Section 115BAC: A Guide to the New Tax Regime

Since its introduction in the budget 2020, Section 115BAC of the Income Tax Act 1961 has become significantly important as it offers a new regime to the taxpayers. The new tax regime provides an option to pay income tax at lower tax rates by permitting limited exemptions and deductions to individuals and HUF taxpayers. With the amendment in budget 2023, the new regime is now made default starting from financial year 2023-24.

In this comprehensive blog, let’s understand more about Section 115BAC of the Income Tax Act, its tax rates, current updates, eligibility criteria, and exemptions and deductions available to taxpayers.

What is Section 115BAC of Income Tax Act?

Let’s understand what is the new tax regime 115BAC. Section 115BAC of the Income Tax Act allows an alternative tax regime for individuals and Hindu Undivided Families (HUF). Taxpayers who have income other than from profession or business can choose to pay income tax at lower rates but must give up on exemptions and deductions that were available under the existing tax regime. It was introduced to simplify the tax structure and tax filing process for individuals with fewer investments and deductions.

Section 115BAC offers a choice between tax slabs and rates under new tax regime u/s 115BAC and old regime. Those who choose the new tax regime cannot claim various exemptions and deductions, including HRA , LTA , 80C, 80D , and others. Although the new tax regime was made default in Budget 2023, if an individual, HUF, AOP (not being co-operative societies), BOI, or Artificial Juridical Person having income from business and profession still wish to choose the old tax regime, they need to submit Form 10-IEA on or before the due date u/s 139(1) for filing their ITR (Income Tax Return).

What are the Tax Rates under the New Tax Regime?

The income tax slabs under the new tax regime u/s 115BAC have been revised in the Budget for 2023. The following table shows the updated tax rates for FY 2023-24.

Who is Eligible for the New Tax Regime on Section 115BAC?

Conditions under which Hindu Undivided Families (HUFs) and individuals pay income tax according to new tax slab rates:

• All deductions under Chapter VI-A, except for sections 80CCD and 80JJAA.
• Deductions specified in Sections 35, 35AD, and 35CCC.
• Deductions under Section 57(iia).
• Deductions specified in Section 24(b).
• Exclusions under Clauses (5), (13A), (14), (17), and (32) of Section 10, as well as Sections 10AA and 16.
• Deductions under Sections 32(1), 32AD, 33AB, and 33ABA.
• The calculation does not offset any losses from previous years resulting from the above deductions or losses from house property.

• The calculation does not consider any deductions or exemptions related to perquisites or allowances.
• It does not include any additional depreciation as per Clause (iia) of Section 32.

What are the Exemptions and Deductions Allowed under New Income Tax Regime?

Transport Allowance for Differently-Abled Employees

• Covers the commuting costs between their residence and workplace

Conveyance Allowance for Office Duties

• Reimburses transportation expenses during work-related activities.

Tour and Travel Allowance

• Covers the costs of official tours and travel, or any business-related travel expenses such as accommodation.

Daily Allowance for Duty Travel

• Covers expenses spent by employees when they are required to work at locations other than their usual place of work.

Exemption on the amount received under

• Voluntary retirement (Section 10 (10C))

• Gratuity received as per Section 10(10)

• Leave encashment as per Section 10(10AA)

• Gifts up to INR 50,000.

Deduction for interest paid on home loan(Section 24) for let-out property.

Employer’s Contribution to NPS (Section 80CCD(2))

• Deduction for employer’s contribution to National Pension System that cannot exceed 10% of employee’s previous year’s salary.

A standard deduction of INR 50,000 is introduced in Budget 2023 for financial year 2023-24.

Deductions on family pension (Section 57(iia)), and deductions for amounts paid or deposited in Agniveer Corpus Fund are also introduced in Budget 2023.

Difference Between Old Regime and New Regime

Choosing between the old and new tax regimes is important as they both have their own advantages and disadvantages.

• The new tax regime tends to cater to one’s personal commitments such as repaying personal loans, covering medical expenses, or preferring tax filing with fewer deductions. It is preferable for those who are ineligible for exemptions like Section 10, standard deductions, tax on employment, or pension schemes.
• Old tax regime promotes saving habits, can benefit senior citizens who earn income from interest, and can benefit from Section 80TTB.

Thus, choose your regime mindfully after considering the exemptions and deductions available. Measures such as calculating net taxable income and comparing tax liabilities in both regimes and taking into account factors such as your financial income, and investment options help to make an informed decision.