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Section 115BAC of Income Tax Act: New Tax Regime Deductions Allowed

section 115bac of income tax act - New Tax Regime

What is Section 115BAC – New Income Tax Regime?

Section 115BAC, introduced in the Union Budget 2020, offers individual taxpayers the option to choose between the existing tax regime and a new concessional tax regime. It aims to simplify the tax structure, providing taxpayers with flexibility in how they calculate and pay their taxes.

Section 115BAC allows an individual, HUF, AOP (other than a co-operative society), BOI, or AJP to pay income tax at lower tax rates (plus surcharge and cess) provided the total income is computed without claiming specified exemptions or deductions.

Key Features of Section 115BAC

Under this new regime, taxpayers have the choice to opt for lower tax rates without claiming deductions or exemptions, or continue with the existing tax regime and avail deductions and exemptions as applicable.

Benefits of Opting for Section 115BAC

By choosing the new tax regime, taxpayers can enjoy reduced tax rates and lower tax liabilities. This can lead to increased take-home pay and better tax planning opportunities. Additionally, opting for this new regime can simplify the tax filing process, saving time and effort for taxpayers.

Considerations Before Opting for Section 115BAC

Before deciding to opt for Section 115BAC, taxpayers should carefully evaluate their individual financial situation, including income sources, investments, and potential tax savings through deductions and exemptions. It is essential to weigh the benefits of lower tax rates against the advantages of claiming deductions under the existing tax regime.

How to Opt for Section 115BAC

Taxpayers who wish to avail the benefits of Section 115BAC must select the new tax regime while filing their income tax returns. This choice is applicable on a yearly basis, allowing taxpayers the flexibility to switch between the two regimes as per their financial circumstances.

 

Key Changes Under New Tax Regime : Budget 2023

Key changes introduced in the income tax regime for the fiscal year 2023-24. Several significant modifications in the budget 2023. Here are the highlights:

  1. Income Tax Slabs and Rates:
    • The revised tax slab applies to the new tax regime. The changes from April 1, 2024, are as follows:
      • Total Income up to ₹3,00,000: 0% tax
      • ₹3,00,001 to ₹6,00,000: 5% tax
      • ₹6,00,001 to ₹9,00,000: 10% tax
      • ₹9,00,001 to ₹12,00,000: 15% tax
      • ₹12,00,001 to ₹15,00,000: 20% tax
      • Above ₹15,00,000: 30% tax
  2. Advantages of the New Tax Regime:
    • Increased Basic Exemption Limit: The basic exemption limit has been raised from ₹2.5 lakhs to ₹3 lakhs, making the new tax regime more appealing.
    • The standard deduction of Rs 50,000 has been extended to the new tax regime as well
  3. Changes in Surcharge Rate:
    • The surcharge rate has been reduced from 37% to 25% for individuals with income exceeding ₹5 Crores. This reduction applies only to those who choose the new tax regime.
  4. Rebate Limit Increase:
    • Under the old tax regime, the rebate limit was ₹12,500 for incomes up to ₹5 lakhs. However, under the new tax regime, this rebate limit has increased to ₹25,000 if the taxable income is less than or equal to ₹7 lakhs.

 

What are The Tax Rates Under The New Regime?

In Budget 2023, the income tax slabs under the new tax regime have been revised. The new tax slabs and tax rates under the new tax regime for FY 2023-24 (AY 2024-25) and FY 2022-23 (AY 2023-24) are shown in the table below, whereas under the old tax regime, the income tax slabs and rates remain unchanged.

TABLE – New regime tax rates (FY22-23)

Sl. No. Total income Rate of tax
(1) (2) (3)
1. Upto Rs. 2,50,000 Nil
2. From Rs. 2,50,001 to Rs. 5,00,000 5 per cent
3. From Rs. 5,00,001 to Rs. 7,50,000 10 per cent
4. From Rs. 7,50,001 to Rs. 10,00,000 15 per cent
5. From Rs. 10,00,001 to Rs. 12,50,000 20 per cent
6. From Rs. 12,50,001 to Rs. 15,00,000 25 per cent
7. Above Rs. 15,00,000 30 per cent:

 

TABLE –  New regime tax rates (FY23-24)

Sl. No. Total income Rate of tax
(1) (2) (3)
1. Upto Rs. 3,00,000 Nil
2. From Rs. 3,00,001 to Rs. 6,00,000 5 per cent
3. From Rs. 6,00,001 to Rs. 9,00,000 10 per cent
4. From Rs. 9,00,001 to Rs. 12,00,000 15 per cent
5. From Rs. 12,00,001 to Rs. 15,00,000 20 per cent
6. Above Rs. 15,00,000 30 per cent

Exemptions and Deductions Not Claimable Under The New Tax Regime

section 115bac of income tax act - New Tax Regime
section 115bac of income tax act – New Tax Regime

 

The option to pay tax at lower rates shall be available only if the total income of assessee is computed without claiming following exemptions or deductions:

  1. Leave Travel concession
  2. House Rent Allowance
  3. Official and personal allowances (other than those as may be prescribed) [Section10(14)]
  4. Allowances to MPs/MLAs
  5. Allowances for income of minor
  6. Deduction for units established in Special Economic Zones (SEZ) [Section 10AA];
  7. Entertainment Allowance
  8. Professional Tax
  9. Interest on housing loan on the self-occupied property or vacant property.
  10. Additional depreciation in respect of new plant and machinery.
  11. Deduction for investment in new plant and machinery in notified backward areas [Section 32AD];
  12. Deduction in respect of tea, coffee or rubber business [Section 33AB];
  13. Deduction in respect of business consisting of prospecting or extraction or production of petroleum or natural gas in India [Section 33ABA];
  14. Deduction for donation made to approved scientific research association, university college or other institutes for doing scientific research which may or may not be related to business [Section 35(1)(ii)];
  15. Deduction for payment made to an Indian company for doing scientific research which may or may not be related to business [Section 35(1)(iia)];
  16. Deduction for donation made to university, college, or other institution for doing research in social science or statistical research [Section 35(1)(iii)];
  17. Deduction for donation made for or expenditure on scientific research [Section35(2AA)];
  18. Deduction in respect of capital expenditure incurred in respect of certain specified businesses, i.e., cold chain facility, warehousing facility, etc. [Section 35AD];
  19. Deduction for expenditure on agriculture extension project [Section 35CCC];
  20. Deduction in respect of certain incomes other than specified under Section 80JJAA, 80CCD(2), and deduction under section 80LA for Unit located in IFSC [Part C of Chapter VI-A].
  21. The standard deduction under section 80TTB/80TTA.
  22. Budget 2023 update- Deduction from family pension income up to FY 2022-23 (From FY 2023-24, it is allowed as deduction)
  23. Budget 2023 update- Standard deduction of Rs.50,000 up to FY 2022-23 (From FY 2023-24, it is allowed as deduction)

Total income of the assessee is calculated after claiming depreciation under section 32, other than additional depreciation, and without adjusting brought forward losses and depreciation from any earlier year (if such loss or depreciation pertains to any deduction under the aforesaid sections).

Further, loss under the head house property can’t be set off against other heads of Income. [As amended by Finance Act, 2024] Moreover, such loss and depreciation will not be carried forward.

If the assessee has any unabsorbed depreciation, relating to additional depreciation, which has not been given full effect, the corresponding adjustment shall be made to WDV of the block of assets in the prescribed manner.

 

Which Deductions Are Allowed Under The New Tax Regime?

Under the new tax regime, there have been changes in the deductions allowed compared to the old tax regime. Let’s explore the key deductions available in the new tax regime:

  1. Standard Deduction and Family Pension Deduction:
    • Earlier, the Standard Deduction of ₹50,000 was available under the old tax regime. Now, the same deduction is also available under the new tax regime.
    • Taxpayers can enjoy a tax-free income of ₹7,50,000 (after applying standard deduction and tax rebate).
    • Family pensioners can claim either ₹15,000 or 1/3rd of their pension, whichever is lower. Note that this benefit applies only if the income from pension is taxed as salary income and not as income from other sources.
  2. Deduction under Section 80CCD (2):
    • The updated new tax regime allows taxpayers to avail the advantage of employer contribution to their National Pension Scheme (NPS) account as per Section 80CCD (2) of the Income Tax Act.
    • The deduction is limited to the employer’s NPS contribution made on behalf of the employee, up to 10% of the employee’s salary (where salary includes Basic + DA).
  3. Other Exemptions under the New Tax Regime:
    • Gratuity u/s 10 (10)
    • Conveyance Allowance
    • Voluntary Retirement Scheme u/s 10 (10C)
    • Leave Encashment u/s 10 (10AA)
    • Transport Allowances to Persons with Disabilities
    • Deposits in Agniveer Corpus Fund u/s 80CCH (2)
    • Interest on a home loan on the let-out property (section 24).

Here’s a comparison of some key deductions between the old and new tax regimes:

Particulars Old Tax Regime New Tax Regime (From April 1, 2023)
Amount of Income Eligible for Rebate ₹5,00,000 ₹7,00,000
Standard Deduction ₹50,000 ₹50,000
Tax-Free Income from Salary ₹5,50,000 ₹7,50,000
Amount of Rebate u/s 87A ₹12,500 ₹25,000
HRA Exemption Yes No
Food Allowance (₹50/meal, 2 meals/day) Yes No
Leave Travel Allowance Yes No
Exemption u/s 10 (10C) (Voluntary Retirement) Yes Yes
Exemption u/s 10 (10) (Gratuity) Yes Yes
Exemption u/s 10 (10AA) (Leave Encashment) Yes Yes
Conveyance Allowance Yes Yes
Daily Allowance Yes Yes
Transport Allowance (For Specially Abled Individuals) Yes Yes

 

Which Tax Regime Is Beneficial?

The decision to opt for the old tax regime will depend on the amount of exemptions and deductions available to the assessee. For example, if an individual has no deductions available to him under the old tax regime, it would not be beneficial for him to opt for the old tax regime.

On the other hand, if an individual is availing of deductions under Section 80C, Section 80D, and the interest on a housing loan under Section 24, it would always be beneficial for him to opt for the old tax regime.

It’s important to carefully consider the exemptions and deductions available to the assessee when deciding whether or not to opt for the old tax regime.

Form 10-IE

  • Until FY 2022-23, when the new tax regime was not the default, individuals had to file Form 10-IE to specify their intent to choose the new tax regime.
  • Starting FY 2023-24, the new tax regime has been set as the default. If a taxpayer does not specify their preference for the old regime, they will be automatically enrolled in the new regime.
  • The default new tax regime allows individuals and HUFs without any professional or business income to opt out of the new tax regime directly at the time of filing tax returns.
  • However, individuals, HUFs, AOP (other than co-operative societies), BOI, and Artificial Judicial Persons (AJP) having income from business and profession need to mandatorily submit Form 10-IEA within the specified time frame under section 139(1) if they want to switch their tax regime from new to old or re-enter the new scheme.

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