Summary: The new income tax regime, previously governed by Section 115BAC of the Income-tax Act, 1961, is now contained in Section 202 of the Income-tax Act, 2025, effective from 1 April 2026. The new provision retains the existing tax slabs, ranging from nil tax on income up to ₹4 lakh to 30% on income exceeding ₹24 lakh. Salaried taxpayers continue to receive a standard deduction of ₹75,000, while eligible resident individuals can claim a rebate of up to ₹60,000 under Section 156 on qualifying income up to ₹12 lakh. Consequently, eligible salaried individuals earning up to ₹12.75 lakh may have no income tax liability, subject to applicable conditions. The new regime remains the default for individuals, Hindu Undivided Families, associations of persons, bodies of individuals and artificial juridical persons. Most deductions and exemptions available under the old regime are restricted, although specified deductions, including eligible employer contributions to the National Pension System, remain available. Income taxable at special rates, including certain capital gains, is treated separately, and the rebate does not eliminate tax payable on such income. Taxpayers can still choose the old regime, but the procedure differs depending on whether they have business or professional income. Individuals without such income can generally choose annually, whereas taxpayers with business or professional income face restrictions on subsequent changes. The article compares both regimes through numerical examples and explains the tax slabs, standard deduction, rebate, marginal relief, disallowed deductions and practical considerations for selecting the appropriate tax regime.
Section 202 Is the New Section 115BAC: Same Regime, New Number
Most individual taxpayers now pay tax under the new tax regime. Under the Income-tax Act, 1961, it sat in Section 115BAC. Under the Income-tax Act, 2025, which came into force on 1 April 2026, it is Section 202.
The regime itself carried over intact. The slabs, the ₹75,000 standard deduction and the ₹60,000 rebate are unchanged. Three things did change: the section number, the term “Tax Year” (which replaces “Assessment Year”), and where some related rules now sit.
Section 202 applies to an individual, HUF, AOP (other than a co-operative society), BOI or artificial juridical person, so salaried people are just one of the groups it covers. All figures below exclude the 4% cess.
Old Section vs New Section
| Point | Section 115BAC
AY 2026-27 (income of FY 2025-26) |
Section 202 Tax Year 2026-27 (income of FY 2026-27) |
|---|---|---|
| Status | Default regime | Default regime |
| Who | Individual, HUF, AOP, BOI, AJP | Same |
| Slabs | Nil to 30%, in ₹4 lakh steps | Same |
| Standard deduction | ₹75,000 | ₹75,000 |
| Rebate | Up to ₹60,000 for a resident individual with income up to ₹12 lakh (Section 87A) | Same, now under Section 156 |
| House property loss | Cannot be set off against other heads | Same |
| Opting for the old regime | Section 115BAC(6) | Section 202(4) |
| Year name | Assessment Year | Tax Year |
The two columns are back-to-back years: AY 2026-27 was the last year under the old Act, and Tax Year 2026-27 is the first under the new one.
What Are the Slabs?
| Total income | Tax rate |
|---|---|
| Up to ₹4 lakh | Nil |
| ₹4 lakh to ₹8 lakh | 5% |
| ₹8 lakh to ₹12 lakh | 10% |
| ₹12 lakh to ₹16 lakh | 15% |
| ₹16 lakh to ₹20 lakh | 20% |
| ₹20 lakh to ₹24 lakh | 25% |
| Above ₹24 lakh | 30% |
Each rate applies only to the income inside its band. On ₹15 lakh, the tax is ₹20,000 + ₹40,000 + ₹45,000 = ₹1,05,000. That is an average of 7%, not 15%.
Standard Deduction and the ₹12 Lakh Rebate
Salaried people and pensioners get a ₹75,000 standard deduction. After that, the Section 156 rebate wipes out the tax of a resident individual whose normal income is up to ₹12 lakh. Put together, a salaried person can earn up to ₹12.75 lakh and pay no tax.
| Step | Amount |
|---|---|
| Salary | ₹12,75,000 |
| Less: standard deduction | ₹75,000 |
| Taxable income | ₹12,00,000 |
| Tax on slabs | ₹60,000 |
| Less: rebate under Section 156 | ₹60,000 |
| Tax to pay | Nil |
Just above ₹12 lakh, marginal relief takes over. It caps your tax at the amount by which your income crosses ₹12 lakh. For example, on taxable income of ₹12,10,000, the slab tax is ₹61,500, but you pay only ₹10,000.
What You Give Up
Not allowed: Most Chapter VIII deductions (the old Chapter VI-A, such as investment deductions and health insurance), HRA and LTA exemptions, the professional tax deduction, interest on a self-occupied house, and allowances or perquisites exempt under other laws. Section 202(2) bars only the exemptions it names, so some others still apply.
Still Allowed if You Earn a Salary or Pension
- The ₹75,000 standard deduction.
- Your employer’s NPS contribution, up to 14% of salary (Section 124).
- The Central Government’s contribution to an Agniveer Corpus Fund (Section 125(2)).
Still Allowed if You Run a Business
- The deduction for additional employee cost (Section 146).
- The Section 147 deduction for a unit in an International Financial Services Centre (IFSC).
House property: Interest on a let-out house is still allowed. But a loss under this head cannot be set off against income under other heads.
Related losses: Losses and depreciation linked to the barred deductions are treated as already used (Section 202(3)).
Special-Rate Income Is Different
The slabs apply to normal income. Income taxed at special rates, such as long-term capital gains on listed shares under Section 198, is taxed separately, and the rebate cannot reduce that tax (Section 198(7)).
Say you have ₹10 lakh of taxable salary and ₹2 lakh of such gains. Your total income is ₹12 lakh, and the rebate clears the ₹40,000 slab tax on your salary. But the gains above ₹1.25 lakh are still taxed at 12.5%, so you pay ₹9,375. The “no tax up to ₹12 lakh” rule works only for normal income.
Which Regime Is Better?
Under the old regime, an individual below 60 pays nil up to ₹2.5 lakh, 5% up to ₹5 lakh, 20% up to ₹10 lakh and 30% above that. Take a salaried person earning ₹15 lakh who has ₹4 lakh of deductions and exemptions in the old regime, including its ₹50,000 standard deduction.
| New regime | Old regime | |
|---|---|---|
| Salary | ₹15,00,000 | ₹15,00,000 |
| Deductions | ₹75,000 | ₹4,00,000 |
| Taxable income | ₹14,25,000 | ₹11,00,000 |
| Tax | ₹93,750 | ₹1,42,500 |
At this salary, the old regime wins only once deductions and exemptions cross about ₹5.94 lakh. Below that, the new regime costs less. Run your own numbers before deciding.
Can You Still Choose the Old Regime?
Yes. The new regime is the default, and you can opt out under Section 202(4).
- No business or professional income: You can choose each year, along with your return.
- Business or professional income: You must opt out by the due date of your return under Section 263(1), and the choice carries to later years. You can switch back to the new regime only once. After that, you cannot opt out again unless you stop having business or professional income.
Key Takeaway
For students: Section 115BAC is now Section 202. It is the same default regime, with the same slabs.
For professionals: Before choosing a regime, work through these steps:
1. Split income into normal income and special-rate income.
2. Apply the slabs to normal income only.
3. Claim the ₹75,000 standard deduction if there is salary or pension.
4. Check the Section 156 rebate and marginal relief.
5. Compare tax under both regimes using actual deductions.
6. With business income, remember the switch back can be used only once.
Disclaimer: This article is for general education and information only. Your tax and your eligibility for the rebate or for either regime depend on your own facts and the rules for the relevant Tax Year. It is not tax or legal advice.
