Starting in 2020, a new tax system was introduced (Section 115BAC) that gives you a choice. You can either stick with the existing system with its deductions and exemptions, or you can opt for the new system with lower tax rates. The catch? The new system has fewer deductions and exemptions you can claim. This article will focus on what deductions are still allowed under the new system.
What is Section 115BAC: New Tax Regime
Section 115BAC, the new tax regime, was implemented starting FY 2020-21 (AY 2021-22). It offers concessional tax rates with limited deductions and exemptions. The Budget 2023 further amended Section 115BAC, making the new regime the default from FY 2023-24. Taxpayers who prefer the old regime must file Form 10-IEA before the ITR filing deadline.
Section 115BAC: Tax Rates Under the New Regime
The Budget 2023 introduced revised income tax slabs for the new tax regime. The updated tax slabs for FY 2023-24 (AY 2024-25) and FY 2022-23 (AY 2023-24) are detailed in the table below. Meanwhile, please note that the income tax slabs and rates under the old tax regime remain unchanged.
| Income Slabs | Tax Rates Under New Regime (FY23-24) |
| Up to ₹3,00,000 | 0% |
| ₹3,00,001 to ₹6,00,000 | 5% |
| ₹6,00,001 to ₹9,00,000 | 10% |
| ₹9,00,001 to ₹12,00,000 | 15% |
| ₹12,00,001 to ₹15,00,000 | 20% |
| Above ₹15,00,000 | 30% |
Old vs New: Which Regime to Choose Under Section 115BAC?
Section 115BAC introduced the new tax regime, offering a tempting alternative with lower tax slabs. But is it the right choice for everyone? The answer depends on your financial situation, including income sources, investments, and deductions you utilize.
Let's break down the key differences between the old and new tax regimes:
| Feature | Old Tax Regime | New Tax Regime |
| Tax Rates | Generally higher tax rates | Lower tax rates |
| Deductions & Exemptions | Wide range of deductions and exemptions available (like HRA, LTA) | Limited deductions and exemptions |
Income Bracket (₹) | Tax Rates (in % p.a.) | ||||
| Old Tax Regime (FY 2023-24) | New Tax Regime (FY 2022-23) | New Tax Regime (FY 2023-24) | |||
For Individuals/ HUFs (aged less than 60 years) | For Individuals/ HUFs (aged 60 or less than 80 years) | For Individuals/ HUFs (aged 80 or more) | |||
| ₹0 to ₹2,50,000 | 0% | 0% | 0% | 0% | 0% |
| ₹2,50,001 to ₹3,00,000 | 5% | 0% | 0% | 5% | 0% |
| ₹3,00,001 to ₹5,00,000 | 5% | 5% | 0% | 5% | 5% |
| ₹5,00,001 to ₹6,00,000 | 20% | 20% | 20% | 10% | 5% |
| ₹6,00,001 to ₹7,50,000 | 20% | 20% | 20% | 10% | 5% |
| ₹7,50,001 to ₹9,00,000 | 20% | 20% | 20% | 15% | 10% |
| ₹9,00,001 to ₹10,00,000 | 20% | 20% | 20% | 15% | 15% |
| ₹10,00,001 to ₹12,00,000 | 30% | 30% | 30% | 20% | 15% |
| ₹12,00,001 to ₹12,50,000 | 30% | 30% | 30% | 20% | 20% |
| ₹12,50,001 to ₹15,00,000 | 30% | 30% | 30% | 25% | 20% |
| Above ₹15,00,000 | 30% | 30% | 30% | 30% | 30% |
Section 115BAC: Are You Eligible for the New Regime Deduction?
Individuals and Hindu Undivided Families (HUFs) can choose the new tax slab rates under Section 115BAC, but there are some key requirements to meet for your annual income:
- Income from business or profession must be excluded from the total income.
- The total income should be calculated without utilizing deductions/exemptions from sections such as Chapter VIA (except Section 80CCD and Section 80JJAA), Sections 24(b), 10, 32, 35, etc.
- Consider exclusions specified in Clause (5), (13A), (14), (17), and (32) of Section 10, as well as Section 10AA and Section 16.
- Past losses due to claiming the specified deductions or owning a house should not be offset.
- No exemptions or deductions for allowances or perks are allowed.
- Depreciation under Section 32(IIA) is not claimable when calculating total income under Section 115BAC.
To be eligible under Section 115BAC, your total income calculation excludes any past losses from the mentioned deductions or real estate ownership.
Section 115BAC New Tax Regime: What You Can't Claim
Under Section 115BAC, both Hindu Undivided Families (HUFs) and individuals can opt to be taxed under revised tax slab rates. However, eligibility hinges on meeting certain criteria regarding the composition of total income for the financial year:
| Category | Description | Example |
| Basic Salary | Standard deduction to simplify your tax filing | No flat deduction of ₹50,000 (as of FY 2022-23) |
| Salary Perks | Allowances that might come with your job | Can't deduct entertainment allowances, professional tax on salary, or helper allowances |
| Travel & Housing | Allowances for travel and housing expenses | Can't claim benefits like Leave Travel Allowance (LTA) or House Rent Allowance (HRA) |
| Family Support | Deductions for family-related expenses | Can't deduct special allowances for children's education or income from minor children |
| Real Estate | Interest paid on home loans | Interest on loans for self-occupied or vacant properties isn't deductible |
| Investment Deductions (Limited) | Tax benefits for investments (except specific ones) | Most deductions under Chapter VI-A are unavailable, except for specific Sections like contributions to NPS (Section 80CCD(2)) and benefits for resident individuals (Section 80JJAA) |
| Donations & Contributions | Deductions for charitable donations and personal contributions | Can't deduct donations to trusts or political parties, or your own contributions to NPS |
Conclusion
Ultimately, the choice between the old and new tax regimes boils down to your individual deduction needs. If you utilize a lot of deductions, the old regime might offer a bigger tax advantage. However, the new regime's lower tax slabs can be appealing to those with minimal deductions.
Remember: Consulting a tax advisor to analyze your specific situation is always recommended. They can help you determine which regime offers the most tax benefit for your unique circumstances.
FAQs
Can I opt out of 115BAC (New Tax Regime) after the due date?
Unfortunately, no. To opt out of the new tax regime, you need to file Form 10-IEA by the due date for filing your income tax return (specified under Section 139(1)). Missing this deadline locks you into the new regime for that particular financial year.
How many times can a salaried person change his tax regime?
You generally only get one chance to switch back to the old regime after opting for the new one. This means choosing the right regime at the outset is crucial for tax optimization.
What are the rules under Section 115BAC?
The key rule of the new tax regime is that you forfeit most deductions and exemptions commonly used under the old regime. These include popular deductions like House Rent Allowance (HRA), Leave Travel Allowance (LTA), and deductions under Chapter VI-A (except for specific sections). The benefit lies in the potentially lower tax rates offered by the new regime.
What falls under Section 115BAC?
Section 115BAC essentially lays out the framework for the new tax regime. It defines the eligibility criteria, tax rates, and limitations on deductions and exemptions applicable to those who choose this option.