exercised under a provision of the repealed Act, and in force immediately before 1 April 2026, to have been exercised under the corresponding provision of the Income-tax Act 2025. A business-income taxpayer who filed Form 10-IEA under Section 115BAC(6) does not have to elect again under Section 202(4).

What Section 115BAC does

Section 115BAC charges a separate slab table, makes that table the default, and makes the lower rates conditional on giving up a listed set of exemptions and deductions. Sub-section (1A) opens with a non-obstante clause, applying “notwithstanding anything contained in this Act but subject to the provisions of this Chapter”, which is the drafting that lets one section displace the ordinary rate schedule in the Finance Act’s First Schedule for everyone inside it.

The persons inside it are wider than the salaried reader usually assumes. Sub-section (1A) names an individual, a Hindu undivided family, an association of persons other than a co-operative society, a body of individuals whether incorporated or not, and an artificial juridical person referred to in Section 2(31)(vii). A pensioner, a family pensioner and a serving employee are all individuals for this purpose.

The trade is explicit and it is the whole design. The taxpayer accepts wider bands at gentler rates and gives up most of the shelter the old tax regime allowed, from the House Rent Allowance exemption to Section 80C and Section 80D. Whether that trade pays depends on how much the individual would otherwise have claimed, which is what the break-even comparison exists to settle.

Amendment history: four Finance Acts

Four Finance Acts amended Section 115BAC, and each left its own clause behind. The clause that applies to an assessment year fixes the slab table, and two provisos outside the section, one in Section 16(ia) and one in Section 57(iia), are keyed to the same clause numbers.

The Finance Act 2020: an optional regime

The Finance Act 2020 inserted Section 115BAC with effect from the assessment year 2021-22. The table in sub-section (1) ran seven slabs at intervals of Rs. 2.5 lakh: nil up to Rs. 2,50,000, then 5%, 10%, 15%, 20% and 25% bands, and 30% above Rs. 15,00,000. Sub-section (1) is closed at the far end, applying only to an assessment year beginning before 1 April 2024.

Take-up was low for a reason that had nothing to do with the rates. The 2020 version of sub-section (2) withdrew the standard deduction along with the Chapter VI-A reliefs, so a salaried employee subscribing to the General Provident Fund and claiming House Rent Allowance almost always paid less under the old regime. The option also had to be positively exercised, and sub-section (5) made an option exercised by a business-income taxpayer binding on later years.

The Finance Act 2023: sub-section (1A) and the default

The Finance Act 2023 (Act No. 8 of 2023) inserted sub-section (1A), applicable from the assessment year 2024-25, and changed the section’s character in three ways at once. Clause (i) of the new sub-section set six slabs, with the basic exemption at Rs. 3,00,000, 5% to Rs. 6,00,000, 10% to Rs. 9,00,000, 15% to Rs. 12,00,000, 20% to Rs. 15,00,000, and 30% above that.

The regime became the default. Sub-section (1A) computes the tax of every person it names other than one who has exercised the option under sub-section (6), so the old regime became the choice a taxpayer had to make rather than the position to escape from.

The standard deduction came back at Rs. 50,000, because the substituted sub-section (2) names only clauses (ii) and (iii) of Section 16 and leaves clause (ia) alone. The same Act raised the Section 87A rebate for a new-regime assessee to Rs. 25,000 on a total income up to Rs. 7,00,000, and the surcharge cap fell from 37% to 25%.

The Finance (No. 2) Act 2024: Rs. 75,000 and wider bands

The Finance (No. 2) Act 2024 (Act No. 15 of 2024) inserted clause (ii) of sub-section (1A) for the assessment year 2025-26, widening the 5% band to Rs. 7,00,000 and the 10% band to Rs. 10,00,000 while leaving the basic exemption at Rs. 3,00,000 and the top rate at 30% above Rs. 15,00,000.

Two provisos inserted by the same Act did more for a salaried taxpayer than the bands did. The proviso to Section 16(ia) substituted Rs. 75,000 for Rs. 50,000 where the tax is computed under clause (ii) of sub-section (1A), and the proviso to Section 57(iia) substituted Rs. 25,000 for Rs. 15,000 in the family-pension deduction on the same condition. Both took effect from 1 April 2025. The Rs. 75,000 standard deduction is a Finance (No. 2) Act 2024 figure, not a Finance Act 2025 one.

The Finance Act 2025: the Rs. 12 lakh threshold

The Finance Act 2025 (Act No. 7 of 2025) inserted clause (iii) of sub-section (1A) with effect from 1 April 2026, which is the table for the assessment year 2026-27. It raised the basic exemption to Rs. 4,00,000, returned the structure to seven slabs, and moved the top rate threshold from Rs. 15,00,000 to Rs. 24,00,000.

The same Act rewrote the Section 87A rebate for a new-regime assessee, substituting “twelve” for “seven” hundred thousand rupees and “sixty” for “twenty-five” thousand rupees in the proviso. With the Rs. 75,000 standard deduction stacked on top, a salary or pension up to Rs. 12,75,000 attracts no tax. Act No. 29 of 2025 then extended the Section 16(ia) proviso to name clause (iii) as well as clause (ii).

The slab table in sub-section (1A) for assessment year 2026-27

Clause (iii) of Section 115BAC(1A) carries the following rates for the financial year 2025-26, assessment year 2026-27. Section 202(1) of the Income-tax Act 2025 reproduces the same seven rows for the tax year 2026-27, so the figures do not change across the repeal.

The table is in the Income-tax Act itself and not in the Finance Act’s First Schedule, which is the reverse of the position in the old regime. Section 2(2)(a) of the Finance Act 2026 confirms the arrangement from the other side: for the purpose of aggregating net agricultural income, serial 4 of its Table fixes the exemption limit of an assessee chargeable under Section 115BAC(1A) at Rs. 4,00,000, while serials 1 to 3 give the Rs. 2,50,000, Rs. 3,00,000 and Rs. 5,00,000 limits that belong to Paragraph A of Part I-A.

Surcharge and cess on a Section 115BAC computation

Surcharge on a Section 115BAC assessee comes from Section 2(4)(b) of the Finance Act 2026, Table serial 10, and not from Paragraph F of Part I-A of the First Schedule. Section 2(4)(a)(ii) expressly takes an individual, Hindu undivided family, association of persons, body of individuals or artificial juridical person chargeable under sub-section (1A) out of Paragraph F, which is where the 37% band applicable to the old regime sits.

Serial 10 sets four rates. A rate of 10% applies where total income, including dividend income and capital gains under Sections 111A, 112 and 112A, exceeds Rs. 50,00,000 but does not exceed Rs. 1,00,00,000. A rate of 15% applies on the same inclusive measure above Rs. 1,00,00,000 up to Rs. 2,00,00,000. A rate of 25% applies where total income excluding that dividend income and those capital gains exceeds Rs. 2,00,00,000, and 15% applies where the inclusive figure crosses Rs. 2,00,00,000 without the exclusive figure doing so. Surcharge on the dividend and capital-gains component itself is capped at 15% in every case.

Marginal relief on surcharge is in Section 2(5) of the Finance Act 2026, which caps the combined income tax and surcharge by reference to the income at the threshold. The health and education cess of 4% is charged by Section 2(6) on income tax plus surcharge, after that relief.

The Section 87A rebate under Section 115BAC

The rebate a new-regime assessee gets is not the Rs. 12,500 main limb of Section 87A but the proviso to it, which the Finance Act 2023 inserted for income chargeable under sub-section (1A). For the assessment year 2026-27 the proviso reads Rs. 60,000 on a total income up to Rs. 12,00,000, and clause (b) of the proviso supplies the marginal relief that tapers the rebate for a total income just above that line.

A second proviso inserted by the Finance Act 2025 with effect from 1 April 2026 limits it. The deduction under the first proviso cannot exceed the income tax payable at the rates in sub-section (1A). Tax charged at a special rate, such as short-term capital gains under Section 111A or long-term capital gains under Sections 112 and 112A, is therefore outside the rebate, so a pensioner with a total income of Rs. 11 lakh that includes Rs. 3 lakh of listed-equity capital gains does not get a nil liability.

What sub-section (2) switches off

Sub-section (2)(i) computes total income without a list of reliefs that runs wider than the Chapter VI-A items readers expect. It excludes the exemptions under clause (5), clause (13A), clause (17) and clause (32) of Section 10, and those prescribed under clause (14) other than the ones prescribed for this purpose. It excludes Section 10AA. It excludes clause (ii) and clause (iii) of Section 16. It excludes clause (b) of Section 24 in respect of a property referred to in Section 23(2). It excludes Sections 32(1)(iia), 32AD, 33AB, 33ABA, parts of Section 35, Section 35AD and Section 35CCC. And it excludes every provision of Chapter VI-A other than Section 80CCD(2), Section 80CCH(2) and Section 80JJAA.

For a central government employee the operative losses are five. The House Rent Allowance exemption under Section 10(13A) goes. The Leave Travel Concession exemption under Section 10(5) goes. Most allowances prescribed under Section 10(14) go, including the children education allowance, leaving only those separately prescribed, which is how the higher transport allowance exemption for an employee with a disability survives. Section 80C, Section 80D and the additional National Pension System deduction under Section 80CCD(1B) go. And the interest deduction on a self-occupied house under Section 24(b) goes.

The Section 16 exclusions are the ones most often missed. Clause (ii) is the entertainment allowance deduction available to a government servant, and clause (iii) is the deduction for a tax on employment under article 276(2) of the Constitution, which is professional tax. An employee posted in Maharashtra, Karnataka or West Bengal pays professional tax and deducts nothing for it in the default regime.

Two further limbs apply beyond the list. Sub-section (2)(ii) bars the set-off of a carried-forward loss or depreciation attributable to any of the disallowed deductions, and separately bars setting off a loss under the head Income from house property against any other head. Sub-section (2)(iv) computes total income without any exemption or deduction for an allowance or perquisite provided under any other law in force, which closes the route of claiming an exemption sourced outside the Income-tax Act.

The four reliefs that survive

Sub-section (2) is a list of exclusions, so anything absent from it survives, and four things matter on a salary or a pension. The full set is worked through in deductions allowed in the new tax regime.

• The standard deduction of Rs. 75,000, or the salary if less, under Section 16(ia) read with its proviso. It survives because sub-section (2)(i) names clauses (ii) and (iii) of Section 16 and not clause (ia).
• The employer’s National Pension System contribution under Section 80CCD(2), which for a central government employee is 14% of basic pay plus dearness allowance, expressly carved out of the Chapter VI-A exclusion.
• The Central Government’s contribution to the Agniveer Corpus Fund under Section 80CCH(2). Sub-section (2)(i) preserves that sub-section alone, so an Agniveer’s own contribution under Section 80CCH(1) is not deductible.
• The family-pension deduction under Section 57(iia), being one-third of the family pension or Rs. 25,000, whichever is less. The Rs. 25,000 limb comes from the proviso inserted by the Finance (No. 2) Act 2024, which is keyed to clause (ii) of sub-section (1A); clause (ii) by its own terms reaches any assessment year beginning on or after 1 April 2025.

The design behind the list is visible in what it keeps. Section 115BAC preserves reliefs tied to employment cost and to retirement saving routed through the employer, and removes those tied to an individual’s own investment and consumption choices.

The sub-sections of Section 115BAC

Employers, return utilities and assessment orders all refer to the section by sub-section number, and two of them are dead letters that still appear in older commentary.

• Sub-section (1) is the 2020 optional scheme. It applies to an assessment year beginning on or after 1 April 2021 but before 1 April 2024, and has no forward effect.
• Sub-section (1A) is the operative provision, carrying clause (i) for the assessment year 2024-25, clause (ii) for 2025-26 and clause (iii) for 2026-27.
• Sub-section (2) is the conditions limb, listing the exclusions in clause (i), the loss set-off bars in clause (ii), the depreciation rule in clause (iii) and the other-law bar in clause (iv).
• Sub-section (3) deems the loss and depreciation referred to in sub-section (2)(ii) to have been fully given effect, so they are not revived in a later year, and provides for the corresponding adjustment to the written down value of a block of assets.
• Sub-section (4) is not about depreciation. It modifies the sub-section (2) conditions for a person with a Unit in an International Financial Services Centre, so that the Section 80LA deduction remains available to that Unit.
• Sub-section (5) carried the option mechanism for the original scheme, and its second proviso disapplies the whole sub-section from the assessment year 2024-25.
• Sub-section (6) governs the option under the default scheme, including the once-in-a-lifetime withdrawal restriction for a business-income taxpayer.

Opting out of the default regime

Because Section 115BAC is the default, the active choice is to leave it. Sub-section (6) provides that sub-section (1A) does not apply where the person exercises an option in the prescribed manner, and the two clauses of sub-section (6) set different mechanics for different incomes.

A salaried employee or pensioner with no business income

Clause (ii) of sub-section (6) requires the option to be exercised along with the return furnished under Section 139(1). There is no separate form. The choice is made afresh each year, so a salaried person can be in the new regime for the assessment year 2026-27 and the old regime for 2027-28 according to which is cheaper on that year’s actual deductions.

A declaration made to the drawing and disbursing officer during the year changes only the tax deducted at source and the figures on Form 16. It does not fix the regime. The regime is fixed by the return, and the mechanics are set out in how to switch tax regime.

A taxpayer with business or professional income

Clause (i) of sub-section (6) requires the option to be exercised on or before the due date under Section 139(1), and Rule 21AGA prescribes Form 10-IEA, filed electronically. An option so exercised applies to subsequent assessment years without being renewed.

The proviso to sub-section (6) is the restriction that makes the choice consequential. An option exercised under clause (i) can be withdrawn only once, for a year other than the one in which it was exercised, and after that withdrawal the person is never again eligible to exercise it, except where the person ceases to have any income from business or profession, in which case the annual clause (ii) route becomes available. A professional who opts into the old regime and later returns to the default has spent the only withdrawal available.

The filing position for assessment year 2026-27 after 31 July 2026

The due dates for the assessment year 2026-27 come from the Table to Explanation 2 to Section 139(1), substituted by Section 5 of the Finance Act 2026 with effect from 1 March 2026. Serial 4, covering any other assessee, set 31 July 2026, which is the date that applied to a salaried employee and a pensioner. Serial 3 set 31 August 2026 for a business or professional income whose accounts are not required to be audited. Serial 2 set 31 October 2026 where the accounts are audited, and serial 1 set 30 November 2026 where Section 92E applies.

Three groups stand in different positions now, and the difference turns entirely on Section 139(1). A salaried employee or pensioner who filed by 31 July 2026 fixed the regime in that return and has nothing further to do. One who did not file can still file a belated return under Section 139(4), but sub-section (6) requires the option along with a Section 139(1) return, so the belated return is computed under the default regime and the old regime is lost for the year. An assessee whose accounts are audited, or to whom Section 92E applies, has not lost the option at all, because the 31 October 2026 and 30 November 2026 dates are still the due dates under Section 139(1) for those cases.

A filed return can still be corrected. Section 139(5), as substituted by Section 5(b) of the Finance Act 2026, allows a revised return at any time before the end of the relevant assessment year or before the assessment is completed, whichever is earlier, which for the assessment year 2026-27 runs to 31 March 2027. A revised return corrects an omission or a wrong statement; it does not reopen the regime election where the original return was belated.

Section 202 of the Income-tax Act 2025

The Income-tax Act 2025 came into force on 1 April 2026 and carries the default-regime provision as Section 202. The slab table in Section 202(1) is identical to clause (iii) of Section 115BAC(1A), row for row, and the set of persons is the same five, with the artificial juridical person now referred to as Section 2(77)(g) rather than Section 2(31)(vii).

The conditions limb was redrafted rather than renumbered. Section 202(2)(a) points at Schedule III Table serials 5, 6, 7, 8, 11 and 17, at serials 12 and 13 other than as prescribed, at serial 1 of the Section 19(1) Table, and at Section 22(1)(b) for property under Section 21(6), because the Income-tax Act 2025 moved the exemptions out of Section 10 into Schedule III and the salary deductions out of Section 16 into the Section 19(1) Table. Section 56 of the Finance Act 2026 omitted Section 202(2)(a)(iii), which had referred to the Section 144 deduction, with effect from 1 April 2026.

Two operating differences follow for a reader tracing a rule across the two Acts. The option is exercised under Section 202(4) and not Section 115BAC(6). And Rule 136 of the Income-tax Rules 2026 puts that election in the return itself and prescribes no successor to Form 10-IEA, so a form number carried over from the older article is wrong for the tax year 2026-27.

A worked example for a central government employee

Take a central government employee with a gross salary of Rs. 15,00,000 for the financial year 2025-26, whose employer contributed Rs. 1,26,000 to the National Pension System, being 14% of basic pay plus dearness allowance of Rs. 9,00,000.

Under Section 115BAC only two deductions run. The Rs. 75,000 standard deduction under the proviso to Section 16(ia), and the Rs. 1,26,000 employer contribution under Section 80CCD(2), bring total income to Rs. 12,99,000. Clause (iii) of sub-section (1A) charges nil on the first Rs. 4,00,000, Rs. 20,000 on the 5% band to Rs. 8,00,000 and Rs. 40,000 on the 10% band to Rs. 12,00,000, giving Rs. 60,000, then 15% on the remaining Rs. 99,000, which is Rs. 14,850. The tax is Rs. 74,850, and the 4% cess under Section 2(6) of the Finance Act 2026 adds Rs. 2,994, for Rs. 77,844.

No rebate and no surcharge arise. Total income exceeds Rs. 12,00,000, so the Section 87A proviso does not apply, and the marginal relief in clause (b) of that proviso reaches only a little above Rs. 12,00,000. Total income is far below Rs. 50,00,000, so serial 10 of the Table to Section 2(4)(b) of the Finance Act 2026 is not triggered.

The same employee in the old regime could claim House Rent Allowance, the Section 24(b) interest set-off, the professional tax paid, and a full Section 80C, and might land lower. That comparison is what the old versus new tax regime article runs, and it is why the default being the default does not make it the cheaper regime.

Related Articles

• Income tax slabs for AY 2027-28
• New tax regime
• Old tax regime
• Old versus new tax regime
• How to switch tax regime
• Section 202 of the Income-tax Act 2025
• Form 10-IEA to opt out of the new regime
• Section 87A rebate
• Standard deduction
• Marginal relief on income tax
• Surcharge on income tax
• Health and education cess
• Deductions allowed in the new tax regime
• Income-tax Act 2025
• Rebate, deduction and exemption compared
• Tax regime break-even calculator guide
• HRA exemption under Section 10(13A)
• Home-loan interest under Section 24(b)
• Leave travel concession
• Children education allowance
• Transport allowance
• Professional tax
• Section 80C
• Section 80D
• NPS tax benefits
• National Pension System
• Agniveer Corpus Fund
• General Provident Fund
• Income tax for government employees
• Income tax for pensioners
• TDS on salary
• Form 16
• Form 26AS
• Advance tax
• Section 157 relief
• Central Board of Direct Taxes
• Take-home salary of central government employees
• Central government employees in India

External references

• Income Tax Department: e-filing portal
• Income Tax Department (about and Acts)
• Central Board of Direct Taxes
• Department of Revenue, Ministry of Finance
• The Gazette of India (e-Gazette)
• India Code: central legislation

References

1. Income-tax Act, 1961, Section 115BAC, inserted by the Finance Act, 2020 (optional regime from the assessment year 2021-22) and sub-section (1A) inserted by the Finance Act, 2023 (Act No. 8 of 2023), making the new regime the default from the assessment year 2024-25.
2. Income-tax Act, 1961, Section 115BAC(1A), clause (ii), inserted by the Finance (No. 2) Act, 2024 (Act No. 15 of 2024) for the assessment year 2025-26, and clause (iii), inserted by the Finance Act, 2025 (Act No. 7 of 2025) with effect from 1 April 2026, carrying the seven-slab table for the assessment year 2026-27.
3. Income-tax Act, 1961, Section 115BAC(2) (exclusions, loss set-off bars, depreciation and the other-law bar), Section 115BAC(4) (Unit in an International Financial Services Centre and Section 80LA) and Section 115BAC(6) (exercise and withdrawal of the option).
4. Income-tax Act, 1961, Section 16(ia) and its proviso substituting Rs. 75,000 for Rs. 50,000, inserted by the Finance (No. 2) Act, 2024 with effect from 1 April 2025 and extended to clause (iii) of Section 115BAC(1A) by Act No. 29 of 2025; and Section 57(iia) with its proviso substituting Rs. 25,000 for Rs. 15,000.
5. Income-tax Act, 1961, Section 87A, first proviso (rebate of Rs. 60,000 on a total income to Rs. 12,00,000 for the assessment year 2026-27, the figures substituted by Act No. 7 of 2025) and second proviso (rebate limited to tax at the sub-section (1A) rates), inserted by the Finance Act, 2025 with effect from 1 April 2026.
6. Income-tax Rules, 1962, Rule 21AGA and Form 10-IEA (exercise and withdrawal of the option by a person with business or professional income under Section 115BAC(6)), on or before the due date under Section 139(1).
7. Finance Act, 2026 (Act No. 4 of 2026, assent 30 March 2026), Section 2: sub-section (2)(a) Table serial 4 (Rs. 4,00,000 exemption limit for a Section 115BAC(1A) assessee), sub-section (4)(a)(ii) (Paragraph F of Part I-A disapplied), sub-section (4)(b) Table serial 10 (surcharge at 10%, 15% and 25%), sub-section (5) (marginal relief) and sub-section (6) (health and education cess at 4%).
8. Finance Act, 2026, Section 5, substituting Explanation 2 to Section 139(1) of the Income-tax Act, 1961 with effect from 1 March 2026 (due dates of 30 November, 31 October, 31 August and 31 July) and substituting Section 139(5) (revised return before the end of the assessment year).
9. Income-tax Act, 2025, Section 202 (new tax regime for individuals, Hindu undivided family and others), with Section 202(2)(a)(iii) omitted by Section 56 of the Finance Act, 2026 with effect from 1 April 2026, and Rule 136 of the Income-tax Rules, 2026 (election made in the return).
10. Income-tax Act, 2025, Section 536: sub-section (1) (repeal of the Income-tax Act, 1961), sub-section (2)(c) (repealed Act continues for proceedings in respect of a tax year beginning before 1 April 2026) and sub-section (2)(f) (an option already exercised is deemed exercised under the corresponding provision).