New Income Tax Slab in India (2026): A Detailed Examination of Section 115BAC and Its Comparative Impact on Taxpayers and Businesses
I. Introduction
India has maintained its income tax system since the start of its tax operations through progressive tax brackets which provide multiple deduction and exemption options that encourage people to save money and invest and join social security programs. The Finance Act 2020 introduced Section 115BAC of the Income Tax Act 1961 which broke existing structural tax est and introduced new tax rates that required taxpayers to give up their right to claim certain deductions and exemptions.2
The legislative intent underlying Section 115BAC was twofold: first, to simplify the direct tax structure by reducing dependency on exemption-linked compliance; and second, to encourage voluntary tax compliance through lower nominal rates. The provision existed as an optional choice until the Finance Act 2023 amendments established the new regime as the mandatory default system which required taxpayers to select the traditional system for claiming Chapter VI-A deductions.3
The updated slab system of Section 115BAC together with Section 87A rebate changes for Assessment Year 2026 27 has created new effective tax rates that affect all income levels. The new regime now combines progressive slab calibration, surcharge rationalisation, and simplified computation mechanics. The following changes create important doctrinal questions together with practical questions:
The concessional structure serves as either a transitional reform or a permanent structural change;
- The elimination of deductions interacts with established principles that control incentive- based taxation systems.
- The two regimes need to undergo constitutional analysis because they treat users differently which needs to comply with Article 14 of the Constitution of India.10
- Section 115BAC(5)2 creates an irrevocable mechanism which causes specific effects on taxpayers who generate business income.
The article provides a complete statutory examination of Section 115BAC which applies to AY 2026- 27 and it compares the tax code with the standard tax system while assessing its effects on individual taxpayers and business organizations according to established tax interpretation rules and constitutional legal principles.
II. Statutory Architecture of Section 115BAC
A. Legislative Evolution and Structural Design
The Finance Act of 2020 established Section 115BAC as a new section of the Income Tax Act which became effective on Assessment Year 2021-22.¹ The regulation created a new tax system which provides lower tax rates to individuals and Hindu Undivided Families (HUFs) who meet requirements.
Section 115BAC establishes a conditional structure which contains all of its elements. The system functions as a dedicated charging system which bypasses standard slab rules established by the Act when taxpayers meet all requirements listed in sub-section (2)². The concessional rates become available only when taxpayers give up their rights to specific tax exemptions and deductions.
The Finance Act of 2023 introduced new changes which reorganised the system by:
- The system now applies to more taxpayer groups than before;
- The system now serves as the automatic tax system for all taxpayers
- The system now uses new rules to determine applicable surcharge ³
The legislative path shows that lawmakers prefer to use two methods for tax simplification which will eliminate the need for tax deductions.
B. Slab Structure Applicable for Assessment Year 2026 – 27
For AY 2026 – 27, Section 115BAC(1A) prescribes the following slab rates:
- ₹0 – ₹3,00,000: Nil
- ₹3,00,001 – ₹6,00,000: 5%
- ₹6,00,001 – ₹9,00,000: 10%
- ₹9,00,001 – ₹12,00,000: 15%
- ₹12,00,001 – ₹15,00,000: 20%
- Above ₹15,00,000: 30%
The tax system uses progressive slabs to decrease tax costs for middle-income taxpayers while keeping the top tax rate at 30%.
The new system establishes a different framework which does not recognize different age groups as the previous system did with its age-based classifications for senior and super senior citizens. All eligible individuals must follow the same slab regulation.
C. Conditions Under Section 115BAC(2)
The concessional regime prevents taxpayers from deducting items that sub-section 2 specifies as non- deductible. The following items are included in this list:
- Deductions under Chapter VI-A (with limited exceptions);⁴
- House Rent Allowance
- Leave Travel
- Interest on housing loan under Section 24(b) (subject to specified limitations);⁵
- Set off of certain losses attributable to exempted
The structure of sub-section (2) must be interpreted strictly. According to the Supreme Court ruling in Commissioner of Income Tax v Shahzada Nand & Sons taxpayers must understand taxing statutes through their direct language because equitable views cannot be used for tax assessment. Taxpayers are restricted from choosing which deductions to claim because the requirements in Section 115BAC must be followed.
The statutory provision establishes a legal exchange process which requires taxpayers to forfeit deduction-based tax strategies in order to receive concessional tax rates.
D. Election Mechanism and Irrevocability – Section 115BAC(5)
The option can be exercised according to the rules established in Section 115BAC(5). The provision distinguishes between:
- Taxpayers without business income;
- Taxpayers who generate income through their businesses or professional
The option can be used by individuals who do not have business income when they submit their tax return during the Section 139(1) filing period.⁷ The system enables yearly evaluation by providing flexibility for tax computation across different years.
The law restricts taxpayers who report business income because they can only use the option once after they choose to withdraw it.¹ The rule exists to stop people from changing between tax regimes whenever their profits rise or fall.
The classification meets the requirements of reasonable classification which Article 14 establishes. The Supreme Court of India R.K. Garg v Union of India case established that economic legislation should receive more leeway because legislative goals do not require complete equality and all classifications remain valid when they establish a rational link to those goals.⁸
The state needs fiscal certainty and administrative stability as valid reasons to enforce the permanent commitment requirement.
E. Interaction with Section 87A Rebate
Section 87A grants a rebate to resident individuals whose total income does not exceed the prescribed statutory threshold.⁹ Under the revised structure applicable to the new regime, the enhanced rebate effectively nullifies tax liability up to a specified income ceiling.
The rebate functions as a deduction from tax liability which is calculated using the existing slab rates before any cess charges are added. The established order of these elements functions as a vital factor which helps to determine the actual financial obligations toward taxes that a person must pay.
The statutory mechanics of the system protect low-income taxpayers while the system moves toward a process of simplified tax collection.
III. Comparative Analysis: Old Regime vs New Regime
The Section 115BAC system establishes two distinct taxation systems which exist alongside each other through its dual-framework system which demands organized assessment. Taxation philosophy shows fundamental differences between the two systems because they establish different slab rates..
A. Deduction-Oriented Structure under the Old Regime
Taxpayers under the traditional system can deduct expenses according to Chapter VI-A which contains Section 80C investment deductions and Section 80D medical insurance deductions and Section 80CCD pension contribution deductions. Taxpayers also receive exemptions which include House Rent Allowance and Section 24(b) housing loan interest deduction.5
The model provides financial incentives to promote both saving money for the long term and developing new financial assets. The system creates difficulties for users who must follow its rules which often result in fights about who qualifies for benefits.
The Supreme Court in Commissioner of Income Tax v Shahzada Nand & Sons established that tax laws must be understood according to their exact wording.6 All deduction requests need to be supported by specific documents which must be fully adhered to by the applicant.
B. Concessional Rate-Based Structure under Section 115BAC
The new regime replaces most deduction-based benefits with reduced tax rates that create lower tax brackets. The main goal of this process involves making tax procedures easier while reducing court disputes about taxes. The new tax system design eliminates tax planning activities by creating a system which maintains tax neutrality throughout operations.
This transition reflects a broader fiscal approach favouring administrative efficiency over incentive engineering.
The Constitution allows different treatment because Article 14 does not restrict such distinctions. The Court established in R.K. Garg v Union of India that economic legislation permits broader scope for classification which requires valid policy reasons to establish different groups.8 The optional nature of Section 115BAC strengthens its constitutional validity.
C. Practical Comparative Impact
The tax deduction amount which a taxpayer can utilize determines which tax system they should select.
- Taxpayers who have high housing loan interest payments together with deduction for investment expenses will achieve greater financial success through the previous tax
- Taxpayers with minimal deductions may find the new regime advantageous due to simplified computation and reduced effective rates.
The Section 115BAC(5) rule which makes business income irreversible requires business owners to monitor their choices because they must use their first decision for future business operations.
IV. Judicial and Constitutional Dimensions
Tax policy decisions exist in a state which protects them from judicial review until their execution breaks constitutional rules.
The Supreme Court established in R.K. Garg v Union of India that all economic activity laws need judicial scrutiny but no law should face prohibition because it contains experimental elements (para 8)8
The Court established that fiscal statutes will maintain their classification system when the law demonstrates distinct attributes which validly connect to the legislative purpose (para 18).8
Section 115BAC satisfies this test. The section establishes two different pathways which taxpayers can choose through their voluntary selection. The goal to simplify tax procedures while expanding the tax base creates a valid connection to different treatment methods..
The Supreme Court established that exemption rules need exact interpretation because the taxpayer must prove their entitlement to benefits according to Union of India v Nitdip Textile Processors case (para 17).⁵ The rule provides taxpayers with rights to receive tax benefits under both operating systems.
V. Implications for Individuals and Businesses
A. Salaried Individuals
Middle-income individuals gain advantages through the combination of progressive tax brackets and the improved Section 87A rebate system.9 The financial deduction system functions as a basic requirement, so taxpayers need to assess their overall tax responsibilities before choosing their tax system.
B. Professionals and Proprietors
The Section 115BAC(5) rule prevents business income taxpayers from reselecting their tax option after they have chosen to stop using it.2 The law establishes financial stability through its rigid rules, which require businesses to project their future earnings and depreciation expenses and investment plans.
C. MSMEs and Startups
The simplified structure enables businesses to handle compliance requirements while reducing their need for advisory services. The businesses that depend on deduction-based tax benefits will face limitations because their tax optimization capabilities will decrease.
Conclusion
The new income tax brackets for the 2026–27 assessment year which Section 115BAC establishes will eliminate complex rules that currently govern India direct tax system. The government has implemented deduction-based tax incentives through which it wants to achieve better fiscal transparency and lower court disputes while expanding its tax revenue base.
Judicial precedents affirm that such fiscal experimentation falls within legislative competence and does not offend constitutional guarantees, provided classification is reasonable and rationally connected to policy objectives.
The decision regarding which tax system to use rests on how each taxpayer manages their financial resources. The concessional regime enables easier calculations with lower tax costs while the traditional regime remains better for taxpayers who need to claim multiple deductions.
The dual framework thus reflects a transitional phase in India’s evolving tax reform trajectory— balancing simplification with taxpayer autonomy.
Author:– Riya Sharma, in case of any queries please contact/write back to us at support@ipandlegalfilings.com or IP & Legal Filing.
Footnotes
- Finance Act 2020 (Act 12 of 2020) inserting Income Tax Act 1961, s
- Income Tax Act 1961, s 115BAC(1) and (2).
- Finance Act 2023 (Act 8 of 2023) amending s
- Income Tax Act 1961, ch VI-A (ss 80C–80U).
- Income Tax Act 1961, s 24(b).
- Commissioner of Income Tax v Shahzada Nand & Sons (1966) 60 ITR 392 (SC)
- Income Tax Act 1961, s 139(1).
- R K Garg v Union of India (1981) 4 SCC 675, paras 8,
- Income Tax Act 1961, s
- Constitution of India 1950, art
