Section 115BAC

Section 115BAC of the Income-tax Act created the new tax regime and, from assessment year 2024-25, made it the default. It becomes Section 202 of the 2025 Act.

Updated 17 July 2026 · Reviewed by Salary-Calculator.in

Section 115BAC of the Income-tax Act 1961 is the provision that created the new tax regime and, since the assessment year 2024-25, made it the default way personal income tax is charged. For a salaried central government employee or a pensioner, it is the single most important section of the Act, because it decides the slab rates that apply, the handful of deductions that survive, and the long list of exemptions that fall away unless the old tax regime is deliberately chosen.

The section has a short but eventful history. It began in 2020 as an optional alternative that few taxpayers used, was rewritten in 2023 to become the default, and was recalibrated in 2025 so that income up to Rs. 12 lakh now bears no tax. Understanding Section 115BAC therefore means understanding three Finance Acts stacked on top of one another, and the sub-section, 115BAC(1A), that now does the real work.

This article explains what the section says, how it evolved from optional to default, how its sub-sections are organised, exactly which deductions and exemptions it switches off and keeps, how a government employee or pensioner exercises or gives up the option, and how the provision is carried forward, unchanged in substance, as Section 202 of the Income-tax Act 2025 . For the regime as a whole, read the new tax regime explainer; for the head-to-head choice, see old versus new tax regime .

What Section 115BAC says

At its core, Section 115BAC does three things. First, it lays down a separate slab table, distinct from the ordinary rates in the Finance Act’s First Schedule, at which the total income of an individual or Hindu undivided family is charged. Second, it makes that table the default, so the tax is computed under it automatically unless the taxpayer opts out. Third, it makes the lower rates conditional: to be taxed under the section, the taxpayer must forgo a specified list of exemptions and deductions and must accept certain restrictions on the set-off of losses and depreciation.

The trade in Section 115BAC is therefore explicit. The taxpayer accepts a wider band of slabs at gentler rates and, in exchange, gives up most of the shelter that the old regime allowed, from the House Rent Allowance exemption to Section 80C and Section 80D . Whether that trade is worthwhile depends entirely on how many deductions the individual would otherwise claim, which is why the break-even comparison matters so much for a person deciding which regime to elect.

Because the section overrides the normal charging provisions, it opens with a non-obstante clause, that is, it applies “notwithstanding anything contained in this Act”. That drafting is what lets a single section displace the ordinary rate schedule and the ordinary deduction rules for everyone who falls within it.

From optional to default: the three Finance Acts

Section 115BAC has been amended twice since it was first enacted, and each amendment changed its character.

The Finance Act 2020: an optional regime

The Finance Act 2020 inserted Section 115BAC with effect from the assessment year 2021-22, that is, for income earned in the financial year 2020-21. In its first form the section was purely optional. It offered six slabs and an extra half-slab structure, running from nil up to Rs. 2.5 lakh through several 5, 10, 15, 20, and 25 per cent bands to 30 per cent above Rs. 15 lakh, but only to a taxpayer who positively chose it and who gave up almost every deduction, including the standard deduction then available.

Because the old regime remained the default and the new regime withdrew even the standard deduction and the common Chapter VI-A reliefs, take-up in the first years was low. Most salaried employees found that their existing deductions, through the General Provident Fund , insurance, home-loan interest, and House Rent Allowance, produced a lower tax under the old regime. The 2020 version of Section 115BAC was, in practice, a minority choice.

The Finance Act 2023: the default is born

The turning point was the Finance Act 2023, which effectively rewrote Section 115BAC by inserting a new sub-section (1A) applicable from the assessment year 2024-25. Three changes together transformed the section:

It became the default. From the assessment year 2024-25, the tax of an individual, Hindu undivided family, and certain other persons is computed under sub-section (1A) unless the person opts out. The old regime, for the first time, became the choice a taxpayer had to make actively.
The slabs were widened and the standard deduction was let back in. The 2023 table used six slabs with a basic exemption up to Rs. 3 lakh, and, crucially, the Rs. 50,000 standard deduction was extended to the new regime for salary and pension. This removed the biggest single objection salaried taxpayers had to the regime.
The rebate and surcharge were made friendlier. The Section 87A rebate in the new regime was raised so that a resident with a total income up to Rs. 7 lakh paid no tax, and the top surcharge rate was cut from 37 to 25 per cent for those in the new regime.

After 2023, Section 115BAC was no longer a niche option. It was the setting every taxpayer started in.

The Finance Act 2025: the Rs. 12 lakh milestone

The Finance Act 2025 revised the sub-section (1A) table again, with effect from the assessment year 2026-27 (the financial year 2025-26). It introduced the current seven-slab structure, raised the standard deduction to Rs. 75,000, and lifted the Section 87A rebate so that a resident individual with a total income up to Rs. 12 lakh pays no tax, with the rebate capped at Rs. 60,000. For a salaried person or pensioner the Rs. 75,000 standard deduction sits on top, so a salary or pension up to Rs. 12.75 lakh a year can attract no tax at all. The same slabs continue for the financial year 2026-27, since Budget 2026 made no change to the table.

The result is that the version of Section 115BAC in force for the current and coming year is not the 2020 original but the 2025 recalibration of the 2023 default, carried in sub-section (1A).

The sub-sections of Section 115BAC

It helps to see the section as a set of connected sub-sections, because taxpayers, employers, and tax software all refer to them by number.

Sub-section (1) is the original optional scheme, relevant to the assessment years 2021-22 to 2023-24. It still governs those closed years but has no forward effect.
Sub-section (1A) is the operative provision today. It carries the default slab table, as revised by the Finance Act 2025, and applies from the assessment year 2024-25 onward.
Sub-section (2) lists the exemptions and deductions that are not allowed and the losses that cannot be set off. This is the “conditions” limb, and it is where the trade is spelled out.
Sub-sections (3) and (4) deal with depreciation and with the treatment of unabsorbed loss and depreciation attributable to the disallowed items, ensuring they are not revived later.
Sub-section (5) contained the mechanism for exercising the option under the original optional scheme.
Sub-section (6) governs the option under the default scheme: how a person opts out of the default regime and, for a person with business or professional income, the once-in-a-lifetime restriction on switching back.

For a salaried employee the sub-sections that matter in daily life are (1A), which fixes the rate, and (2), which fixes what can and cannot be claimed. For anyone with business income, sub-section (6) and the Form 10-IEA machinery become important.

The slab table under Section 115BAC(1A)

The rates carried in sub-section (1A) for the financial year 2025-26 (assessment year 2026-27), which continue unchanged for 2026-27, are as follows.

Total income (Rs.)	Rate
Up to 4,00,000	Nil
4,00,001 to 8,00,000	5 per cent
8,00,001 to 12,00,000	10 per cent
12,00,001 to 16,00,000	15 per cent
16,00,001 to 20,00,000	20 per cent
20,00,001 to 24,00,000	25 per cent
Above 24,00,000	30 per cent

On top of the slab tax, a health and education cess of 4 per cent applies, and a surcharge is added at higher incomes, though the new regime caps the surcharge at 25 per cent rather than the 37 per cent that the old regime can reach. The Section 87A rebate then makes income up to Rs. 12 lakh tax-free for a resident, and marginal relief cushions incomes just above that line. The interaction of the slab table, the rebate, and the standard deduction is worked through in detail in the new tax regime article.

What Section 115BAC(2) switches off

The conditions limb, sub-section (2), is the reason the regime feels so different from the old one. To be taxed under Section 115BAC, the taxpayer must give up, among others:

the House Rent Allowance exemption under Section 10(13A);
the Leave Travel Concession exemption under Section 10(5);
most of the special allowances exempt under Section 10(14), such as the children education allowance and, for many employees, part of the transport allowance (a Divyang employee keeps the higher transport-allowance exemption);
almost all of Chapter VI-A, including Section 80C , Section 80D , and the additional NPS deduction under 80CCD(1B) ;
the deduction for interest on a home loan for a self-occupied house under Section 24(b), and the set-off of the resulting loss from house property against other income.

What Section 115BAC keeps

The section is not a blanket denial. A short list of reliefs survives, and these are set out fully in deductions allowed in the new tax regime :

the standard deduction of Rs. 75,000 on salary and pension;
the employer’s contribution to the National Pension System under Section 80CCD(2), which for a central government employee is 14 per cent of basic pay plus dearness allowance;
the Agniveer Corpus Fund deduction under Section 80CCH;
the family-pension deduction of Rs. 25,000, relevant to a pensioner’s family ;
the deduction under Section 80JJAA for the employment of new workers, which is a business deduction rather than a personal one.

The design principle is visible: Section 115BAC keeps deductions tied to employment cost and retirement saving through the employer, and removes those tied to individual investment and consumption choices.

Exercising and giving up the option

Because Section 115BAC is the default, the taxpayer’s active choice is now to leave it, not to enter it. Sub-section (6) and the rules made under it govern how that is done, and the mechanics differ sharply by the kind of income a person earns.

A salaried employee or pensioner with no business income

For most central government employees and pensioners, there is no form to file. The default is the new regime, and the old regime is chosen simply by selecting it in the income-tax return for the year. The choice can be made afresh every financial year, so a salaried person can be in the new regime one year and the old regime the next, according to which is cheaper on that year’s actual deductions. A separate declaration made to the drawing and disbursing officer during the year affects only how much tax is deducted at source; the final regime is fixed in the return. If the return is filed late, however, the option to choose the old regime is lost, and the tax is computed under the default new regime. The step-by-step mechanics are set out in how to switch tax regime .

A taxpayer with business or professional income

For a person with income from business or profession, the rules are stricter. To opt out of the default regime, the taxpayer must file Form 10-IEA electronically, under Rule 21AGA, on or before the due date for filing the return under Section 139(1). Having opted out into the old regime, such a taxpayer can return to the default new regime only once in a lifetime, and once they have returned, they cannot opt out again while they continue to have business income. This once-in-a-lifetime restriction is the single most important difference between a salaried person and a business owner under Section 115BAC, and it is why professionals are advised to decide carefully before filing Form 10-IEA.

Section 115BAC and the Income-tax Act 2025

The Income-tax Act 2025 , which received assent in 2025 and comes into force on 1 April 2026, rewrites the whole statute in a new numbering scheme. The default-regime provision that lives in Section 115BAC of the 1961 Act is carried forward, in substance unchanged, as Section 202 of the Income-tax Act 2025 . The slab table, the standard deduction, the rebate, the list of switched-off deductions, and the Form 10-IEA option all continue; only the section number and some cross-references change.

The timing matters for anyone reading the section this year. The 2025 Act first applies to the tax year 2026-27. The assessment year 2026-27, which covers income earned in the financial year 2025-26, is still governed by the 1961 Act and Section 115BAC. So a return filed in 2026 for that year is computed under Section 115BAC, while a return for the following year will cite Section 202. The concept is the same; only the label moves.

A worked example for a central government employee

Consider a central government employee with a gross salary of Rs. 15,00,000 for the financial year 2025-26, whose employer contributes 14 per cent of basic pay plus dearness allowance to the National Pension System, say Rs. 1,26,000.

Under Section 115BAC, the taxable income is worked out by allowing only the deductions the section keeps: the Rs. 75,000 standard deduction and the Rs. 1,26,000 employer NPS contribution under Section 80CCD(2). That brings the total income to Rs. 12,99,000. The slab tax on Rs. 12,99,000 is Rs. 60,000 on the first Rs. 12 lakh bands plus 15 per cent of the Rs. 99,000 above Rs. 12 lakh, that is Rs. 14,850, giving Rs. 74,850, and the 4 per cent cess adds Rs. 2,994, for a total of about Rs. 77,844. Because the total income is above Rs. 12 lakh, the Section 87A rebate does not apply, and because it is well above the marginal-relief band, marginal relief does not intervene either.

The same employee under the old regime could claim House Rent Allowance, the higher home-loan interest set-off, and a full Section 80C, and might reach a lower figure. That is exactly the calculation the old versus new tax regime comparison exists to run, and it is why Section 115BAC being the default does not mean it is always the cheaper regime.

In force today

Section 115BAC of the Income-tax Act 1961 is the provision that creates the new tax regime and, since assessment year 2024-25, makes it the default. Its operative slab table sits in sub-section (1A), revised by the Finance Act 2025 to run from nil up to Rs. 4 lakh to 30 per cent above Rs. 24 lakh, with income up to Rs. 12 lakh made tax-free by the Section 87A rebate. Sub-section (2) switches off House Rent Allowance, Leave Travel Concession, Section 80C, Section 80D, and home-loan interest on a self-occupied house, while keeping the standard deduction, employer NPS under 80CCD(2), 80CCH, and the family-pension deduction. A salaried person opts for the old regime in the return each year; a person with business income files Form 10-IEA. The provision becomes Section 202 of the Income-tax Act 2025 from 1 April 2026, but assessment year 2026-27 is still computed under Section 115BAC.

Frequently Asked Questions (FAQs)

What is Section 115BAC of the Income-tax Act?

Section 115BAC is the provision of the Income-tax Act 1961 that created the new tax regime. It was inserted by the Finance Act 2020 as an optional regime, and the Finance Act 2023 rewrote it through a new sub-section (1A) to make the new regime the default from assessment year 2024-25. It carries the slab table, sets out the deductions and exemptions that are switched off, and provides the option to stay in the old regime.

Is Section 115BAC compulsory?

No. Section 115BAC makes the new regime the default, which means the tax is computed under it unless the taxpayer positively chooses the old regime. A salaried person or pensioner with no business or professional income may choose the old regime in the return each year. A person with business or professional income must file Form 10-IEA to opt out, and can return to the default only once.

What is Section 115BAC(1A)?

Sub-section (1A) is the operative part inserted by the Finance Act 2023. It contains the slab table for the default regime and applies from assessment year 2024-25 onward. The rates in sub-section (1A) were revised again by the Finance Act 2025 to the current seven-slab table that runs from nil up to Rs. 4 lakh to 30 per cent above Rs. 24 lakh.

Which deductions does Section 115BAC disallow?

Section 115BAC switches off most personal deductions and exemptions. It removes the House Rent Allowance exemption, the Leave Travel Concession exemption, most Section 10(14) special allowances, and almost all of Chapter VI-A, including Section 80C and Section 80D. It also disallows the set-off of a loss from a self-occupied house property. It keeps the standard deduction, the employer’s National Pension System contribution under Section 80CCD(2), the Agniveer deduction under Section 80CCH, and the family-pension deduction.

How do you opt out of Section 115BAC?

How you opt out depends on your income. A salaried employee or a pensioner with no business or professional income simply chooses the old regime while filing the return, with no separate form. A taxpayer with business or professional income must file Form 10-IEA electronically, under Rule 21AGA, on or before the due date for filing the return under Section 139(1), and can switch back to the default regime only once in a lifetime.

Is Section 115BAC the same as Section 202 of the Income-tax Act 2025?

Yes, in substance. The Income-tax Act 2025, in force from 1 April 2026, renumbers the default-regime provision as Section 202. The slabs, the rebate, and the option remain the same; only the section number changes. Assessment year 2026-27 is still computed under the 1961 Act and Section 115BAC, because the 2025 Act first applies to the tax year 2026-27.

Does Section 115BAC apply to pensioners?

Yes. Section 115BAC applies to individuals, Hindu undivided families, and certain other persons, and a pensioner is an individual for this purpose. A pensioner’s tax is computed under the default new regime unless the old regime is chosen. The Rs. 75,000 standard deduction applies to pension income, and the family-pension deduction of Rs. 25,000 is one of the few deductions the section keeps.

External references

References

Income-tax Act, 1961, Section 115BAC, inserted by the Finance Act, 2020 (optional regime from the assessment year 2021-22) and substituted by the Finance Act, 2023, which added sub-section (1A) and made the new regime the default from the assessment year 2024-25.
Finance Act, 2025: the revised sub-section (1A) slab table (nil up to Rs. 4 lakh, then 5, 10, 15, 20, 25, and 30 per cent), the standard deduction of Rs. 75,000, and the Section 87A rebate raised to Rs. 60,000 for a total income up to Rs. 12 lakh, with marginal relief above Rs. 12 lakh.
Income-tax Act, 1961, Section 115BAC(2) (exemptions and deductions not allowed, including Section 10(5), Section 10(13A), most of Section 10(14), and most of Chapter VI-A, and the disallowance of the self-occupied house-property loss set-off) and the deductions retained (standard deduction, Section 80CCD(2), Section 80CCH, and the family-pension deduction).
Income-tax Rules, 1962, Rule 21AGA and Form 10-IEA (exercise and withdrawal of the option to be taxed under the old regime by a person with business or professional income under Section 115BAC(6)), on or before the due date under Section 139(1).
Income-tax Act, 2025, Section 202 (the default-regime provision renumbered), in force from 1 April 2026 and first applying to the tax year 2026-27; the assessment year 2026-27 continues to be governed by the 1961 Act and Section 115BAC.