Introduction
The Indian Income Tax Act has undergone several reforms in recent years, and Section 115BAC represents one of the most significant changes. For FY 2026-27 (AY 2027-28), the government has strengthened the new tax regime to simplify compliance, broaden the tax base, and reduce disputes. Consequently, taxpayers must understand the exemptions and deductions available under this section. Although the regime restricts most traditional deductions, it still provides meaningful relief through a combination of basic exemption, standard deduction, and rebate. Therefore, salaried individuals, pensioners, and professionals should carefully evaluate these provisions before filing returns.
Basic Exemption Limit
First, Section 115BAC offers a basic exemption of ₹4,00,000 to all taxpayers, regardless of age. Earlier, the old regime differentiated between general taxpayers, senior citizens, and super senior citizens. However, the new regime standardises the threshold, thereby ensuring uniformity. Moreover, this exemption directly reduces taxable income, which means individuals earning up to ₹4 lakh pay no tax. As a result, the provision benefits low-income earners while simplifying slab calculations.
Tax Slabs under Section 115BAC
Next, the regime introduces progressive slabs designed to minimise tax liability for middle-income groups. Specifically:
· Income up to ₹4,00,000 → Nil tax
· ₹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%
Thus, taxpayers enjoy smoother progression compared to the old regime. Furthermore, the capped surcharge at 25% ensures high-income earners face reduced marginal rates compared to earlier years.
Standard Deduction
In addition, salaried employees and pensioners receive a standard deduction of ₹75,000. Unlike itemised deductions, this benefit requires no documentation. Consequently, it simplifies return filing and reduces disputes with tax authorities. For example, a person earning ₹12.75 lakh gross salary can claim a ₹75,000 deduction, thereby lowering taxable income to ₹12 lakh. This deduction, combined with the rebate, effectively eliminates tax liability for many middle-class taxpayers.
Section 87A Rebate
Furthermore, Section 87A provides substantial relief. Resident individuals with taxable income up to ₹12,00,000 qualify for a rebate of ₹60,000. Therefore, after applying the standard deduction, taxpayers earning ₹12.75 lakh gross income pay zero tax. This provision significantly expands the zero-tax threshold compared to the old regime, where relief was limited to ₹5 lakh income. Consequently, the rebate under Section 115BAC benefits a wider segment of salaried individuals.
Other Exemptions Still Available
Although the new regime eliminates popular deductions like Section 80C, 80D, and HRA, certain exemptions remain intact. Specifically:
· Employer’s NPS contribution under Section 80CCD(2) up to 14% of basic plus DA.
· Family pension deduction up to ₹25,000.
· Gratuity, leave encashment, voluntary retirement compensation, and commuted pension subject to prescribed limits.
· Employer EPF contribution up to 12%.
· Official duty allowances such as travel or conveyance.
· Taxpayers can claim interest paid on a home loan only if the property is let out. Self-occupied houses do not qualify for this deduction under Section 115BAC.
Therefore, while the regime restricts most deductions, it still recognises essential exemptions linked to retirement, employment, and official duties.
Comparison: Old vs New Regime
To illustrate, consider the following comparison:
Feature | Old Regime | New Regime (Sec 115BAC) |
Basic Exemption | ₹2.5L (₹3L seniors, ₹5L super seniors) | ₹4L (uniform) |
Standard Deduction | ₹50,000 | ₹75,000 |
80C/80D/HRA | Allowed | Not allowed |
Section 87A Rebate | Up to ₹5L income (₹12,500 max) | Up to ₹12L income (₹60,000 max) |
Surcharge | Up to 37% | Capped at 25% |
Zero-Tax Salary | ~₹5L | ₹12.75L |
Clearly, the new regime favours simplicity and broader relief, whereas the old regime rewarded investments and savings. Consequently, taxpayers must evaluate which regime suits their financial planning.
Practical Example
Suppose a salaried individual earns ₹15 lakh annually. Under Section 115BAC:
· Gross income: ₹15,00,000
· Less standard deduction: ₹75,000
· Taxable income: ₹14,25,000
· Tax calculation:
o ₹4,00,000 → Nil
o Next ₹4,00,000 → 5% = ₹20,000
o Next ₹4,00,000 → 10% = ₹40,000
o Remaining ₹2,25,000 → 15% = ₹33,750
· Total tax = ₹93,750 + 4% cess = ₹97,500 approx.
Thus, the effective tax rate remains moderate compared to the old regime, where deductions might reduce liability but compliance would be more complex.
Important Notes for FY 2026-27
Additionally, taxpayers should remember:
· Section 115BAC is the default regime; opting out requires explicit declaration.
· Special incomes like capital gains under Sections 111A and 112A remain taxed separately.
· Rebate under Section 87A does not apply to capital gains.
· Health and education cess of 4% continues.
· Surcharge capped at 25% ensures reduced burden on high-income earners.
Therefore, careful planning remains essential despite simplified rules.
Conclusion
In conclusion, Section 115BAC (FY 2026-27) reshapes
❓ Frequently Asked Questions (FAQs)
1. What is Section 115BAC under the Income Tax Act?
Section 115BAC is the new tax regime introduced to simplify taxation. It provides uniform slabs, a higher basic exemption, and limited deductions compared to the old regime.
2. What is the basic exemption limit under Section 115BAC for FY 2026-27?
The basic exemption limit is ₹4,00,000 for all taxpayers, regardless of age. This ensures uniformity and simplifies slab calculations.
3. Is the standard deduction available in the new regime?
Yes. Salaried employees and pensioners can claim a standard deduction of ₹75,000 without submitting any proof or documentation.
4. How does the Section 87A rebate work under the new regime?
Resident individuals with taxable income up to ₹12,00,000 can claim a rebate of ₹60,000. This means a gross salary of ₹12.75 lakh becomes completely tax-free after applying the standard deduction and rebate.
5. Which exemptions are still allowed under Section 115BAC?
Although most deductions are removed, the following exemptions remain:
· Employer’s NPS contribution (Sec 80CCD(2)) up to 14% of basic + DA.
· Family pension deduction up to ₹25,000.
· Gratuity, leave encashment, VRS compensation, and commuted pension (subject to limits).
· Employer EPF contribution up to 12%.
· Official duty allowances such as travel and conveyance.
· Interest on home loan for let-out property.
6. Can taxpayers still claim deductions under Section 80C, 80D, or HRA in the new regime?
No. The new regime does not allow deductions under 80C, 80D, or HRA. These remain available only in the old regime.
7. What is the maximum income exempt from tax under Section 115BAC for FY 2026-27?
A salaried individual earning up to ₹12.75 lakh gross income pays zero tax after applying the standard deduction and Section 87A rebate.
8. How are capital gains taxed under Section 115BAC?
Capital gains such as STCG under Section 111A and LTCG under Section 112A are taxed separately. The rebate under Section 87A does not apply to these incomes.
9. Is Section 115BAC the default regime for FY 2026-27?
Yes. From FY 2023-24 onwards, the new regime under Section 115BAC is the default option. Taxpayers must explicitly opt out if they prefer the old regime.
10. What is the surcharge rate under Section 115BAC?
The surcharge is capped at 25% in the new regime, which reduces the burden on high-income earners compared to the old regime, where surcharge could go up to 37%.
11. Who benefits most from Section 115BAC?
Middle-class salaried individuals benefit the most because the combination of ₹4 lakh exemption, ₹75,000 standard deduction, and ₹60,000 rebate makes income up to ₹12.75 lakh completely tax-free.
12. Should taxpayers choose the old regime or the new regime?
Taxpayers who rely heavily on deductions like 80C, 80D, or HRA may prefer the old regime. However, those seeking simplicity and a higher zero-tax threshold often benefit more under the new regime.
