Section 202: New Tax Regime Replacing 115BAC in 2025

In the 2025 Union Budget, the Indian government introduced significant changes to the income tax framework, aiming to simplify the tax structure and provide relief to middle-income earners. One of the pivotal changes was the relocation of the new tax regime provisions from Section 115BAC to Section 202 in the Income Tax Bill 2025, effective from April 1, 2026. This new regime offers concessional tax rates but limits the availability of exemptions and deductions. Notably, the basic exemption limit has been increased to Rs. 4 lakh, and a full tax rebate is available for incomes up to Rs. 12 lakh, effectively making them tax-free. These adjustments are designed to streamline tax compliance and reduce the tax burden for a significant portion of taxpayers. However, individuals must carefully assess their financial situations to determine whether the new regime aligns with their tax planning objectives.

What is Section 115BAC

Section 115BAC was introduced in the financial year 2020-21 as an optional tax regime for individuals and Hindu Undivided Families (HUFs), offering lower tax rates in exchange for foregoing various exemptions and deductions available under the old regime. This section aimed to simplify the tax structure and provide taxpayers with the flexibility to choose a regime that best suits their financial circumstances. In the Union Budget 2023, the government made the new tax regime under Section 115BAC the default option for taxpayers, while still allowing them to opt for the old regime if they preferred. The regime's primary objective was to reduce the complexity of tax filings and make the tax system more transparent and straightforward for taxpayers.

Changes in Section 115BAC (2025 update)

The Income Tax Bill 2025 brings a significant change by relocating the provisions of the new tax regime from Section 115BAC to Section 202, effective from April 1, 2026. This restructuring aims to streamline the Income Tax Act, 1961, making it more organized and easier to navigate for taxpayers. While the tax slabs and rates remain unchanged, the relocation signifies the government's commitment to simplifying tax laws and enhancing clarity. The new Section 202 will encompass the same provisions as Section 115BAC, ensuring continuity in the tax regime while improving the legislative framework's structure and coherence.

New tax slabs under Section 202

Under Section 202 of the Income Tax Bill 2025, the tax slabs have been revised to provide greater relief to taxpayers. The updated slabs are as follows:

Income up to Rs. 4,00,000: Nil


Rs. 4,00,001 to Rs. 8,00,000: 5%


Rs. 8,00,001 to Rs. 12,00,000: 10%


Rs. 12,00,001 to Rs. 16,00,000: 15%


Rs. 16,00,001 to Rs. 20,00,000: 20%


Rs. 20,00,001 to Rs. 24,00,000: 25%


Above Rs. 24,00,000: 30%

These revised slabs aim to reduce the tax burden on middle-income earners and simplify the tax structure.

Tax rates in the 2025 tax regime

The 2025 tax regime maintains the progressive tax rate structure introduced under Section 115BAC, now codified under Section 202. The rates are designed to provide relief to taxpayers, especially those in the middle-income bracket. The tax rates are as follows:

Income up to Rs. 4,00,000: Nil


Rs. 4,00,001 to Rs. 8,00,000: 5%


Rs. 8,00,001 to Rs. 12,00,000: 10%


Rs. 12,00,001 to Rs. 16,00,000: 15%


Rs. 16,00,001 to Rs. 20,00,000: 20%


Rs. 20,00,001 to Rs. 24,00,000: 25%


Above Rs. 24,00,000: 30%

These rates aim to simplify the tax system and make it more equitable for taxpayers across different income levels.

Who can opt for the new tax regime

The new tax regime under Section 202 is available to a broad category of taxpayers, including:

Individuals


Hindu Undivided Families (HUFs)


Associations of Persons (AOPs)


Bodies of Individuals (BOIs)


Artificial Juridical Persons

Taxpayers can choose between the new and old tax regimes based on their financial situations and preferences. However, once the new regime is selected, it may have implications for the availability of certain deductions and exemptions. Therefore, it's essential for taxpayers to carefully evaluate their options and consult with tax professionals if necessary.

Deductions not allowed in new regime

Under the new tax regime outlined in Section 202, several deductions and exemptions available in the old regime are not permitted. These include:

House Rent Allowance (HRA)


Leave Travel Allowance (LTA)


Standard deduction for salaried individuals


Deductions under Section 80C (e.g., investments in PPF, NSC, ELSS)


Deductions under Section 80D (medical insurance premiums)


Interest on housing loan under Section 24(b)


The exclusion of these deductions simplifies the tax filing process but may result in a higher taxable income for some taxpayers.

Deductions allowed in new regime

Despite the restrictions, the new tax regime under Section 202 allows certain deductions to provide relief to taxpayers. These include:

Employer's contribution to the National Pension System (NPS) under Section 80CCD(2)


Standard deduction of Rs. 75,000 for salaried individuals


Rebate under Section 156 for incomes up to Rs. 12 lakh

These deductions aim to offer some tax relief while maintaining the simplified structure of the new regime.

Conclusion

The transition from Section 115BAC to Section 202 in the Income Tax Bill 2025 marks a significant step towards simplifying India's tax framework. The new regime offers lower tax rates and a more straightforward tax structure, benefiting a broad spectrum of taxpayers. However, the trade-off comes in the form of limited deductions and exemptions, which may not be advantageous for all. Taxpayers must carefully assess their financial situations, considering factors like income level, eligible deductions, and long-term financial goals, to determine the most beneficial tax regime. Consulting with tax professionals can provide valuable insights and aid in making informed decisions. As the new regime becomes effective from April 1, 2026, proactive planning and understanding of the changes are crucial for optimal tax management.