The new tax regime under Section 115BAC is a government-introduced voluntary income tax structure that lowers tax rates while eliminating the majority of deductions and exemptions. It attempts to simplify tax filing while providing taxpayers with the option of using the existing or new methods.

Let’s understand the new tax regime through the story of two salaried friends, Raj and Sameer, who are evaluating their income tax options for the financial year.

Suppose Raj is a salaried professional earning ₹10,00,000 annually and claims deductions for home loan interest, insurance, and PPF. Sameer, earning the same income, does not invest much and prefers fewer compliance steps.

Raj says, “Mujhe maximum tax benefits chahiye, toh main old regime hi choose karunga.”

Sameer replies, “Main toh new regime lunga, kyunki mujhe zyada deductions manage nahi karne padte.”

Let’s explore why they chose differently.

This blog will explore what the new tax regime is, who can benefit, how it differs from the old regime, and what to consider before making a choice.

What is the New Tax Regime Under Section 115BAC?

The new tax regime was introduced to simplify income tax compliance by offering lower tax rates with zero or minimal exemptions and deductions. It is optional and available to individuals and HUFs.

Key Characteristics:

Lower income tax slabs
No need to invest in multiple schemes to claim deductions
Suitable for those without many exemptions or deductions

Key Features of the New Tax Regime

Read More – Smart Tax-Saving Strategies for Salaried Individuals

The new tax structure is simpler, with lower rates but fewer deductions. Here's a brief comparison of its key features:

Feature	New Regime
Deductions allowed	Very limited
Tax slabs	More slabs, lower rates
Suitable for	Low-deduction taxpayers
Compliance burden	Lower
Option to switch annually	Yes (for salaried)

These aspects make the new regime appealing to taxpayers who value lower rates and simplified compliance over various deductions.

New Tax Regime Slabs (As per FY 2025–26)

The tax slabs under the new regime are structured to reduce the burden on taxpayers who don’t claim major deductions.

Income Tax Slabs (under new regime):

₹0 – ₹12,00,000: Nil
₹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%

Example Calculation:
If your income is ₹12,00,000 and you choose the new tax regime:

Tax on income up to ₹12,00,000 = Nil
Tax payable = ₹0

Comparison: Old Regime vs New Regime

The key difference lies in deductions and tax slabs.

Old Regime: Allows deductions like 80C, 80D, HRA, LTA, and interest on housing loan

New Regime: Offers lower tax rates but removes most deductions and exemptions

Example: Raj invests ₹2,00,000 under Section 80C and pays ₹25,000 premium under 80D. Under the old regime, his taxable income is reduced.

Raj vs Sameer Tax Comparison

To understand the practical differences between the old and new regimes, consider Raj and Sameer's tax liabilities based on the same gross income but different deduction techniques.

Detail	Raj (Old Regime)	Sameer (New Regime)
Gross Income	₹10,00,000	₹10,00,000
Deductions	₹2,50,000	Not Applicable
Taxable Income	₹7,50,000	₹10,00,000
Tax Payable (approx)	₹52,500	₹0

Sameer benefits more here, as he has no deductions to claim.

Exemptions and Deductions Not Available in the New Regime

The new regime simplifies taxation by removing several common deductions:

Not allowed under the new regime:

Section 80C: Investments in PPF, ELSS, LIC
Section 80D: Medical insurance premiums
House Rent Allowance (HRA)

Allowed in the new regime (limited):

Employer contribution to NPS (Section 80CCD(2))
Deduction for Agniveer Corpus Fund

Deductions Availability in New vs Old Regime

This table shows which deductions are available under each regime:

Deduction Type	Old Regime	New Regime
Section 80C	Yes	No
Section 80D	Yes	No
HRA	Yes	No
NPS Employer Contribution	Yes	Yes
Standard Deduction	Yes	Yes (new FY)

As can be seen, the new system allows for far less deductions than the old one.

Also Read - What are Direct Tax and Indirect Tax? Differences & Examples

Who Should Choose the New Tax Regime?

The new tax regime is beneficial for those who:

Don’t claim many deductions
Prefer simpler tax filing
They are early in their careers with low investments

Ideal For:

Freelancers with low fixed expenses
Salaried individuals not paying rent or insurance
Individuals not planning to invest in tax-saving schemes

Example: Sameer, 26, is single, lives with his parents, and has no 80C or 80D claims. With no deductions to profit from, the new tax regime's lower rates and simplicity make it more tax-effective for him.

Type of Taxpayer & Suitable Regime

This table highlights which tax regime may suit different types of taxpayers:

Taxpayer Profile	Suggested Regime
High deductions (home loan, PPF)	Old Regime
No deductions, simple income	New Regime
Early career with low savings	New Regime
Senior citizen with 80D, 80TTB	Old Regime

Deductions, lifestyle, and income structure all influence which regime is best suited.

Conclusion

Raj and Sameer's experience demonstrates that there are no one-size-fits-all solutions. What is the smartest move? Before filing, compare the numbers for both regimes; you might be surprised to see which one leaves you with more money.

Remember that tax preparation is more than just paying less now; it is about matching your decisions with your long-term financial goals. Whether you're a detail-oriented investor or a "keep-it-simple" earner, the ideal regime is one that works for you, not simply on paper.

Frequently Asked Question on New Tax Regime

Is interest on self-occupied house loans deductible under the new rules?

No. The new system prohibits you from claiming interest on borrowed capital for self-occupied property. To take advantage of this deduction, you must follow the old tax regime.

How does the Section 87A rebate function under the current rules?

Taxpayers earning up to ₹7 lakh can now receive a rebate of up to ₹25,000 (100% of tax or ₹25,000, whichever is lesser).

What is the switching rule for business income taxpayers?

If you are a company taxpayer, you can only opt out of the new regime once in your lifetime; you cannot change regimes on a yearly basis, as salaried persons can.

Can business owners choose the new regime?

Yes, but once chosen, they cannot switch back easily.

Is the new tax structure treating NRIs differently?

Yes. The new regime is now the norm for NRIs as well. NRIs can switch annually for non-business income, but for business income, they can only quit the new regime once in their lifetime.

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