Key Takeaways

Section 202 (Income Tax Act, 2025; formerly Section 115BAC — New Tax Regime) is the default regime for individuals and HUFs from AY 2024-25 onwards — taxpayers must opt out by filing Form 10-IEA if they prefer the old regime.
The new regime offers lower slab rates but disallows most exemptions and deductions (HRA, 80C/123, 80D/126, LTA, etc.).
Budget 2025 enhanced the standard deduction to Rs. 75,000 and rebate under Section 156 (formerly Section 87A) to Rs. 60,000 (effective nil tax up to Rs. 12 lakh income under the new regime).
Section 200 (formerly Section 115BAA) provides a concessional rate of 22% (effective 25.17%) for domestic companies opting out of exemptions/incentives.
Section 201 (formerly Section 115BAB) provides 15% (effective 17.16%) for new manufacturing companies.
Section 195 (formerly Section 115BBE) taxes unexplained income (Sections 102-106) at a flat 78% (60% + 25% surcharge + 4% cess).
Section 194 (formerly Section 115BBH) taxes virtual digital assets (crypto) at a flat 30% with no deductions and 1% TDS under Section 394 (formerly Section 194S).

Income Tax Act, 2025 Update: The new tax regime continues under Section 202 (formerly Section 115BAC) — standard deduction Rs. 75,000, Section 156 rebate (formerly Section 87A) Rs. 60,000 (making income up to Rs. 12 lakh effectively tax-free), and revised surcharge rates. The new regime continues as the default for individuals and HUFs. Companies under Sections 200/201 (formerly Sections 115BAA/115BAB) see no rate changes but compliance requirements under Forms 10-IC and 10-ID remain. All references herein are to the Income Tax Act, 2025 and Income Tax Rules, 2026.

Section 202: New Tax Regime for Individuals & HUFs

(Income Tax Act, 2025; formerly Section 115BAC of the Income Tax Act, 1961)

Section 202 provides an optional concessional tax regime that has been made the default regime from AY 2024-25 onwards. Key features:

Slab Rates Under New Regime (AY 2026-27)

| Total Income (Rs.) | Tax Rate | |-------------------|----------| | Up to 3,00,000 | Nil | | 3,00,001 to 7,00,000 | 5% | | 7,00,001 to 10,00,000 | 10% | | 10,00,001 to 12,00,000 | 15% | | 12,00,001 to 15,00,000 | 20% | | Above 15,00,000 | 30% |

Standard deduction: Rs. 75,000 for salaried individuals and pensioners (Budget 2025 enhancement).

Deductions/Exemptions NOT Available Under New Regime

The following are not available if you opt for the new regime:

| Not Available | Section/Provision | |--------------|-------------------| | House Rent Allowance (HRA) | Schedule II (formerly Section 10(13A)), Rule 2A | | Leave Travel Allowance (LTA) | Schedule II (formerly Section 10(5)) | | Professional tax deduction | Section 19 (formerly Section 16(iii)) | | Deduction for investments (PPF, ELSS, LIC, etc.) | Section 123 + Schedule XV (formerly Section 80C) | | Medical insurance premium | Section 126 (formerly Section 80D) | | Interest on education loan | Section 129 (formerly Section 80E) | | Interest on housing loan (self-occupied) | Section 22 (formerly Section 24(b)) — Rs. 2 lakh limit | | Donations | Section 133 (formerly Section 80G) | | Savings bank interest | Section 153 (formerly Sections 80TTA/80TTB) | | Special allowances (except travel/transfer) | Various under Schedule II (formerly Section 10) | | Chapter VIII deductions (most) | Sections 122-154 (except Sections 124(2), 146, 80CCH equivalent) | | Set-off of house property loss against salary | Section 109 (formerly Section 71) |

Deductions STILL Available Under New Regime

| Available | Section | |----------|---------| | Standard deduction (Rs. 75,000) | Section 19 (formerly Section 16(ia)) | | Employer's NPS contribution (up to 14%) | Section 124(2) (formerly Section 80CCD(2)) | | Deduction for employment of new employees | Section 146 (formerly Section 80JJAA) | | Agniveer Corpus Fund | (Equivalent retained) | | Transport allowance for disabled persons | Schedule II (formerly Section 10(14)), Rule 2BB | | Conveyance allowance for expenditure on duty | Schedule II (formerly Section 10(14)), Rule 2BB | | Interest on home loan for let-out property | Section 22(a) (formerly Section 24(a)) — standard deduction of 30% of NAV | | Depreciation for business income | Sections 33-34 (formerly Sections 32-33) | | Family pension deduction (Rs. 15,000 or 1/3rd) | Section 93 (formerly Section 57(iia)) |

Opting Out — Form 10-IE

Since the new regime is the default:

Salaried individuals (no business income): Can switch between old and new regime every year by filing Form 10-IEA before the due date of filing the return under Section 263 (formerly Section 139(1)).
Individuals with business income: Once they opt out to the old regime, they can return to the new regime only once. The choice under the old regime, once exercised for a year having business income, restricts future switching.

Rule and Form: Form 10-IEA must be filed electronically on the income tax portal before the due date under Section 263. Rule 21AG prescribes the format and procedure.

Section 200: Concessional Rate for Domestic Companies

(Income Tax Act, 2025; formerly Section 115BAA of the Income Tax Act, 1961)

Section 200 provides a concessional tax rate for domestic companies that opt to forgo specified exemptions and incentives:

| Parameter | Detail | |-----------|--------| | Tax rate | 22% | | Surcharge | 10% (flat, regardless of income level) | | Health & Education Cess | 4% | | Effective rate | 25.17% | | Form | Form 10-IC (filed before due date of return, Rule 21AE) | | Irrevocable | Once opted, cannot be withdrawn in subsequent years |

Conditions for Section 200

The company must not claim any of the following:

Deductions equivalent to Sections 10AA (SEZ units — Schedule VI), additional depreciation (Section 33), site restoration provisions, Section 46 (formerly Section 35AD specified business deduction).
Deductions under Chapter VIII (except Sections 146 and 148, formerly Sections 80JJAA and 80M).
Set-off of losses or depreciation carried forward from years where such exemptions were claimed.
MAT provisions (Section 206, formerly Section 115JB) and MAT credit do not apply to companies opting for Section 200.

Section 201: New Manufacturing Companies

(Income Tax Act, 2025; formerly Section 115BAB of the Income Tax Act, 1961)

Section 201 provides an even lower concessional rate for new manufacturing companies:

| Parameter | Detail | |-----------|--------| | Tax rate | 15% | | Surcharge | 10% (flat) | | Health & Education Cess | 4% | | Effective rate | 17.16% | | Form | Form 10-ID (filed before due date of return, Rule 21AF) | | Irrevocable | Once opted, cannot be withdrawn |

Conditions for Section 201

| Condition | Requirement | |-----------|-------------| | Incorporation | On or after 1 October 2019 | | Commencement | Manufacturing commenced on or before 31 March 2024 | | Activity | Engaged in manufacture or production of any article or thing (not specified in negative list) | | Not formed by splitting/reconstruction | Must be a genuinely new business | | Does not use old plant/machinery | Used plant/machinery should not exceed 20% of total value | | Same exemption waivers | Same as Section 115BAA — no exemptions or incentives |

Negative list: The company must not be engaged in development of computer software, mining, conversion of marble blocks, bottling of gas, printing of books, production of cinematograph films, or any other business notified by the Government.

Section 195: Tax on Unexplained Income (Sections 102-106)

(Income Tax Act, 2025; formerly Section 115BBE of the Income Tax Act, 1961)

Section 195 provides for penal taxation on income referred to in Sections 102, 103, 104, 105, and 106 (formerly Sections 68, 69, 69A, 69B, 69C, and 69D):

| Parameter | Detail | |-----------|--------| | Tax rate | 60% | | Surcharge | 25% of tax | | Health & Education Cess | 4% | | Effective rate | 78% | | Deductions allowed | No deduction under any provision of the Act | | Set-off | No set-off of any loss against such income | | Expenditure | No expenditure or allowance deductible |

This effectively means that for every Rs. 100 of unexplained income, the assessee pays Rs. 78 as tax. This was introduced to discourage unaccounted transactions and cash dealings, particularly post-demonetisation.

Cross-reference: See Chapter 12 for detailed coverage of Sections 102-106 (formerly Sections 68-69D — Unexplained Income).

Section 207: Tax on NR Income — Dividends, Royalties, FTS

(Income Tax Act, 2025; formerly Section 115A of the Income Tax Act, 1961)

Section 207 prescribes tax rates for specified income of non-residents:

| Nature of Income | Rate | Rule/Form | |-----------------|------|-----------| | Dividends received from Indian company | 20% | Form 15CA/15CB (Rule 37BB) for remittance | | Royalty under agreement after 1 April 1976 | 10% (if agreement is with Government or approved by Government) | | | Fees for Technical Services (FTS) | 10% | | | Interest under Section 207(1)(a)(ii) — on foreign currency borrowings | 20% | | | Interest on infrastructure debt fund (Schedule II equivalent) | 5% | |

These rates are subject to beneficial rates under applicable DTAA as per Section 159 (formerly Section 90). The non-resident must furnish a Tax Residency Certificate (TRC) and Form 10F to claim treaty benefits.

Section 210: Tax on FPI Income

(Income Tax Act, 2025; formerly Section 115AD of the Income Tax Act, 1961)

Section 210 provides special tax rates for Foreign Portfolio Investors (FPIs):

| Nature of Income | Rate | |-----------------|------| | Short-term capital gains on listed equity (Section 196) | 15% (20% from AY 2025-26) | | Long-term capital gains on listed equity (Section 198) | 12.5% | | Other short-term capital gains | 30% | | Dividends | 20% | | Interest income | 20% |

Rule: Rule 21AB governs the computation methodology for FPIs under Section 210.

Winnings from Lottery, Games, Gambling (Section 194 Table)

(Formerly Section 115BB; now included in the special rates table in Chapter XIII)

| Parameter | Detail | |-----------|--------| | Tax rate | 30% (flat, no slab benefit) | | Surcharge & Cess | Applicable at standard rates | | Deductions | No deduction for any expenditure or allowance | | TDS | Section 393 Table (formerly Section 194B) — TDS at 30% on winnings exceeding Rs. 10,000 |

Covers lottery winnings, crossword puzzles, horse races, card games, gambling, betting, and any other game of any sort.

Section 194: Virtual Digital Assets (Crypto) Taxation

(Income Tax Act, 2025; formerly Section 115BBH (Table: Sl. No. 4 — virtual digital assets) of the Income Tax Act, 1961)

Section 194 (Table: Sl. No. 4), introduced from AY 2023-24, provides for taxation of income from virtual digital assets (VDAs) including cryptocurrencies, NFTs, and similar digital assets:

| Parameter | Detail | |-----------|--------| | Tax rate | 30% (flat) | | Deductions allowed | Only cost of acquisition — no other deduction | | Set-off of losses | No set-off against any other income; no carry forward of VDA losses | | TDS | Section 394 (formerly Section 194S) — 1% TDS on transfer of VDA exceeding Rs. 50,000 (Rs. 10,000 for specified persons) | | Gift of VDA | Taxable under Section 92 (formerly Section 56(2)(x)) in the hands of the recipient | | Form | Income from VDA reported in Schedule VDA of ITR |

Rule 11UAC defines "virtual digital asset" to include any information, code, number, or token generated through cryptographic means, providing a digital representation of value exchanged with or without consideration, with or without promise of return. Excluded: Gift cards, vouchers, mileage points, loyalty points, and subscription to websites/platforms.

Comparison Table: Old Regime vs New Regime (AY 2026-27)

The following comparison assumes a salaried individual with standard deductions and investments:

| Gross Income | Deductions Assumed (Old Regime) | Tax Under Old Regime | Tax Under New Regime | Better Regime | |-------------|-------------------------------|---------------------|---------------------|--------------| | Rs. 5,00,000 | Rs. 2,00,000 (80C, 80D, 24b, etc.) | Nil (rebate 87A) | Nil (rebate 87A) | Equal | | Rs. 10,00,000 | Rs. 2,50,000 | Rs. 54,600 | Rs. 44,200 | New | | Rs. 12,00,000 | Rs. 2,50,000 | Rs. 1,09,200 | Rs. 60,000 (Nil with rebate) | New | | Rs. 15,00,000 | Rs. 3,00,000 | Rs. 1,56,000 | Rs. 1,17,000 | New | | Rs. 20,00,000 | Rs. 3,50,000 | Rs. 3,04,200 | Rs. 2,73,000 | New | | Rs. 50,00,000 | Rs. 4,00,000 | Rs. 11,96,400 | Rs. 11,23,000 | New | | Rs. 1,00,00,000 | Rs. 4,50,000 | Rs. 27,30,600 | Rs. 26,73,000 | New |

Note: Old regime calculations include standard deduction of Rs. 50,000. New regime includes standard deduction of Rs. 75,000. Tax includes cess at 4%. Actual comparison depends on individual deduction profile.

Key insight: The new regime is more beneficial for most taxpayers unless they have very high deductions under the old regime (typically exceeding Rs. 3.75 lakh for incomes around Rs. 15 lakh).

Rebate Under Section 156 (formerly Section 87A)

| Parameter | Old Regime | New Regime | |-----------|-----------|------------| | Income threshold | Up to Rs. 5,00,000 | Up to Rs. 12,00,000 | | Rebate amount | Rs. 12,500 | Rs. 60,000 | | Effect | Nil tax for income up to Rs. 5 lakh | Nil tax for income up to Rs. 12 lakh | | Applicable to | Resident individuals only | Resident individuals only |

Important: The rebate under Section 156 (formerly Section 87A) applies only to resident individuals — it is not available to HUFs, firms, companies, or non-resident individuals.

Marginal relief: Where income marginally exceeds Rs. 12 lakh (new regime) or Rs. 5 lakh (old regime), marginal relief ensures that the tax payable does not exceed the amount by which income exceeds the threshold.

Surcharge Rates (AY 2026-27)

Individuals, HUFs, AOPs, BOIs

| Total Income | Surcharge Rate | |-------------|---------------| | Up to Rs. 50 lakh | Nil | | Rs. 50 lakh to Rs. 1 crore | 10% | | Rs. 1 crore to Rs. 2 crore | 15% | | Rs. 2 crore to Rs. 5 crore | 25% | | Above Rs. 5 crore | 25% (capped under new regime) |

New regime cap: Under Section 202, the maximum surcharge is 25% regardless of income level (the 37% surcharge does not apply).

Companies

| Category | Surcharge Rate | |----------|---------------| | Domestic company (normal) — income > Rs. 1 crore up to Rs. 10 crore | 7% | | Domestic company (normal) — income > Rs. 10 crore | 12% | | Companies under Sections 200/201 (formerly Sections 115BAA/115BAB) | 10% (flat) | | Foreign company — income > Rs. 1 crore up to Rs. 10 crore | 2% | | Foreign company — income > Rs. 10 crore | 5% |

Marginal relief on surcharge applies at each threshold level.

Section 206: Minimum Alternate Tax (MAT)

(Income Tax Act, 2025; formerly Sections 115JB and 115JC of the Income Tax Act, 1961)

MAT under Section 206 is covered in detail in Chapter 18. Key cross-references:

MAT rate: 15% of book profit + surcharge + cess.
MAT does not apply to companies opting for Sections 200 or 201 (formerly Sections 115BAA or 115BAB).
MAT credit under Section 206 can be carried forward for 15 years.
Form 29B (Rule 40B) — MAT computation report by a Chartered Accountant.

Landmark Judgement

CIT v. HCL Technologies Ltd (2018) 404 ITR 719 (SC)

Facts: The issue was whether a non-resident assessee receiving royalties and fees for technical services from India could claim the benefit of the lower rate prescribed under the DTAA (treaty rate) instead of the domestic rate under Section 207 (formerly Section 115A). The Revenue contended that the non-resident must pay tax at the domestic rate under Section 207, and the treaty rate was not applicable without a specific claim.

Held: The Supreme Court held that where a DTAA provides a more beneficial rate of tax than the domestic law rate under Section 207, the treaty rate shall prevail in view of Section 159(2) (formerly Section 90(2)), which provides that the provisions of the DTAA shall apply to the extent they are more beneficial to the assessee. The non-resident is entitled to be taxed at the lower of the domestic rate or the treaty rate, and this benefit is available without any specific claim if the assessee qualifies under the treaty.

Significance: This judgement clarified the interplay between Section 207 rates and DTAA rates for non-residents. It established that Section 159(2) operates as an overriding provision, and non-residents should always compare the domestic rate with the treaty rate and apply the lower rate. This is particularly relevant for royalty and FTS payments where treaty rates often range from 10-15% vs the domestic rate of 10-20%.

Worked Example: Old vs New Regime Comparison

Facts: Mr. Rajesh Kumar, a salaried individual (age 42), has the following income for AY 2026-27:

| Particulars | Amount (Rs.) | |-------------|-------------| | Gross salary | 18,00,000 | | HRA received | 3,60,000 | | HRA exemption (Schedule II, formerly Section 10(13A), Rule 2A) | 2,40,000 | | LTA received | 50,000 | | LTA exemption (Schedule II, formerly Section 10(5)) | 50,000 | | Standard deduction — Old regime (Section 19) | 50,000 | | Standard deduction — New regime (Section 19) | 75,000 | | Section 123 + Schedule XV (formerly Section 80C: PPF + ELSS + LIC) | 1,50,000 | | Section 126 (formerly Section 80D: Medical insurance — self + parents) | 75,000 | | Section 22 (formerly Section 24(b): Interest on home loan — self-occupied) | 2,00,000 | | Section 124(1)(B) (formerly Section 80CCD(1B): NPS additional) | 50,000 |

Computation Under Old Regime:

| Particulars | Amount (Rs.) | |-------------|-------------| | Gross salary | 18,00,000 | | Less: HRA exemption | (2,40,000) | | Less: LTA exemption | (50,000) | | Less: Standard deduction | (50,000) | | Income from salary | 14,60,000 | | Less: Loss from house property (Section 22) | (2,00,000) | | Gross Total Income | 12,60,000 | | Less: Section 123 (formerly 80C) | (1,50,000) | | Less: Section 126 (formerly 80D) | (75,000) | | Less: Section 124(1)(B) (formerly 80CCD(1B)) | (50,000) | | Total Income | 9,85,000 | | Tax on Rs. 9,85,000 (old slab rates) | 1,07,000 | | Add: Cess @ 4% | 4,280 | | Total Tax (Old Regime) | 1,11,280 |

Computation Under New Regime:

| Particulars | Amount (Rs.) | |-------------|-------------| | Gross salary | 18,00,000 | | Less: Standard deduction | (75,000) | | Total Income | 17,25,000 | | Tax on Rs. 17,25,000 (new slab rates): | | | 0-3L: Nil | 0 | | 3-7L @ 5% | 20,000 | | 7-10L @ 10% | 30,000 | | 10-12L @ 15% | 30,000 | | 12-15L @ 20% | 60,000 | | 15-17.25L @ 30% | 67,500 | | Total tax | 2,07,500 | | Add: Cess @ 4% | 8,300 | | Total Tax (New Regime) | 2,15,800 |

Result: Mr. Rajesh saves Rs. 1,04,520 by opting for the Old Regime through Form 10-IEA. This is because his total deductions and exemptions (Rs. 8,15,000) substantially reduce his taxable income under the old regime.

Break-even point: If Mr. Rajesh had deductions less than approximately Rs. 3,75,000, the new regime would have been more beneficial. The exact break-even depends on income level and deduction composition.

Expert Tip

CA Vrajkishor Changani says: The new regime under Section 202 is the default, but do not blindly accept it. Run a detailed comparison for each assessment year — your deduction profile may change year to year. For salaried individuals with home loans (Section 22), HRA, and full Section 123 investments (formerly Section 80C), the old regime often remains beneficial up to incomes of Rs. 20-25 lakh. However, if you have business income, be cautious about opting out — the one-time switch-back restriction applies. For companies, Section 200 (formerly Section 115BAA) at 25.17% is almost always more beneficial than the normal 30% rate, but ensure you are not losing valuable exemptions (like Schedule VI for SEZ units) that exceed the 4.83% rate saving. Always file Form 10-IC or 10-ID before the due date — late filing means you cannot claim the concessional rate for that year.

Section Interconnect

Also read: Chapter 1 — Basis of Charge (understanding tax year, assessment year, and applicability of Finance Act rates)
Also read: Chapter 9 — Deductions (Sections 122-154) (detailed coverage of deductions not available under new regime under Section 202)
Also read: Chapter 12 — Unexplained Income (Sections 102-106) (income taxed at 78% under Section 195, formerly Section 115BBE)
Also read: Chapter 18 — MAT & AMT (Section 206 applicability for companies not under Sections 200/201)

Frequently Asked Questions

Q1: Is the new tax regime mandatory for all individuals from AY 2024-25?

The new regime under Section 202 (formerly Section 115BAC) is the default regime from AY 2024-25, but it is not mandatory. Taxpayers can opt out by filing Form 10-IEA before the due date of filing the return. For salaried individuals without business income, the choice can be exercised every year. For individuals with business income, the opt-out can be exercised once, after which the taxpayer cannot return to the old regime except once.

Q2: Can a company switch between Section 115BAA and normal provisions?

No. The option under Section 200 (formerly Section 115BAA) is irrevocable. Once a company files Form 10-IC and opts for the 22% concessional rate, it cannot withdraw this option in any subsequent assessment year. The company must continue under Section 200 permanently. Therefore, companies should carefully evaluate the impact before exercising this option, considering future exemptions and incentives they may want to claim.

Q3: Is surcharge applicable on tax under Section 115BBH (crypto income)?

Yes. Tax at 30% under Section 194 (formerly Section 115BBH) is subject to applicable surcharge and Health & Education Cess at 4%. The surcharge rates are the same as applicable to the individual based on total income. However, the flat 30% rate applies regardless of the taxpayer's slab rate — even if total income is below Rs. 3 lakh, the VDA income is taxed at 30%.

Q4: Can losses from one cryptocurrency be set off against gains from another cryptocurrency?

Yes. Losses from transfer of one virtual digital asset can be set off against gains from transfer of another virtual digital asset within the same assessment year. However, such losses cannot be set off against any other head of income, and they cannot be carried forward to subsequent years. The cost of acquisition of the VDA being transferred is the only deduction allowed — no other expenditure (mining cost, transaction fees, etc.) is deductible under Section 194 (formerly Section 115BBH).

Q5: How does marginal relief work for surcharge?

Marginal relief ensures that the additional tax (including surcharge) does not exceed the additional income above the threshold. For example, if an individual has total income of Rs. 50,10,000, the surcharge at 10% on total tax would result in a higher tax burden than the additional Rs. 10,000 income justifies. In such cases, marginal relief limits the total tax to: Tax on Rs. 50,00,000 + Rs. 10,000 (the excess income). This prevents the cliff effect at surcharge thresholds and ensures a gradual increase in tax liability.

Disclaimer: This article is for educational purposes only and does not constitute legal or tax advice. Tax laws are subject to amendments. Please consult qualified CAs for advice specific to your situation.

Confused about which tax regime to choose? Our qualified CAs at DRSPV & Associates can run a personalised old vs new regime comparison for you. Chat with us on WhatsApp for a personalised consultation.

Special Tax Rates & New Tax Regime — Section 202 (formerly 115BAC) | Complete Guide to Concessional Rates