The Government of India introduced the New Tax Regime under Section 115BAC of the Income Tax Act, 1961, designed to simplify tax compliance by offering lower tax rates in exchange for giving up traditional exemptions. With recent budget updates, the new tax regime has become the default option for individuals.
1. The Zero-Tax Threshold Limit
Under the new tax regime, individuals with an annual income of up to Rs. 7,00,000 pay zero income tax. This is achieved through a tax rebate under Section 87A. Furthermore, when combined with a standard deduction of Rs. 50,000, salaried employees with an annual income of up to Rs. 7,50,000 have zero tax liability.
2. Slabs under Section 115BAC
| Income Slab | Tax Rate |
|---|---|
| Up to Rs. 3,00,000 | Nil |
| Rs. 3,00,001 to Rs. 6,00,000 | 5% |
| Rs. 6,00,001 to Rs. 9,00,000 | 10% |
| Rs. 9,00,001 to Rs. 12,00,000 | 15% |
3. Old vs. New Tax Regime: Key Differences
While the old regime allowed you to reduce taxable income using deductions like Section 80C (PPF, insurance) and Section 24 (housing loan interest), it had higher tax slabs. The new regime offers much lower tax slabs but bars almost all deductions (except standard deduction and employer's contribution to NPS).