The new tax regime under 115BAC of Income Tax Act has become the default choice for many taxpayers, and for FY 2025-26 (AY 2026-27) it continues to shape how salaried professionals, pensioners, and investors plan their taxes. The regime is built around lower slab rates and fewer deductions, which changes the value of older tax-saving habits. At the same time, tax deductions at source on interest, governed by the 194A TDS section, still impacts cashflows and return filing even when you choose the new regime.
This guide explains the 2026 slabs, what you can and cannot claim, and how 115BAC of Income Tax Act interacts in practice with 194A TDS section for interest income.
What the new tax regime means for FY 2025-26 under Section 115BAC
Under the 115BAC of Income Tax Act, individuals and HUFs can pay tax at concessional slab rates, provided they give up a set of exemptions and deductions. Since FY 2023-24, the new regime is the default, which means your employer may compute TDS assuming 115BAC of Income Tax Act unless you explicitly opt for the old regime.
The structure remains focused on simplicity. You will see fewer tax-saving proofs required for payroll, but you also lose benefits such as HRA and LTA if you rely on them. This is why choosing 115BAC of Income Tax Act should be based on actual numbers, not just the slab rates.
Slab rates under Section 115BAC for AY 2026-27
The following slab rates apply under the 115BAC of Income Tax Act for FY 2025-26 (AY 2026-27) for individuals and HUFs.
Income tax slabs in the new regime:
– income up to Rs. 3,00,000: nil
– income from Rs. 3,00,001 to Rs. 6,00,000: 5%
– income from Rs. 6,00,001 to Rs. 9,00,000: 10%
– income from Rs. 9,00,001 to Rs. 12,00,000: 15%
– income from Rs. 12,00,001 to Rs. 15,00,000: 20%
– income above Rs. 15,00,000: 30%
These rates under 115BAC of Income Tax Act apply before surcharge and cess. Health and education cess at 4% applies on the total tax plus surcharge, as it does in the old regime as well.
The key point is that 115BAC of Income Tax Act reduces taxes for many middle-income taxpayers, but only if the lost deductions are not large.
Rebate under section 87A, surcharge, and cess in the new regime
A major benefit of 115BAC of Income Tax Act is the section 87A rebate alignment with the Rs. 7 lakh threshold in the new regime. If your taxable income under 115BAC of Income Tax Act does not exceed Rs. 7,00,000, your tax liability becomes nil due to rebate, subject to conditions.
This makes salary restructuring and taxable income calculations very important. A difference of even Rs. 10,000 can change outcomes near the rebate limit, so accurate estimation under 115BAC of Income Tax Act matters.
Surcharge applies based on total income levels, and the marginal relief principles can apply where relevant. After surcharge, the 4% cess is added, even under 115BAC of Income Tax Act.
Exemptions and deductions not available under Section 115BAC
The trade-off under 115BAC of Income Tax Act is clear. You get lower slab rates, but you lose several deductions and exemptions that were core to old-regime tax planning.
Common items you cannot claim in the new regime:
– house rent allowance exemption
– leave travel allowance exemption
– deduction for interest on self-occupied house property under section 24(b)
– chapter VI-A deductions such as section 80C, 80D, 80E, 80G (with limited exceptions)
– set-off of loss from house property (in many practical salary computations, this advantage reduces sharply)
If your tax saving relies on a mix of HRA, 80C, medical insurance, and home loan interest, shifting to 115BAC of Income Tax Act may not be beneficial. The correct approach is to compute both ways, then choose.
Interest income does not get special treatment here. Under 115BAC of Income Tax Act, bank FD interest, NBFC interest, and private loan interest remain taxable, and the 194A TDS section can still apply if thresholds are crossed.
Deductions and exemptions still allowed under Section 115BAC
Many taxpayers assume 115BAC of Income Tax Act means “no deductions at all”. That is not accurate. Some deductions and exemptions are still available, and these can materially improve the outcome.
Standard deduction and salary-related reliefs
Under 115BAC of Income Tax Act, salaried individuals and pensioners can claim the standard deduction of Rs. 50,000. This reduces taxable salary directly and is a major reason the new regime became more competitive.
Family pension deduction under section 57(iia) continues as per the Income-tax Act provisions, subject to the specified limits. This can matter for senior citizens choosing 115BAC of Income Tax Act.
Employer contribution to NPS
A significant permitted deduction under 115BAC of Income Tax Act is section 80CCD(2), which covers employer contribution to NPS within prescribed limits. This is different from employee contribution under section 80C/80CCD(1), which is not available in the same way under 115BAC of Income Tax Act.
If your employer offers NPS as part of CTC, it can improve your tax position under 115BAC of Income Tax Act without needing large personal investments.
Limited additional deductions
Certain other limited items such as eligible deductions for new employment under section 80JJAA (mainly business cases) and Agniveer-related provisions under section 80CCH (where applicable) can be relevant. The point is to check eligibility, because 115BAC of Income Tax Act restricts the wider chapter VI-A basket.
Why Section 194A matters more in the new regime
Under 115BAC of Income Tax Act, many taxpayers stop using tax-saving FDs and shift to simpler products, but interest income still accumulates. If your overall income is near the Rs. 7 lakh rebate zone under 115BAC of Income Tax Act, TDS under the 194A TDS section can become an avoidable cashflow hit, because your final tax may be nil after rebate.
In such cases, eligible taxpayers can consider submitting Form 15G or Form 15H to the bank, as applicable, to prevent TDS under the 194A TDS section. This needs correct declaration because wrong filing can create compliance risk.
Choosing between old regime and Section 115BAC for AY 2026-27
The best way to choose between regimes is to compute tax under both methods with realistic inputs. Do not base the decision only on the headline slab rates under 115BAC of Income Tax Act.
When the new regime under Section 115BAC tends to work well
Your deductions are low and you mainly rely on the standard deduction
You do not claim HRA or LTA, or you live in your own house without rent receipts
Your employer contributes meaningfully to NPS under section 80CCD(2)
You prefer lower paperwork and stable take-home pay during the year under 115BAC of Income Tax Act
If these apply, 115BAC of Income Tax Act can reduce both tax and administrative effort. You still need to track TDS credits, including those under the 194A TDS section.
When the old regime may still be better
– you claim high HRA due to rent in metro cities
– you use full section 80C (such as PF, ELSS, life cover), plus section 80D for medical insurance
– you have a home loan with meaningful interest and principal benefits
– you donate regularly and claim section 80G
In such scenarios, the old regime can beat 115BAC of Income Tax Act even with higher slab rates. This becomes clearer when interest income is also high and TDS under the 194A TDS section pushes you into advance tax or refund situations.
Compliance steps for opting and reporting under Section 115BAC
For salaried people without business income, the choice between old regime and 115BAC of Income Tax Act can generally be made each year in the ITR. You may also inform your employer in advance for correct TDS calculation, but the final choice is made at return filing.
For taxpayers with business or professional income, the rules around opting out and re-entering 115BAC of Income Tax Act are more restrictive. Once you opt out, switching back may be limited, so it needs careful thought with projected profits and deductions.
Irrespective of regime, reconcile interest TDS under the 194A TDS section using Form 26AS and AIS. This helps avoid notices and ensures you claim the correct credit.
Conclusion
For FY 2025-26 (AY 2026-27), the new regime under 115BAC of Income Tax Act remains a strong option for taxpayers who want simpler compliance, lower slab rates, and who do not rely on large deductions such as HRA, 80C, or home loan interest. The Rs. 7 lakh rebate and the Rs. 50,000 standard deduction make 115BAC of Income Tax Act practical for a wide middle segment, but the decision should be based on a clean comparison. Do not ignore interest income, because TDS under the 194A TDS section can still be deducted even if your final tax under 115BAC of Income Tax Act is low or nil.
