What is 115BAC of the Income Tax Act?

Updated on - 23 Oct 2025

Understanding taxes can feel complicated, especially when there are new rules and options. One such rule is Section 115BAC of the Income Tax Act, which introduced the New Tax Regime in India. This section gives taxpayers the choice to pay income tax at lower rates but with fewer deductions and exemptions.

In this blog, we'll explain what Section 115BAC means, the tax rates under this regime, who can use it and which deductions are still allowed.

What is Section 115BAC of the new tax regime?

Section 115BAC was added to the Income Tax Act to offer a new and optional way to pay tax. This section came into effect from the financial year 2020-21. Under this section, individuals and Hindu Undivided Families (HUFs) can choose to pay taxes at reduced rates. However, they must give up most of the deductions and exemptions available in the old regime.

The main idea behind Section 115BAC is to make tax filing simpler. If you don’t have many investments or deductions to claim, the new regime might save you more money. But if you do take advantage of tax-saving schemes and expenses, the old regime could still be better for you.

Income tax slab rates under Section 115BAC

The tax slabs under the new regime are simpler and come with lower tax rates compared to the old system. Here are the current slab rates under Section 115BAC (after 1 April 2023):

What is the eligibility for Section 115BAC of Income Tax Act?

Not everyone can opt for Section 115BAC. Let’s understand who can and who cannot use the new regime:

Eligible persons:

• Individuals (both salaried and self-employed)
• Hindu Undivided Families (HUFs)
• Resident individuals and non-residents
• Persons with or without business income

If you have business income, you must file Form 10-IEA before the due date of your income tax return to choose the new regime. Once chosen, business income taxpayers cannot switch regimes every year. They can go back to the old regime only once in their lifetime. If you don’t have business income, you can switch between the new and old regime every year.

Those supporting elderly parents may also want to consider the cost of senior citizen health insurance before choosing a tax regime. These policies generally tend to have higher premiums and in the old regime, you could claim them under Section 80D. While that isn’t possible under the new regime, the insurance itself is still valuable, as older adults are more likely to need hospital care.

What deductions are allowed under the new tax regime?

One of the main conditions of Section 115BAC is that you cannot claim most deductions and exemptions that are available in the old regime. But there are still a few deductions that are allowed:

• Standard Deduction of ₹50,000 on salary (only from FY 2023-24 onwards)
• EPF (Employer’s contribution): Up to 12% of salary
• NPS employer contribution: Up to 10% of salary
• Rebate under Section 87A for income up to ₹7,00,000
• Deduction for Agniveer Corpus Fund under Section 80CCH (if applicable)

Deductions not allowed under Section 115BAC:

• House Rent Allowance (HRA)
• Leave Travel Allowance (LTA)
• Standard deduction on salary (₹50,000) – (Note: From FY 2023-24, this is now allowed)
• Interest on home loan (under Section 24)
• Deductions under Section 80C (like LIC premium, PPF, ELSS)
• Section 80D (health insurance)
• Section 80E (education loan interest)
• Many other specific deductions and exemptions

While most common deductions are not available, some relief is still offered, especially to salaried people.

Even though the premium paid for health insurance isn’t deductible under the new tax regime, it’s still a wise personal expense. Medical costs can be unpredictable, and having proper health coverage helps you avoid large out-of-pocket bills.

If you’re unsure which plan suits you or your family best, we can help. Fill out the form on this page to get personal advice on choosing the right health insurance for your needs.

Conclusion

Section 115BAC of the Income Tax Act gives taxpayers an alternative way to pay tax. It offers lower tax rates but removes many deductions and exemptions. From April 2023, the new regime is the default, but you can still choose the old one if it suits you better. The key is to compare both options every year, especially if your financial situation changes.

Disclaimer:

The information provided in this blog is for educational and informational purposes only. It is not intended as a substitute for professional advice, diagnosis or treatment. Please consult a certified medical and/or nutrition professional for any questions. Relying on any information provided in this blog is solely at your own risk, and ICICI Lombard is not responsible for any effects or consequences resulting from the use of the information shared.