Section 115BAC: New Tax Regime, Allowable Deductions, Exemption List & Benefits
Updated: Nov 28
Section 115BAC, introduced in the Budget 2020, established a new optional tax regime for individuals and Hindu Undivided Families (HUFs), offering lower tax rates in exchange for foregoing certain exemptions and deductions. This regime became applicable from FY 2020–21 (AY 2021–22). Initially, there was uncertainty regarding whether employers needed to consider this new tax structure while deducting taxes at source (TDS) from salaries. To clarify, the Central Board of Direct Taxes (CBDT) issued Circular C1 of 2020, which confirmed that employers must factor in Section 115BAC when calculating TDS, based on a declaration submitted by employees opting for the new tax regime.
Table of Content
Budget 2024 Update on Section 115BAC: What are the Tax Rates Under the New Regime?
In Budget 2024, the tax slabs under the new tax regime have been proposed to be revised as follows:
Additional Benefits Extended to Taxpayers Opting for the New Regime:
The limit for Standard Deduction against salaried income has been increased from Rs. 50,000 to Rs. 75,000.
The maximum deduction under Family Pension has been increased from Rs. 15,000 to Rs. 25,000.
The deduction on the employer's contribution to the Pension Scheme under Section 80CCD (2) has been increased from 10% of salary to 14% of salary.
What is Section 115BAC of the Income Tax Act - The New Tax Regime?
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.
Section 115BAC Income Tax Rates
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.
The Eligibility Criteria for the New Tax Regime for Section 115BAC
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.
What are the Exemptions and Deductions Available Under the New 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 and Deductions Not Claimable under the 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
Comparison of Deductions: Old Tax Regime vs. New Tax Regime (Section 115BAC) for FY 2024-25
Deduction/Exemption | Old Regime | New Regime (Section 115BAC) |
Section 80C (Investment in PPF, NSC, Life Insurance Premium, ELSS, etc.) | Available up to Rs. 1.5 lakh | Not available |
Section 80D (Health insurance premium) | Available | Not available |
Standard Deduction (for salaried individuals) | Rs. 50,000 | Rs. 75,000 (FY 2024-25) Rs. 50,000 (FY 2023-24) |
House Rent Allowance (HRA) | Available (based on actuals) | Not available |
Leave Travel Allowance (LTA) | Available | Not available |
Interest on Housing Loan (Section 24) (for self-occupied property) | Deduction up to Rs. 2 lakh | Not available |
Section 80E (Interest on education loan) | Available | Not available |
Section 80G (Donations to charitable institutions) | Available | Not available |
Section 80TTA/80TTB (Interest on savings bank account/interest for senior citizens) | Available | Not available |
Entertainment Allowance | Available | Not available |
Professional Tax (for salaried individuals) | Available | Not available |
Additional Depreciation (Section 32(1)(iia)) | Available | Not available |
Income from House Property Loss Set-off | Allowed (set off with other income) | Not available |
Children’s Education Allowance | Available | Not available |
Transport Allowance (for specially abled) | Available | Not available |
This table highlights the broader availability of deductions under the Old Tax Regime compared to the limited exemptions under the New Tax Regime (Section 115BAC).
How Do I Choose the New Regime and Plan My Taxes?
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.
Example 1: When the New Regime is More Favorable in Terms of Tax Liability (FY 2023-24)
In this example, for an income of Rs 13,00,000, the new tax regime proves to be more beneficial by Rs 33,436. However, if you are able to claim additional deductions like housing loan interest, health insurance premiums, NPS contributions, and education loans, the old regime might result in greater tax savings.
Example 2: When the Old Regime is More Advantageous in Terms of Tax Liability (FY 2023-24)
In this case, for an income of Rs 9,50,000, including HRA exemption and deductions under Section 80D, the old regime is more beneficial by Rs 10,764.
If an individual has fewer deductions for tax savings—like health insurance premiums and NPS contributions—the new regime could prove more favorable. Individuals with incomes between Rs 6–12 lakh, who claim fewer deductions, might benefit from the new regime, while those who can take advantage of multiple tax-saving investments will find the old regime more advantageous.
House Property Loss in the New Tax Regime
For self-occupied property, you cannot claim a deduction for home loan interest in the new tax regime. The Rs 2 lakh deduction available under the old regime is not allowed. Additionally, the loss of Rs 2 lakh from house property cannot be set off against your salary income.
If you have let-out property, you may still claim the deduction for interest paid on a housing loan, but the new regime restricts the deduction to the taxable rent received. Moreover, under the new regime, any loss from house property due to excess interest paid over rental income cannot be set off against other income heads, nor can it be carried forward for future set-off.
Deductions Not Permitted for Business Income in the New Regime
The following deductions and exemptions are not allowed under the new regime for business income:
Additional depreciation under Section 32
Investment allowance under Section 32AD
Sector-specific deductions under Sections 33AB and 33ABA
Expenditure on scientific research under Section 35
Capital expenditure under Section 35AD
Exemption under Section 10AA for SEZ units
Unabsorbed Depreciation and Business Losses Under the New Regime
For individuals with business income, brought-forward business losses and unabsorbed depreciation cannot be set off under the new regime, to the extent they relate to the disallowed deductions and exemptions.
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
Q8. Can I switch between the new and old tax regimes every year?
For salaried individuals, you have the flexibility to switch between the new and old tax regimes every financial year. However, for individuals having income from business or profession, once you opt for the new tax regime under Section 115BAC, you can revert to the old regime only once in a lifetime.
Q9. Can I claim deductions under Section 80C and still opt for the new tax regime?
No, under the new tax regime, most deductions, including Section 80C (for investments in PPF, EPF, LIC, etc.), Section 80D (for health insurance premiums), and other deductions under Chapter VI-A, are not allowed. Only a few deductions, such as Section 80CCD(2) and Section 80JJAA, are permitted.
Q10. Can I claim home loan interest under Section 24(b) in the new tax regime?
No, under the new tax regime, you cannot claim the deduction on home loan interest under Section 24(b) for a self-occupied house property. This deduction is only available under the old tax regime.
Q11. What happens if I don’t submit the declaration for opting for the new tax regime to my employer?
If you don’t submit a declaration to your employer about opting for the new tax regime under Section 115BAC, your employer will deduct TDS based on the old tax regime. However, you can still choose the new regime while filing your income tax return, irrespective of what was considered for TDS by the employer.
Q12. Can senior citizens benefit from the new tax regime?
Yes, senior citizens can opt for the new tax regime. However, they will not be able to claim benefits such as Section 80TTB (interest on savings accounts) or the higher exemption limit available under the old tax regime.
Q13. Is it mandatory to opt for the new tax regime?
No, the new tax regime is optional. Taxpayers can choose between the old and new tax regimes based on what suits them best for a particular financial year.
Q14. Can non-resident Indians (NRIs) opt for the new tax regime?
Yes, NRIs can opt for the new tax regime under Section 115BAC. However, they also need to evaluate their eligibility for exemptions and deductions, as many of these benefits are not available under the new regime.
Q15. Can I claim a rebate under Section 87A in the new tax regime?
Yes, taxpayers can claim a rebate under Section 87A in the new tax regime, provided their total taxable income does not exceed ₹5 lakhs. In such cases, the tax liability will be reduced to zero.
Q16. Is professional tax deductible under the new tax regime?
Employers consist of professional tax paid on behalf of employees as salary perquisite in form 16. Therefore this amount is eligible for the deduction without any limit. However, the deduction is not available in the new tax regime.
Q17. Is PPF included in the new tax regime?
The tax is not applied to the maturity proceeds from the investments in PPF. But the new regime includes investments in these accounts and does not qualify for the section 80C deductions up to Rs. 1,5 lakh provided by the old regime.
Q.18 What is the Section 10 exemption in the new tax regime?
This section implies exemptions for the expenses made on the employer’s business account. It covers costs like travel, conveyance, and research allowances. It also includes expenses that are spent genuinely for the intended purposes.
Q19. Should I opt for 115BAC?
If you don't use many deductions and tax benefits, the lower tax rate under section 115BAC can help to save money. It is important to compare the tax liabilities according to the old and new tax regimes.
Q20. Has the deduction on Employers contribution to a pension scheme has increased?
According to the FY 2024-25, the deduction on employers' contribution to a pension scheme under section 80CCD(2) has increased in the 2024 budget to 14% of salary+ DA from the 10% of the salary + DA.
Q21. How much standard deduction in the new tax regime for FY 2024-25?
In budget 2024, it has been proposed to increase the limit for standard deduction under the new tax regime. To Rs. 75,000 for the FY 2024-25. But for the FY 2023-24 standard deduction remains the same as Rs. 50,000.
Q22. What is the new deduction on family pension for pensioners?
According to the budget 2024, the increase in deduction on family pension is there from Rs. 15,000 to Rs. 25,000 for FY 2024-25. And it is applicable only under the new tax regime.
Q23. What is the basic exemption limit of income tax under the new regime?
The new tax regime presently sets the basic exemption limit to Rs. 3 lakh. This was increased in last year's budget from Rs. 2.5 lakh to Rs. 50,000.
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