Section 115BAC: New Tax Regime under the Income Tax Act
Section 115BAC of the Budget 2020 establishes a new system that allows individuals and HUF taxpayers to pay income tax at reduced rates. Beginning in FY 2020–21 (AY 2021-22) the new tax regime system went into effect. It was unclear if employees had to study the new tax structure while withholding taxes from salaries at the time Section 115BAC went into force. To address this question, the Central Board of Direct Taxes (CBDT) published Circular C1 of 2020. The circular made it clear that, when calculating tax deduction at source (TDS), employers must take Section 115BAC into account. The notification that the employer got from specific employees should serve as the basis for this.
Table of Content
What is Section 115BAC of the Income Tax Act?
According to Section 115BAC, any individual or Hindu undivided family (HUF) with income other than that which is derived from a business or profession may elect to be taxed for a previous year about the income return that must be submitted by Section 139(1) of the Income Tax Act. The 2020–21 fiscal year would be the start of this new government. Additionally, it applies to earnings made starting on April 1, 2020.
The notable decrease in income tax bracket rates is one of the key components of the tax regime under Section 115BAC. Furthermore, taxpayers who choose the new tax regime will forfeit several present tax regime deductions and exemptions.
Key Aspects of Section 115 BAC
Tax Rate Reductions: In comparison to the previous system, Section 115 BAC offers reduced tax rates. You will, however, lose access to the majority of the tax exemptions and deductions that were previously offered under the previous tax system if you decide to switch to a new one.
Simplified Calculations: Selecting Section 115 BAC omits the need for intricate calculations and deductions. Simply declare your income and pay the appropriate amount of tax.
New Standard Deduction: Under the new tax system, a standard deduction of Rs. 50,000 is allowed as of FY 2023–2024. This deduction was also available under the previous tax system.
Limited Deductions: Section 115 BAC prohibits the deduction of several items, including HRA, medical costs, interest on student loans, and so forth.
No Carry Forward of Losses: In FY 2023–2024, if you convert to the new tax regime under Section 115 BAC, any losses you incurred under the previous regime will not carry over.
Option to Select: Depending on their income and deductions, individuals have the option to select each year between the old and new tax regimes. Businesses are unable to revert to the previous tax system once they have chosen one during tax return filing.
Eligibility Criteria for the New Section 115BAC Tax Regime
Individuals and Hindu Undivided Families (HUFs) may choose to pay income tax for the assessment year 2023–24 at the new tax regime rates, providing that their total income for the applicable financial year satisfies the following requirements:
The income computation process does not take into account the following exclusions or deductions:
The entire Chapter VI-A deductions, excluding those that fall under 80CCD or 80JJAA.
Deductions that fall under Sections 35, 35AD, and 35CCC
Section 57, clause (iia).
Deductions listed in Table 24b
Section 10/10AA/16, clause (5)/(13A)/(14)/(17)/(32)
Deductions listed in 33AB, 33ABA, 32(1), 32AD, and 33AB
There is no need to balance any losses from prior assessment years that came from the aforementioned deductions or losses from real estate. There are no exemptions or deductions for allowances or perks included in the computation. By Section 32 clause (iia), no depreciation is claimed throughout the calculation process. Before submitting an ITR, Form 10IE is submitted via the income tax portal.
Exemptions Under New Tax Regime
You are eligible for tax exemption under the new tax framework for the following:
Under the New Tax Regime, which will take effect in FY 2023–2024, Budget 2023 introduced a standard deduction of Rs 50,000
Additionally, Budget 2023 introduced a family pension income deduction under Section 57(iia)
Section 80CCH(2) of the Budget 2023 further instituted the deduction of amounts paid or deposited in the Agniveer Corpus Fund
Conveyance allowance obtained to cover related transportation costs for work-related travel
Transportation reimbursements if an individual has a specific need
Anything paid to cover the expense of a tour or transfer while travel
Daily stipend obtained to cover the usual costs or expenses you spend due to his absence from his regular place of employment
Requirements for official reasons
Exemptions from 10(10C) for voluntary retirement, 10(10) for gratuities, and 10(10AA) for leave encashment
Section 24 Interest on Home Loan for Rental Property
Section 80CCD(2) specifies the deduction for the employer's NPS account contribution.
Deduction for supplemental labour expenses (Section 80JJA)
Gift up to Rs. 50,000
Exemptions Not Claimable Under New Tax Regime
Some of the most significant exemptions and deductions that you are unable to claim under the new tax law include the following:
Updated budget for 2023: Deduction from family pension income up to FY 2022–2023 (deduction permitted starting in FY 2023–2024)
Updated budget for 2023: Standard deduction of Rs. 50,000 is authorised till FY 2022–2023 (after which it can be deducted).
The standard deduction under Sections 80TTA and 80TTB
Leave Travel Allowance (LTA)
Employee's (own) contribution to NPS
Interest on housing loan on the vacant/self-occupied property (Section 24)
Professional tax and entertainment allowance on salaries
Children education allowance
Minor child income allowance
Allowance for helpers
Other special allowances [Section 10(14)]
Chapter VI-A deduction (Section 80C, 80D, 80E and so on, except Section 80CCD(2) and Section 80JJAA)
Donation to Political party/trust, etc
Exemption or deduction for other allowances or perquisites including food allowance of Rs 50/meal subject to two meals a day
Is it possible to select the new tax system over the current one?
Starting in FY 2023–2024, salaried taxpayers will have the option to select the new tax regime and will need to notify their employer of their decision. During the fiscal year, the employee is unable to modify their selection. They have the option to alter their mind, though, when they file their income tax return in July 2024.
The 31st of July 2023 is the deadline for reporting taxes for the FY 2022–2023 (AY 2023–24). The employer will deduct tax (TDS) in accordance with the current tax regime if the employee does not select the new tax regime at the start of the fiscal year. A salaried taxpayer has the option of selecting the standard tax regime in one year and the new tax regime in another.
When filing their tax return, non-salaried taxpayers are required to select the new regime. During the year, they are not required to disclose or discuss their decision with anyone. Non-salaried taxpayers, on the other hand—those who receive income from a business or profession—are not able to annually choose to opt in or out of the new tax system. A non-salaried person cannot later opt back in for the new tax regime once they have opted out of it.
Conclusion
For the designated income level, there are benefits to the current tax system. The new rule becomes more beneficial than it is for those who depend on tax-saving investments if they decide to claim fewer deductions for tax savings, such as health insurance or NPS investments. It is crucial to keep in mind that the new system will help people whose income falls between Rs. 5 lakh and Rs. 10 lakh and who choose smaller deductions. On the other hand, people in higher income tax categories who make more than Rs. 15 lakh per year can take advantage of the current system by using investments that save on taxes.
FAQ
Q1. What is the u/s 115BAC new tax regime?
The Finance Act of 2020 introduced a new section 115BAC Income Tax Act, which gives an individual the option to choose between the new concessional tax rates and the actual income tax rates, without taking into account the specified deductions and exemptions.
Q2. Is the new tax regime better than the old one?
It varies from case to case. The answer is contingent upon the assessee's total taxable income and the existence of deductions under Sections 80C, 80D, HRA exemptions, and home loans. Assume that an assessee intends to claim Section 80C of Rs. 1,50,000 (only under the old regime) and the standard deduction of Rs. 7,50,000 (common for both regimes) for FY 2023–24 (AY 2024–25). When comparing the two tax regimes, they pay a tax of Rs. 22,500+cess under the current regime and no tax under the old one (because of tax refund). In this instance, sticking with the new tax structure (default) is advantageous to them. However, you might find that choosing to remain under the previous tax system benefits you when taking into account the HRA exemption and 80D.
Q3. How is tax calculated in the new regime?
The table at the beginning of this article shows the revised tax slabs under the new tax regime as of FY 2023–24 (AY 2024–25). After deducting the normal Rs. 50,000 standard deduction, take the gross total income. After that, you can claim any deductions you may have, such as 80CCD(2) or 80JJA, and use the net total taxable income to compute your tax according to the slabs. If you qualify for a reimbursement under Section 87A, make a claim. If not, calculate the total tax due by adding a 4% cess to the tax.
Q4. Is standard deduction applicable in the new tax regime?
Under the new tax regime, the standard deduction won't be available until FY 2022–2023 (AY 2023–24). However, as per the plan in Budget 2023, salaried individuals will be able to deduct a standard amount of Rs. 50,000 starting in FY 2023–24 (AY 2024–25).
Q5. What are the new tax slabs for taxation under section 115BAC?
These are the most recent income tax slabs and rates under section 115BAC of the Income Tax Act, as announced in the 2023 budget.
Annual Income Range | Tax Rate |
Up to ₹ 3 lakhs | Nil |
₹ 3 lakhs to ₹ 6 lakhs | 5% |
₹ 6 lakhs to ₹ 9 lakhs | 10% |
₹ 9 lakhs to ₹ 12 lakhs | 15% |
₹ 12 lakhs to ₹ 15 lakhs | 20% |
Above ₹ 15 lakhs | 30% |
Q6. Is HRA exempted in the new tax regime?
No, it is not permissible to claim HRA exemption under the new tax scheme.
Q7. When should I choose 115 BAC?
Choosing whether to use Section 115 BAC under the new tax law entails taking the following into account:
Select 115 BAC if:
Your entire income falls between the 5% and 10% lower tax brackets
You don't make a lot of exclusions and deduction claims
You prefer the ease of filing
Your company provides you with some taxation allowances
Steer clear of 115BAC if:
Under the previous system, you made substantial deductions and exemption claims
You make money from a job or business
You have capital gains on listed securities for a long time
You make money from agriculture
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