Understanding Section 115BAC: Exemptions & Deductions Not Allowed Under the New Tax Regime

The Optional Tax Regime under Section 115BAC offers lower tax rates but removes most exemptions and deductions. From AY 2024–25, it is the default regime. This blog explains the new tax slabs, exemptions not allowed, who should opt for it, and a comparison with the old regime.

Introduction

Taxes can feel complicated. To make things simpler, the Government introduced the Optional Tax Regime under Section 115BAC. This regime offers lower tax rates, but there’s a catch—you have to give up most of the popular exemptions and deductions.

From AY 2024–25, this new regime is the default option. But you can still choose the old regime if it saves you more tax.

New Tax Slabs under Section 115BAC

Here’s how the new regime looks after Budget 2023:

Note: If your income is up to ₹7,00,000, you get a rebate u/s 87A, meaning zero tax under the new regime.

Exemptions & Deductions Not Allowed

Here’s what you cannot claim if you choose the new regime:

1. Salary-related benefits

• House Rent Allowance (HRA)
• Leave Travel Allowance (LTA)
• Children Education/Hostel Allowance
• Professional Tax deduction

2. Housing benefits

• Interest on home loan for self-occupied property (u/s 24(b))
• Extra deduction for affordable housing loan (u/s 80EEA)

3. Popular Chapter VI-A deductions

• Section 80C (LIC, PPF, ELSS, PF, tuition fees, etc.)
• Section 80D (Medical insurance premium)
• Section 80E (Education loan interest)
• Section 80G (Donations)
• Section 80TTA/80TTB (Savings/FD interest)

4. Other disallowed benefits

• Set-off of housing loan loss against other income
• Additional depreciation on plant & machinery

Still Allowed:

• Employer’s contribution to NPS (u/s 80CCD(2))
• Deduction for Agniveer Corpus Fund (u/s 80CCH(2))
• Deduction for new employees (u/s 80JJAA, for businesses)
• Standard Deduction of ₹50,000 (reintroduced from AY 2024–25)

Who Should Choose the New Regime?

The new regime is better for:

• Young professionals with fewer investments.
• Salaried individuals living in their own house (not claiming HRA or housing loan interest).
• People with income up to ₹7,00,000 (thanks to rebate).

But if you have housing loans, HRA, or big 80C/80D investments, the old regime may save you more tax.

Example Comparison

Let’s say your annual salary = ₹12,00,000

In this case, the old regime is better. But if you had no deductions, the new regime wins.

Conclusion

Section 115BAC is all about simplicity vs. savings.

• If you don’t invest much in tax-saving instruments → the New Regime is easier and cheaper.
• If you actively use deductions like 80C, 80D, HRA, or home loan benefits → the Old Regime is smarter.

Pro Tip: Always compare both regimes before filing your ITR. A quick calculation can save you thousands.

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