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Income Tax · New ActSection 115BAC vs Section 202: understanding the new tax regime
The new tax regime moved from Section 115BAC of the 1961 Act to Section 202 of the Income-tax Act, 2025 – with the same slabs, rebate and rules. Here is how it works, what you give up, and how to decide between the two regimes for Tax Year 2026-27.
The "new tax regime" was introduced in 2020 as Section 115BAC and became the default regime from FY 2023-24. Budget 2025 made it far more attractive with a ₹12 lakh rebate limit. Under the Income-tax Act, 2025 the same scheme is now Section 202, and the rebate is Section 156 (old 87A). Nothing in the rates changed on the move.
Slab rates for Tax Year 2026-27
| Total income | 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% |
Cess of 4% applies on tax plus surcharge. Surcharge is 10% above ₹50 lakh, 15% above ₹1 crore and 25% above ₹2 crore – the new regime caps surcharge at 25%.
Rebate: a resident individual with total income up to ₹12 lakh gets a rebate of up to ₹60,000, so no tax is payable. Marginal relief applies just above ₹12 lakh so that tax never exceeds the income above ₹12 lakh.
What you give up in the new regime
The lower rates come at the cost of most exemptions and deductions:
- House rent allowance (HRA) and leave travel concession
- Section 80C (old) / 123 (new) – PPF, ELSS, LIC, tuition fees, home-loan principal
- Section 80D / 126 – health insurance
- Interest on loan for a self-occupied house (₹2 lakh)
- Professional tax and entertainment allowance deductions
- Most Chapter VI-A deductions, except employer NPS and a few others
What remains: standard deduction (₹75,000), employer's contribution to NPS (up to 14% of salary for private employees, as permitted), Agniveer corpus, interest on a let-out property within house property rules, and family pension deduction.
Who can opt out, and how
| Taxpayer | How to choose the old regime | How often |
|---|---|---|
| Salaried / pensioner, no business income | Tick the option in the ITR filed by the due date | Every year |
| Individual / HUF with business or professional income | File the prescribed opt-out form before the return due date | Opt out, then can return to the new regime only once |
| Employee, for TDS | Intimate the employer at the start of the year | Final choice is in the return |
A belated return cannot be used to choose the old regime – the default new regime then applies. This is a common and costly mistake.
Worked example: which regime wins?
Example: Rahul, a salaried employee in Pitampura, earns gross salary of ₹18,00,000 in Tax Year 2026-27. In the old regime he can claim HRA exemption of ₹1,80,000, 80C of ₹1,50,000, 80D of ₹25,000, NPS 80CCD(1B) of ₹50,000 and professional tax of ₹2,500.
| Computation | New regime | Old regime |
|---|---|---|
| Gross salary | ₹18,00,000 | ₹18,00,000 |
| Standard deduction | ₹75,000 | ₹50,000 |
| HRA + professional tax | — | ₹1,82,500 |
| Chapter VI-A deductions | — | ₹2,25,000 |
| Taxable income | ₹17,25,000 | ₹13,42,500 |
| Tax on slabs | ₹1,45,000 | ₹2,15,250 |
| Cess 4% | ₹5,800 | ₹8,610 |
| Total tax | ₹1,50,800 | ₹2,23,860 |
New regime tax: ₹20,000 + ₹40,000 + ₹60,000 + 20% of ₹1,25,000 (₹25,000) = ₹1,45,000. Old regime tax: ₹12,500 + ₹1,00,000 + 30% of ₹3,42,500 (₹1,02,750) = ₹2,15,250.
Even with ₹4 lakh of deductions, the new regime saves Rahul about ₹73,000. The old regime generally wins only when deductions are very large – typically a big home-loan interest claim on a self-occupied house together with high HRA. Try your own numbers in our income tax calculator.
Special points for business and professional income
- The opt-out is a one-time-return decision: once you go back to the new regime, you cannot leave again while you have business income.
- Presumptive taxpayers under Section 58 (old 44AD/44ADA) often prefer the new regime because they have few deductions.
- Advance tax should be estimated on the regime you expect to choose.
Common mistakes
- Filing a belated return and expecting the old regime.
- Business owners switching back and forth without tracking the one-time limit.
- Assuming the rebate removes tax on capital gains or lottery income.
- Not informing the employer, leading to higher TDS and a refund wait.
Key takeaway
Section 202 is simply the new home of Section 115BAC. For most taxpayers with income up to around ₹15–20 lakh and modest deductions, the new regime is cheaper. Compare both every year with actual figures – our tax planning service does this as part of return preparation.
Official references
Provisions discussed (summaries in our Law Library):
- Income-tax Act, 2025 – Section 156 (corresponds to 87A): Rebate
- Income-tax Act, 1961 – Section 87A (corresponds to 156): Rebate
- Income-tax Act, 2025 – Section 202 (corresponds to 115BAC): New tax regime (default)
- Income-tax Act, 1961 – Section 115BAC (corresponds to 202): New tax regime (default)
Official sources to verify the current text, notifications and circulars:
Frequently asked questions
Is the new tax regime compulsory?
No. It is the default regime, but individuals, HUFs, AOPs and BOIs can opt out and choose the old regime. Salaried individuals without business income can choose every year in the return.
What deductions are allowed in the new regime?
Mainly the standard deduction of ₹75,000 on salary or pension, employer's NPS contribution, the Agniveer corpus contribution, and deductions for family pension and certain other items. 80C, 80D, HRA and self-occupied home-loan interest are not allowed.
How many times can a business owner switch regimes?
A person with business or professional income who opts out of the new regime can come back to it only once. After that, the old regime cannot be chosen again while business income continues.
Is the ₹12 lakh rebate available on capital gains?
No. The rebate does not reduce tax on income taxed at special rates, such as capital gains under Sections 196–198 (old 111A, 112, 112A).
Did Budget 2026 change the new regime slabs?
No. Budget 2026 kept the slabs, rebate and standard deduction unchanged for Tax Year 2026-27.
Can a salaried employee change regime every year?
Yes. An individual without business or professional income can choose the old or new regime each year in the return filed by the due date, regardless of what was declared to the employer.
Is employer NPS contribution allowed in the new regime?
Yes. The deduction for the employer's contribution to NPS is available in both regimes, within the prescribed percentage of salary – it is one of the few deductions that survive in the new regime.
Does the new regime allow deduction for a let-out house loan?
Interest on a loan for a let-out property is deductible against that property's rental income, but any resulting loss cannot be set off against other income or carried forward in the new regime.
This article is general information on the law as on 10 November 2026, written for educational purposes. It is not professional advice for your case. Section numbers under the Income-tax Act, 2025 should be confirmed with the official section mapping on the Income Tax Department website before use in filings.
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