New Tax Regime shifts from Section 115BAC to Section 202; what taxpayers should know

Most individual taxpayers are inside the new tax regime as it allows zero tax on up to ₹12 lakh income from normal sources like salary, pension, bank deposits etc. The law made it the default tax regime option in 2023. From April 1, 2026, that regime sits at a different section number, and the way to leave it is also governed by a different section.

Section 202 of the Income-tax Act, 2025 carries the concessional slab regime for individuals, Hindu undivided families, associations of persons and bodies of individuals. It has replaced Section 115BAC of the Income-tax Act, 1961 since April 1, 2026.

The tax regime decides the rate at which tax is deducted from a salary each month, and therefore the take-home pay of every salaried employee. It also decides which deductions an employer will accept in the employee's investment declaration (the form that used to be Form 12BB and is now Form 124).

Section 115BAC was inserted by the Finance Act, 2020 as an optional alternative to the older regime and made the default by the Finance Act, 2023. It sits in the old Act as a long section with a dense proviso structure, and the department says that a taxpayer who wishes to leave the default regime must exercise the option under Section 115BAC(6).

Under the 2025 Act, the new regime has moved to Section 202. The rule for leaving it has also moved to another section. The exercise or withdrawal of the option is now governed by Rule 136 of the Income-tax Rules, 2026, which replaces Rule 21AD of the Income-tax Rules, 1962.

The rates themselves were never in the section as they are set each year by the Finance Act.

Section 3(1) of the Finance Act, 2026 charges income-tax for the tax year beginning April 1, 2026 at the rates in Part I-B of its First Schedule, and the Table in Section 3(2) fixes the basic exemption for an assessee whose income is chargeable under Section 202 at ₹4,00,000.

Two points are relevant for taxpayers: Because the regime is the default, anyone who wants the older regime and its deductions must opt out actively, by the due date. And the basic exemption is not the point at which tax starts. The rebate under Section 156 (previously Section 87A under the 1961 Act) operates on top of it.

There is a further consequence worth noting for individuals with business income. The department says that where a taxpayer is in the new regime, the alternate minimum tax provisions do not apply. This point is relevant to anyone with presumptive business income, who might otherwise have to compute tax twice.