Section 202, Income-tax Act 2025: New tax regime for individuals, Hindu undivided family and others

What changed when Section 115BAC became Section 202?

The regime, not the arithmetic. Section 202 of the Income-tax Act 2025 is the new home of the tax structure the 1961 Act ran through Section 115BAC. The slab rates, the ₹4 lakh nil band, the rebate that clears tax up to ₹12 lakh and the short list of surviving deductions all carry over. What the 2025 Act did was make this regime the law's starting point and tidy the drafting.

Two things are genuinely new in the wording. First, the new regime is now the express default for everyone: you are taxed under Section 202 unless you actively opt out, where the 1961 Act reached the same result through a later amendment to 115BAC. Second, the section names the taxpayers it covers in one place, spelling out Hindu Undivided Families, associations of persons, bodies of individuals and artificial juridical persons alongside individuals, rather than leaving them to be read in.

The section number (202) and its title, "New tax regime for individuals, Hindu undivided family and others", are cross-checked against published copies of the enacted Act.†

How the new-regime slabs work in TY 2026-27

Seven bands, and each rate applies only to the income that falls inside its band. Income up to ₹4,00,000 is taxed at nil; the next ₹4 lakh at 5%; and so on up the ladder to 30% on everything above ₹24,00,000. This is a marginal-rate system, so crossing into a higher band never raises the tax on the income below it.

That distinction trips people up. Earning ₹16,10,000 does not tax your whole income at 20%; it taxes the ₹10,000 that pokes into the 20% band at 20% and leaves the rest on the lower rungs. The figure above shows the rate and the tax that each full band adds.

The ₹4 lakh nil band is the basic exemption limit on the new regime, the same at every age. The higher old-regime exemptions for senior (₹3 lakh) and super-senior (₹5 lakh) citizens do not apply here.

Who does the new regime apply to?

Individuals and most non-corporate taxpayers, by default. Section 202 sets the rates for resident and non-resident individuals, Hindu Undivided Families, associations of persons, bodies of individuals and artificial juridical persons. From TY 2026-27 they are all taxed this way unless they opt out.

Where it does and does not reach:

• Every individual, whatever the age. Unlike the old regime, the new regime uses one ₹4 lakh exemption for all, so a 68-year-old and a 30-year-old start at the same nil band.
• HUFs, associations of persons, bodies of individuals and artificial juridical persons. The 2025 Act writes them into the section by name, so a family HUF is taxed on the same seven-band ladder.
• Not companies, and not firms or LLPs. They have their own flat rates elsewhere in the Act and never touch Section 202.
• Non-residents are covered by the slabs, but they do not get the Section 156 rebate, so an NRI pays slab tax from the first rupee above ₹4 lakh.

Special-rate income such as listed-equity capital gains or lottery winnings is taxed at its own fixed rate in either regime and sits outside the Section 202 slabs; the regime choice changes only the tax on your ordinary income.

Slab table for TY 2026-27 with the tax in each band

The same ladder as a table, with the tax each band adds and the running total. At ₹24 lakh of taxable income the slab tax is ₹3,00,000; above that every rupee is taxed at 30%.

Add 4% health and education cess to every figure, plus surcharge once taxable income crosses ₹50 lakh. The Section 156 rebate is applied before cess and reduces the ₹60,000 at ₹12 lakh to nil.

Which deductions survive on the new regime, and which you give up

A short list survives; almost everything else goes. The trade for the lower slab rates is that new-regime income is computed "without" the big Chapter VIII deductions and most exemptions. What you keep is led by the ₹75,000 standard deduction on salary and your employer's contribution to your NPS account.

Still allowed on the new regime:

• The ₹75,000 standard deduction on salary (Section 19), plus a standard deduction on family pension.
• Your employer's NPS contribution (Section 124, the old 80CCD(2)), now up to 14% of salary for a private-sector employee too, not just government staff.
• The Agniveer Corpus Fund contribution (Section 125, the old 80CCH) for Agniveer personnel.
• Business-side reliefs such as the deduction for additional employee cost (old 80JJAA) and the deduction for an IFSC unit (old 80LA).
• Duty-linked exempt allowances, such as transport allowance for a specially-abled employee and conveyance on official work, which sit in a schedule rather than the deduction basket.

Gone unless you opt out: the ₹1.5 lakh Section 123 basket (old 80C), health premium under Section 126 (old 80D), self-occupied home-loan interest under Section 22 (old 24(b)), HRA and leave travel allowance, savings-interest relief (80TTA/80TTB), education-loan interest (80E), donations (80G) and your own NPS (80CCD(1) and (1B)). You also cannot set a house-property loss against your salary. The surviving items and their new-Act section numbers are cross-checked against published copies of the enacted Act.†

Why income up to ₹12 lakh pays no tax: the Section 156 rebate

Because a separate provision, Section 156, wipes out the slab tax at the bottom. On its own the ladder would tax ₹12,00,000 at ₹60,000. The Section 156 rebate (the successor to Section 87A) hands back exactly that ₹60,000 for a resident individual whose total income stays within ₹12 lakh, so nothing is payable.

For a salaried person the standard deduction stacks on top: ₹12,75,000 of salary, minus the ₹75,000 standard deduction, is ₹12,00,000 of taxable income, still fully rebated. That is the origin of the "₹12.75 lakh, zero tax" headline.

Just past the line there is a cushion. Marginal relief keeps the tax at ₹12,00,001 from jumping to a full ₹60,000-plus bill; the relief tapers away and runs out at ₹12,70,588 of income, after which ordinary slab tax takes over. The rebate applies only to slab tax, so special-rate capital gains stay taxable even when your income is under ₹12 lakh.

The rebate is a resident-individual relief and lives in Section 156, not Section 202. Non-residents, HUFs, firms and companies do not get it.

The surcharge cap: 25% on the new regime against 37% on the old

The new regime's quiet advantage sits at the top of the income scale. Surcharge is an extra levy on the tax itself once taxable income crosses ₹50 lakh. On the new regime it rises 10%, 15% and then stops at 25%. On the old regime it goes one step further, to 37% above ₹5 crore.

For most filers this changes nothing, because surcharge only starts at ₹50 lakh. But for a very high earner it is decisive. On ₹6 crore of ordinary income the 25% cap instead of 37% saves roughly ₹25 lakh of tax on its own, which is why the new regime is almost automatic at the top end even though it forfeits deductions.

Surcharge carries its own marginal relief at each threshold, and on capital gains taxed at special rates the surcharge is capped at 15% in both regimes. The 4% health and education cess is charged after surcharge.

How to opt out into the old regime

You opt out, you do not opt in: the new regime applies unless you actively choose the old one. How you do that, and how freely you can change your mind, depends on whether you have business or professional income.

The two routes:

• No business income (salary, pension, house property, capital gains, other sources): choose the old regime in your return each year, by the filing due date under Section 263(1). The choice binds only that year, so you can switch back and forth from one year to the next as the numbers change.
• With business or professional income: file the prescribed form (Form 10-IEA under the current rules) on or before the return due date. This choice is sticky. You may withdraw it and return to the new regime once, but after that withdrawal you can never opt for the old regime again while you have business income. In practice it is a one-time decision.

The asymmetry is anti-gaming: a business owner cannot flip to whichever regime is cheaper each year the way a salaried person can. Miss the form or the deadline and you stay on the default new regime for the year, whatever you intended. Form 10-IEA is the current opt-out form; the 2025 Act may renumber it in the return rules notified for TY 2026-27.†

How to work out your new-regime tax, step by step

Six steps from gross income to the final bill:

• Add up income under every head: salary, house property, business, capital gains and other sources.
• Subtract only the deductions the new regime allows: the ₹75,000 salary standard deduction, your employer's NPS contribution and the short surviving list. The result is your total income.
• Set aside any special-rate income (listed-equity gains, winnings): it is taxed at its own rate, not on the slabs.
• Apply the seven bands to the rest, adding the tax in each band up to your income.
• If your total income is within ₹12 lakh and you are a resident individual, subtract the Section 156 rebate, which zeroes the slab tax; just above ₹12 lakh, apply marginal relief.
• Add surcharge if taxable income tops ₹50 lakh, then 4% health and education cess on the total. That is your tax.

The income-tax calculator linked below runs all six steps for both regimes and shows which one costs you less.

Should you stay on the new regime or opt out?

Stay on the new regime unless your old-regime deductions are genuinely large, because the default already gives you lower rates and, up to ₹12 lakh, a zero bill. The break-even is higher than most people expect. At ₹18 lakh of salary the new regime costs ₹1,50,800; to merely match that on the old regime you need about ₹6.4 lakh of deductions on top of the standard deduction, roughly a full ₹1.5 lakh 80C basket, ₹25,000 of health cover, the full ₹2 lakh of home-loan interest and more besides.

The old regime tends to win only when you carry a big home-loan interest claim on a self-occupied house, pay substantial rent with an HRA component, and fill the 80C and 80D deductions to the brim, all at once. If two or three of those are missing, the new regime almost always wins.

Concrete signposts:

• Income up to ₹12 lakh: stay on the new regime. The rebate zeroes your tax, so no deduction can beat it and there is nothing to optimise.
• Income above ₹2 crore: the new regime is almost automatic, because the 25% surcharge cap against 37% outweighs any deduction you could stack.
• A large home loan plus HRA plus a full 80C basket together: run both regimes before deciding, because this is the one profile where opting out can still pay.
• Business income: model it once and commit, since the opt-out is effectively permanent. Do not choose the old regime for a single good deduction year.

Run your own figures through the income-tax and rebate calculators below before you file; the regime choice is arithmetic, and it can move by tens of thousands of rupees.

Worked examples

Section 202 FAQs