• Section 115BAC introduces a simplified tax regime with lower rates but fewer deductions.
• Old regime may be better for serving defence personnel with many allowances.
• Pensioners and those without deductions may benefit from the new regime.
• Latest AY 2025-26 updates include ₹7 lakh rebate and standard deduction in the new regime.
• Compare both regimes before filing your ITR for defence personnel.

The Union Budget introduced Section 115BAC to simplify taxation and offer an alternative New Tax Regime for taxpayers, including defence personnel. This regime provides lower tax rates but removes most exemptions and deductions. As a soldier, officer, or defence pensioner, you need to understand how this affects allowances, arrears, and deductions before filing your Income Tax Return (ITR) for AY 2025-26.

In this blog, we will explain what Section 115BAC is, how it compares to the old regime, its impact on defence allowances, and which option suits you best.

Section 115BAC of the Income Tax Act offers taxpayers a choice between:

• Old Tax Regime: Higher tax rates but allows deductions like 80C, HRA, LTA.
• New Tax Regime: Lower tax rates but no major deductions or exemptions.

Under the New Tax Regime (115BAC), you pay tax at concessional rates but cannot claim popular deductions like HRA, Standard Deduction, Chapter VI-A deductions, or Leave Travel Allowance.

Read More: What Happens If You Miss ITR Filing Deadline?

Here’s the latest slab structure applicable under 115BAC for FY 2024-25 (AY 2025-26):

Rebate under Section 87A: If your taxable income ≤ ₹7 lakh, you pay zero tax under the new regime.

Read More: How is Income Tax Rebate Under Section 87A Calculated?

Example: Serving Army Officer

• Basic Pay + MSP + Allowances: ₹14,00,000/year
• Old Regime: After claiming HRA, 80C, 80D, taxable income = ₹11,50,000 → Tax ~₹1,20,000
• New Regime: No deductions allowed, taxable = ₹14,00,000 → Tax ~₹1,45,000

The old regime is better here because deductions are significant.

Example: Defence Pensioner

• Annual Pension: ₹8,00,000
• No major deductions left
• Old Regime: ₹8,00,000 – ₹50,000 (Standard Deduction) → ₹7,50,000 taxable
• New Regime: ₹8,00,000 taxable

The new regime may be better for pensioners with fewer deductions.

Read More: Understanding the New Tax Regime vs. Old Tax Regime for FY 2024-25

Under the new regime, major allowances and exemptions are NOT allowed, including:

• Field Area Allowance
• High Altitude Allowance
• Uniform Allowance
• HRA (House Rent Allowance)
• Leave Travel Allowance

These exemptions can significantly reduce taxable income in the old regime, so defence personnel with high allowances should carefully calculate before switching to the new regime.

Read More: ITR Filing Guide for Defence Personnel

• New Regime is Default: As of 1 April 2023, the new tax regime becomes the default option. You must opt out if you prefer the old regime.
• Rebate under Section 87A: Tax-free income limit is ₹7 lakh under the new regime.
• Standard Deduction of ₹50,000 is now allowed in the new regime (from FY 2023-24 onwards).
• Family Pension Deduction is also allowed under the new regime.

• While filing your ITR for AY 2025-26, choose the new regime option under the applicable section.
• Serving officers with a salary income can opt for it each year.
• Taxpayers with business income must adhere to their choice for the next five years.

Choose New Tax Regime under Section 115BAC if:
✔ You do not claim many deductions (HRA, LTA, 80C, etc.)
✔ Your income is less than ₹7 lakh (due to 87A rebate)
✔ You are a retired officer or pensioner with fewer exemptions

Read More: How Defence Personnel Can File a Belated or Revised ITR

Choosing between the old and new tax regimes depends on your income structure and available deductions. Defence personnel with allowances often benefit from the old regime, while pensioners or those without deductions may find the new regime attractive.

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