Understanding Section 202, Income-tax Act 2025: How the default new regime now works

This article explains how the concessional “new tax regime” now functions under Section 202 of the Income-tax Act, 2025, and how it differs in practice from being housed earlier in Section 115BAC of the Income-tax Act, 1961.

It focuses on slab rates, the standard deduction and rebate mechanism, interaction with special‑rate income, disallowed and permitted deductions, and the practical rules for switching between the new and old regimes, with a view to helping practitioners advise individuals and other non‑corporate assessees from Tax Year 2026‑27 onwards.

1. Practitioner Q&A on the new regime under Section 202

2. Who is covered by Section 202 and what changed when the 2025 Act commenced?

Section 202 of the Income-tax Act, 2025 now governs the concessional regime for:

  • individuals,
  • Hindu undivided families,
  • associations of persons (other than co‑operative societies),
  • bodies of individuals, and
  • artificial juridical persons.

This regime is the default for these assessees from Tax Year 2026‑27 (income of FY 2026‑27) onwards.

Under the Income-tax Act, 1961, the same regime was contained in Section 115BAC and applied, inter alia, up to Assessment Year 2026‑27 (income of FY 2025‑26). The Income-tax Act, 2025 came into force on 1 April 2026, and the terminology moved from “Assessment Year” to “Tax Year”. Substantively:

  • the slab rates,
  • the higher standard deduction for salary and pension, and
  • the resident individual rebate quantum

have been carried forward into Section 202 and Section 156, with appropriate renumbering of connected provisions.

For practitioners, the main structural points are:

  • Section 202 is now the default regime; the old regime must be positively opted for under Section 202(4).
  • The earlier Section 115BAC provisions continue to apply only for past assessment years up to AY 2026‑27; they are not relevant for Tax Year 2026‑27 and onwards.

3. What are the slab rates, standard deduction and rebate under Section 202?

(i) Slab structure for “normal” income

For income taxed at normal slab rates under Section 202, the following bands apply, each rate applying only to the income within that band:

  • up to ₹4,00,000 – nil;
  • ₹4,00,001 to ₹8,00,000 – 5%;
  • ₹8,00,001 to ₹12,00,000 – 10%;
  • ₹12,00,001 to ₹16,00,000 – 15%;
  • ₹16,00,001 to ₹20,00,000 – 20%;
  • ₹20,00,001 to ₹24,00,000 – 25%;
  • above ₹24,00,000 – 30%.

Health and education cess at 4% continues as under the earlier law, but most illustrative computations are typically shown before cess.

An illustration of the working of the slabs: for normal total income of ₹15,00,000, tax is computed by applying each rate to the corresponding band. This yields tax of ₹1,05,000 on the normal income component, which is significantly below a flat 15% of ₹15,00,000 because of the lower rates on the initial slabs.

(ii) Standard deduction for salaries and pensions

For salary and pension income under the new regime, the standard deduction has been increased, and Section 202 preserves this:

  • salaried assessees and pensioners are entitled to a standard deduction of ₹75,000 from salary income.

This is higher than the ₹50,000 standard deduction that continues under the old regime slabs for individuals who choose not to be governed by Section 202.

(iii) Rebate under Section 156 – replacing Section 87A

The rebate which was previously in Section 87A is now contained in Section 156 of the Income-tax Act, 2025. Broadly:

  • it applies to resident individuals only;
  • it is available where normal total income (ignoring certain special‑rate incomes where required) does not exceed ₹12,00,000; and
  • the maximum rebate is ₹60,000.

The effect is that, for a resident individual whose normal total income (after all permissible deductions such as the standard deduction) does not exceed ₹12,00,000, income‑tax on that normal income can be fully neutralised up to ₹60,000.

For example, if a resident salaried individual has gross salary of ₹12,75,000 and no other income:

  • standard deduction of ₹75,000 reduces salary to ₹12,00,000;
  • slab‑rate tax on ₹12,00,000 is ₹60,000;
  • rebate under Section 156 of ₹60,000 brings tax on normal income down to nil (before cess).

In practical terms, ignoring cess and special‑rate income, a salaried resident individual with no other adjustments can have gross salary of about ₹12.75 lakh under the new regime and yet have no tax payable on normal income.

(iv) Marginal relief around ₹12,00,000

Where normal income slightly exceeds ₹12,00,000, the law provides marginal relief so that the increased tax does not exceed the income over ₹12,00,000. For instance, for taxable normal income of ₹12,10,000:

  • tax by straight slab computation is approximately ₹61,500;
  • however, because the excess of income over ₹12,00,000 is ₹10,000, marginal relief operates to cap tax so that the increase in tax does not exceed ₹10,000.

The detailed wording of the marginal relief provision needs to be read in the enacted text, but for planning purposes, practitioners should be aware that the spike in tax immediately above ₹12,00,000 is moderated.