Section 115BAC of Income Tax Act

  • Author :
  • TATA AIG Team
  • Published on :
  • 29/11/2023

The Indian Government introduced the new tax regime on April 1, 2020 (FY 2020-21) as an optional tax regime that Indian taxpayers can opt for each financial year. However, according to the 2023 Union Budget amendments, the new tax regime has been made the default option.

Taxpayers must now select the old tax regime at the start of the financial year or when filing their Income Tax Returns (ITR) if they wish to use it. Both have pros and cons; the old one offers several deductions and the new one offers a higher basic exemption limit of ₹3 lakhs.

If you have been sticking to the old regime until now and are considering switching to the new tax regime under 115BAC, we have listed everything you need to know about the new tax regime in this blog.

What is Section 115BAC of the Income Tax Act?

Section 115BAC of the Income Tax Act was added in Budget 2020 and has been applicable since the financial year (FY) 2020 - 21, or Assessment Year 2021 - 22. It is essentially the new tax regime.

It offers reduced tax rates to taxpayers on forgoing certain deductions and exemptions, a higher tax rebate limit of ₹7 lakhs on taxable income and a streamlined tax slab where the exemption limit has been increased to ₹3 lakhs.

The new regime also now offers the Standard Deduction of ₹50,000 for salary income, which can be applied to income earned during the FY 2023-24 and to the following years as well.

Section 115BAC Slab Rates: Tax Rates Under the New Regime

Tax Slab Rate for FY 2023 - 24 (AY 24 - 25)

Here are the tax slab rates under 115BAC for senior citizens and individuals under 60 years:

Annual Income Slab Income Tax Rate 
₹0 - ₹3,00,000 Nil 
₹3,00,001 - ₹6,00,000 0.05
₹6,00,001 - ₹9,00,000 ₹15,000 + 10% of total income over ₹6,00,000
₹9,00,001 - ₹12,00,000 ₹45,000 + 15% of total income over ₹9,00,000
₹12,00,001 - ₹15,00,000 ₹90,000 + 20% of total income over ₹10,00,000
Above ₹15,00,000 ₹150,000 + 30% of total income over ₹15,00,000

Surcharge Rates for FY 23-24 (AY 24-25)

Surcharge rates are applied to taxpayers with annual incomes exceeding ₹50 lakhs. This is an additional tax rate that must be paid with the 30% tax rate stated above by taxpayers earning a higher income during a financial year. These are the applicable surcharge rates:

Annual Taxable Income  Surcharge Rate
₹50 Lakhs to ₹1 Crore 0.1
₹1 Crore to ₹2 Crore 0.15
₹2 Crore to ₹5 Crore 0.25
₹5 Crore to ₹10 Crore 0.25
₹10 Crore & Above 0.25

The surcharge rate for capital gains under Sections 111A, 112A and 115AD is capped at 15%, regardless of the taxable income amount.

Useful Links: Income Tax Department Tax Rate Circular for FY 2023 - 24

Comparing the New and Old Regime Tax Slab Rates:

<th colspan=2>New Regime </th>
Old Regime 
Income Tax Slab Income Tax Rate  Income Tax Slab Income Tax Rate 
₹0 - ₹2,50,000 Nil ₹0 - ₹3,00,000 Nil 
₹2,50,001 - ₹5,00,000 5% above ₹2,50,000 ₹3,00,001 - ₹6,00,000 0.05
₹5,00,001 - ₹10,00,000 ₹12,500 + 20% above ₹5,00,000 ₹6,00,001 - ₹9,00,000 ₹15,000 + 10% of total income over ₹6,00,000
Above ₹10,00,000 ₹1,12,500 + 30% above ₹10,00,000 ₹9,00,001 - ₹12,00,000 ₹45,000 + 15% of total income over ₹9,00,000
- - ₹12,00,001 - ₹15,00,000 ₹90,000 + 20% of total income over ₹10,00,000
- - Above ₹15,00,000 ₹150,000 + 30% of total income over ₹15,00,000

Section 115BAC Applicability: Eligibility Criteria for the New Tax Regime

Hindu Undivided Families (HUFs) and individuals can opt for the new regime. Starting from April 1, 2023, Associations of Persons (AOPs) are also eligible. This does not include bodies of individuals, cooperative societies and artificial judicial persons.

Eligible taxpayers can also only opt to pay tax under the new tax regime u/s 115BAC if the calculation for their declared taxable income for the financial year is done without including the following exemptions and deductions:

  • All deductions under Chapter VI-A, except those u/s 80CCD and 80JJAA.

  • Deductions u/s 35, 35AD and 35CCC.

  • Deductions u/s 32(1), 32AD, 33AB and 33ABA.

  • Clause (5)/(14)/(13A)/(17)/(32) u/s 10, 10AA and 16.

  • Clause (iia) of Section 57.

  • Section 24b.

  • The calculation is done without considering losses from previous AYs caused by the stated deductions or from real estate owned by the homeowner/taxpayer.

  • The calculation is done without making exemptions or deductions for any allowances received. E.g. HRA, Leave Travel allowance, etc.

Can I Change Between the New Regime U/S Section 115BAC and the Old Regime?

Yes, but this is subject to certain conditions.

Form 10IE: Before, taxpayers who wished to choose the new tax regime u/s 115BAC had to furnish Form 10IE when filing their ITRs. Now, that form has been withdrawn as the new tax regime has become the default one.

Salaried individuals can opt for the new tax regime by informing their employer at the start of the financial year. They can not change tax regimes during the FY, but they can switch to the old or new regime at the start of the next FY.

Non-salaried taxpayers can choose between the two when filing their ITR. The due date for ITR filing for FY 2022-23 (AY 2023-24) is July 31 2023. They are not mandated to declare their choice during the year.

However, non-salaried taxpayers with an income from a business or profession (E.g. consultants, freelancers, etc.) can not switch regimes every FY. They will only be allowed to switch back to the old regime once in a lifetime.

Once the switch has been made, they can not switch back to the new regime. They can only switch back to the new regime if their business income stops in the future years.

Exemptions and Deductions Applicable for New Tax Regime U/S 115BAC of the Income Tax Act

Of the 70+ exemptions and deductions available under the old tax regime, these are the ones you can apply for under the new tax regime:

  • Transport reimbursement for disabled workers.

  • Additional Employee Costs: Section 80JJAA deductions.

  • Employee daily allowance, given under specific situations.

  • Any reimbursement for a trip, transfer, transportation or tour.

  • Employer contributions to a pension account are deductible under section 80CCD(2).

  • Gifts up to ₹50,000.

  • Conveyance reimbursement for office work.

  • Deductions under Section 57(iia).

  • Deduction under Section 80CCH(2) for amount(s) paid to the Agniveer Corpus Fund.

  • Interest payments for a home loan on rented/let-out property (Section 24)

  • Tax Exemption for Voluntary Retirement: Sections 10(10C), leave encashment u/s 10(10AA) and gratuity u/s 10(10).

Deductions Not Applicable for the New Tax Regime U/S 115BAC of the Income Tax Act

Since the list of exemptions is quite exhaustive, here are the key exclusions to look out for:

  • Chapter VI-A Deductions: Sections 80D, 80C, 80E, etc., except Sections 80JJAA and 80CCD(2).

  • Savings account deductions under Section 80TTA/80TTB.

  • Leave Travel Allowance (LTA) and House Rent Allowance (HRA).

  • Professional tax and entertainment allowance on salaries.

  • Allowances: Minor income allowance, Children's education allowance, Helper allowance and allowances under Section 10(14).

  • Home loan interest payments for self-occupied and vacant property (Section 24).

  • Employee's (self) contribution to their NPS fund.

  • Exemption/deduction for perquisites allowances like food allowance.

  • Sections 80G/80GGA/80GGC, donations to political parties, charities, trusts, etc.

Can I Still Get Claim Deductions Under Section 80C and 80D in The New Regime U/S 115BAC?

No, you cannot claim tax deductions under Section 80C or 80D if you opt for the new tax regime. These two popular Sections are some of the key exclusions that are no longer applicable under the new regime.

If you are investing in financial and investment avenues applicable for deduction under Sections 80C and 80D, we recommend carefully considering your tax liability under both the new and old regimes before making the switch. Especially if you are a non-salaried taxpayer since you can only switch once.

To help you along, we recommend using a 115BAC income tax calculator, as it will give more accurate estimates. An online calculator is available on the Income Tax Department's official portal.

New Regine Vs. Old Regime

Generally, the new tax regime offers lower taxes for taxpayers who do not claim exemptions or deductions when filling their ITRs. Here is a brief overview of the tax liability under the new and the old regimes without claiming exemptions or deductions for FY 2023-24 (AY 2024-25):

Annual Taxable Income (After Standard Deduction) Tax Under the Old Regime Tax Under the New Regime Tax Savings Under the New Regime
Up to ₹7,50,000 ₹65,000 ₹31,200 ₹33,800
Up to ₹10,00,000 ₹117,000 ₹62,400 ₹54,600
Up to ₹12,50,000 ₹195,000 ₹1,04,000 ₹65,000
Up to ₹15,00,000 ₹273,000 ₹1,56,000 ₹1,17,000

Conclusion

Section 115BAC of The Income Tax Act offers a more streamlined approach to income tax. If you are someone who claims lower deductions for investments, like NPS, life insurance or health insurance, the new regime may be more beneficial.

In contrast, the old regime may be better suited for taxpayers who rely more on tax-saving investments.

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We offer several types of health insurance plans that can be tailored to your needs. Always compare health insurance policies with each other before buying to ensure you are offered adequate coverage at a competitive rate.

Note: Tax deduction under Section 80D is only available under the Old Tax Regime.

Disclaimer / TnC

Your policy is subjected to terms and conditions & inclusions and exclusions mentioned in your policy wording. Please go through the documents carefully.

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