NEW TAX REGIME PROVISIONS FOR
INDIVIDUALS AND HUFs
Under the Income-tax Act, 202
Effective from Assessment Year 2026-27 | March 2026
1. Introduction
The Income-tax Act, 2025 is a landmark legislative reform introduced to replace the six-decade-old Income-tax Act, 1961. Coming into effect from 1st April 2026 (Assessment Year 2026-27), it aims to simplify tax provisions, improve ease of compliance, and make the law more accessible to common taxpayers. Among its most significant provisions is the restructured New Tax Regime under Section 202, which consolidates and upgrades the earlier framework of Section 115BAC of the 1961 Act.
The New Tax Regime is now the default tax option for Individuals, Hindu Undivided Families (HUFs), Associations of Persons (AOPs), Bodies of Individuals (BOIs), and Artificial Juridical Persons (AJPs). It offers concessional tax rates in exchange for forgoing certain traditional exemptions and deductions. However, taxpayers retain the flexibility to opt out and choose the Regular (Old) Tax Regime if it proves more beneficial to them.
2. Eligible Assessees Under Section 202
The following categories of assessees are covered under the New Tax Regime provisions of the Income-tax Act, 2025:
- Individual taxpayers (resident and non-resident)
- Hindu Undivided Families (HUFs)
- Associations of Persons (AOPs) — excluding co-operative societies
- Bodies of Individuals (BOIs)
- Artificial Juridical Persons (AJPs)
Like the earlier system, eligible assessees can choose between the Normal Tax Method and the New Tax Regime. Since AY 2024-25, the New Tax Regime has been the default regime. If a taxpayer does not want to pay tax under the New Regime, they must explicitly opt out.
3. Tax Rates Under the New Tax Regime (AY 2026-27)
The New Tax Regime provides significantly revised and taxpayer-friendly slab rates for Individuals and HUFs. The basic exemption limit has been increased to ₹4,00,000. The following rates are applicable for FY 2025-26 (AY 2026-27):
| Total Income (₹) | Tax Rate |
| Up to ₹4,00,000 | NIL |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
Note: A Health & Education Cess of 4% is levied on the income tax amount (plus applicable surcharge). The above rates apply equally to resident individuals, non-resident individuals, and HUFs.
4. Surcharge Rates
Surcharge is levied on the income tax payable if total income exceeds specified thresholds. Under the New Tax Regime, the applicable surcharge rates are:
| Total Income Range | Surcharge Rate |
| ₹50 lakhs to ₹1 crore | 10% |
| ₹1 crore to ₹2 crore | 15% |
| Above ₹2 crore | 25% |
Important: The enhanced surcharge of 25% and 37% (applicable under the old regime) is not levied on income taxable under Sections 111A (short-term capital gains), 112, 112A (LTCG on equity), and dividend income. The maximum surcharge on such income is capped at 15%. Marginal relief from surcharge is also available in appropriate cases.
5. Tax Rebate Under Section 156
One of the most significant taxpayer-friendly features of the New Tax Regime under the Income-tax Act, 2025 is the enhanced tax rebate under Section 156(2). This effectively makes income up to ₹12,00,000 tax-free for resident individuals.
5.1 Eligibility
- The rebate is available to resident individuals opting for the New Tax Regime.
- Total income should not exceed ₹12,00,000. (excluding income taxable at special rates such as capital gains).
- The maximum rebate is ₹60,000 or the actual income tax payable, whichever is lower.
5.2 Marginal Relief under Rebate
If total income slightly exceeds ₹12,00,000, marginal relief ensures the tax payable does not exceed the amount by which income exceeds ₹12,00,000. This prevents a sharp tax burden on those who earn marginally above the threshold.
Example: If total income is ₹12,50,000 and tax payable is ₹65,000, the excess income is ₹50,000. Since tax (₹65,000) exceeds excess income (₹50,000), the rebate is: Tax Rebate = ₹65,000 − ₹50,000 = ₹15,000. Net tax payable = ₹50,000.
5.3 Important Note for HUFs
The tax rebate under Section 156 is available only to resident individuals. HUFs are not entitled to this rebate. However, HUFs still benefit from the lower slab rates and higher basic exemption limit of ₹4,00,000 under the New Regime.
6. Standard Deduction for Salaried Individuals
A flat standard deduction of ₹75,000 is available to salaried taxpayers and pensioners under the head ‘Income from Salary’ even under the New Tax Regime. This effectively raises the tax-free income threshold for a salaried individual to ₹12,75,000.
Note: The standard deduction is NOT available to HUFs, as it is specifically applicable to salaried individuals and pensioners under Section 16(ia).
7. Deductions and Exemptions Allowed Under the New Regime
Although the New Tax Regime disallows many traditional deductions, the following allowances and deductions continue to be available:
| Deduction / Allowance | Remarks |
| Standard Deduction – ₹75,000 | For salaried individuals & pensioners |
| Employer’s NPS Contribution (Sec 80CCD(2)) | Allowed — up to 14% of salary |
| Gratuity Exemption | Allowed as per limits |
| Leave Encashment on Retirement | Allowed up to prescribed limits |
| Voluntary Retirement Scheme (VRS) Amount | Exempt up to ₹5 lakh |
| Transport Allowance (Divyaang) | For specially-abled employees |
| Conveyance/Tour/Transfer Allowances | Allowances related to official duty |
| AMT not applicable | AMT provisions do not apply if New Regime is chosen |
8. Deductions and Exemptions NOT Available Under the New Regime
To avail the concessional slab rates, taxpayers opting for the New Tax Regime must forgo the following common deductions:
- House Rent Allowance (HRA) — Section 10(13A)
- Leave Travel Allowance (LTA) — Section 10(5)
- Standard Deduction for HUFs (not applicable)
- Interest on Housing Loan for Self-Occupied Property — Section 24(b)
- Chapter VI-A Deductions — Section 80C (LIC, PPF, ELSS, etc.)
- Section 80D — Health Insurance Premium
- Section 80G — Donations to charitable institutions
- Section 80TTA/80TTB — Interest on savings/senior citizen deposits
- Section 80DD, 80DDB — Disability-related deductions
- Most other Chapter VI-A deductions
For HUFs specifically: Chapter VI-A deductions (80C, 80D, 80G, etc.) are completely disallowed. HUFs also cannot claim HRA or LTA-type exemptions, as these apply only to salaried individuals.
9. Alternate Minimum Tax (AMT) — Not Applicable
A key relief under the New Tax Regime is that the provisions of Alternate Minimum Tax (AMT) do not apply to assessees who have opted for the New Tax Regime. Under the Regular Regime, an individual or HUF with total income exceeding ₹20 lakh may be subject to AMT at 18.5% of adjusted total income if regular tax liability is lower. This provision is entirely bypassed under the New Regime, simplifying tax computation considerably.
10. How to Opt Out — Choosing the Regular (Old) Tax Regime
Since the New Tax Regime is the default, taxpayers who wish to continue under the old system must explicitly opt out:
10.1 Individuals/HUFs Without Business Income
These taxpayers can switch between the two regimes every year. They indicate their choice while filing the Income Tax Return (ITR) within the due date under the relevant provision of the Act.
10.2 Individuals/HUFs With Business or Profession Income
These taxpayers are required to file Form 10-IEA on or before the due date for furnishing the return of income if they wish to opt out of the New Regime. The option to withdraw and re-enter the default New Tax Regime is available only once in a lifetime for such taxpayers.
11. Special Provisions for HUFs
Hindu Undivided Families (HUFs) have unique features under both regimes that merit specific attention:
- A HUF is a distinct taxable entity under the Income-tax Act and is taxed separately from its members.
- The New Tax Regime is the default for HUFs, with a basic exemption limit of ₹4,00,000.
- HUFs do not enjoy the age-based exemption relaxations applicable to senior citizen individuals (₹3,00,000) or super senior citizens (₹5,00,000) under the old regime.
- HUFs are not eligible to avail the standard deduction of ₹75,000.— it is available only to salaried individuals/pensioners.
- No tax rebate under Section 156 is available to HUFs (only resident individuals).
- Under the old regime, HUFs can claim Section 80C (up to ₹1.5 lakh), Section 80D, Section 24(b) for housing loan interest, and other deductions.
- Clubbing provisions (income of another person included in HUF income) continue to apply as per relevant sections.
- HUF income is bifurcated into Normal Income and Special Income for computation.
12. Quick Comparison: New vs. Regular (Old) Tax Regime for Individuals/HUFs
| Feature | New Tax Regime | Regular (Old) Regime |
| Default Status | YES — Default | Must Opt-In |
| Basic Exemption (Individual) | ₹4,00,000 | ₹2,50,000 (below 60 yrs) |
| Basic Exemption (HUF) | ₹4,00,000 | ₹2,50,000 |
| Tax-Free Income (Individual with Rebate) | Up to ₹12,00,000 | Up to ₹5,00,000 |
| Standard Deduction (Salary) | ₹75,000 | ₹50,000 |
| HRA Exemption | Not Allowed | Allowed |
| LTA Exemption | Not Allowed | Allowed |
| Section 80C Deduction | Not Allowed | Up to ₹1,50,000 |
| Section 80D (Health Insurance) | Not Allowed | Allowed |
| Housing Loan Interest (Self-occupied) | Not Allowed | Up to ₹2,00,000 |
| Employer NPS Contribution (80CCD(2)) | Allowed | Allowed |
| AMT Applicability | Not Applicable | Applicable (above ₹20L) |
| Tax Rebate | Up to ₹60,000 (Individuals only) | Up to ₹12,500 |
| Switching Flexibility (non-business) | Annual | Annual |
| Switching Flexibility (business income) | Once in Lifetime | Once in Lifetime |
13. Conclusion
The New Tax Regime under the Income-tax Act, 2025 represents a paradigm shift in Indian personal taxation — favouring simplicity, transparency, and reduced rates over the complex web of deductions and exemptions that characterised the old system. With the enhanced rebate of ₹60,000 effectively making income up to ₹12 lakh tax-free for resident individuals, and a standard deduction extending this to ₹12.75 lakh for salaried taxpayers, the new regime offers compelling benefits for middle-income earners.
For HUFs, while the rebate benefit is absent, the lower slab rates and higher basic exemption limit provide meaningful relief, particularly for those without significant deduction-eligible investments.
That said, the choice between regimes is not one-size-fits-all. Taxpayers with substantial investments in 80C instruments, home loans, significant medical insurance premiums, HRA, or other deductions may still find the old regime more tax-efficient. A careful comparison based on one’s specific income profile and deductible investments remains essential before finalising the regime for each assessment year.
As the Income-tax Act, 2025 takes effect from 1st April 2026, both individuals and HUFs are encouraged to review their tax planning strategies comprehensively to make the most informed choice.
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