What is Section 115BAC? Eligibility Tax Rates and Deductions
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What is Section 115BAC? Eligibility Tax Rates and Deductions

Insurance Basics & Financial Advice Section 115BAC is the newly added section of the Income Tax Act (1961), that addresses the new income tax system/regime. The Union Budget 2020 added this provision to create an alternative tax system that is exclusively applicable to individuals and Hindu Undivided Families (HUFs). Under this system, taxpayers can get the benefits of considerably lower tax brackets, which may result in higher savings across slabs.

What is Section 115BAC? Eligibility, Tax Rates & Deductions

8 Minute |

What is Section 115BAC? Eligibility, Tax Rates & Deductions

What is Section 115BAC of Income Tax Act?

Section 115BAC is the newly added section of the Income Tax Act (1961), that addresses the new income tax system/regime. The Union Budget 2020 added this provision to create an alternative tax system that is exclusively applicable to individuals and Hindu Undivided Families (HUFs). Under this system, taxpayers can get the benefits of considerably lower tax brackets, which may result in higher savings across slabs. Nevertheless, a number of significant income tax deductions and exemptions that were offered under the earlier tax regime are not available in the new regime.

Who is Eligible for Section 115BAC?

Individuals and HUFs (Hindu Undivided Families) are eligible for Section 115BAC if they have income apart from that generated by any business or profession. Here are some conditions that have to be met.

  • No revenue from a company or profession should be included in the total income.
  • The total income must be calculated under all sections, including Chapter VIA (excluding 80CCD and 80JJAA), sections 24b, 10, 32, 35, and so on, without claiming any deductions or exemptions.
  • Section 10 or 10AA or Section 16 clauses (5), (13A), (14), (17), and (32).
  • No set-off losses from prior years resulting from home ownership or the aforementioned deductions are allowed.
  • There are no deductions or exclusions allowed for prerequisites or allowances.
  • Additionally, it is not possible to claim depreciation under Section 32 (iia) while calculating the total income under Section 115BAC. You may use a 115BAC calculator for this purpose.

It is necessary to do the following computation without including losses from the previous assessment year that resulted from the aforementioned deductions. This also applies to those from any property that the person or HUF owns. The computation is also made without taking into account any exclusions or deductions for benefits and allowances.

Tax Rates Under the New Regime

The new slab rates for FY 2023–2024, according to Section 115BAC, are listed in the following table.

Annual Income Income Tax Slab Rate
Rs. 3 lakh to Rs. 6 lakh 5%
Rs. 6 lakh to Rs. 9 lakh 10%
Rs. 9 lakh to Rs. 12 lakh 15%
Rs. 12 lakh to Rs. 15 lakh 20%
Above Rs. 15 lakh 30%

What are the Exemptions and Deductions under the new tax regime, Section 115BAC?

The new income tax structure no longer allows most tax deductions. However, the Income Tax Act's Section 115BAC permits the ones mentioned below.

  • Gifts up to Rs. 50,000/-
  • Prerequisites for official purposes
  • Conveyance allowance received to cover the cost of transportation incurred while on the job
  • Daily allowance received to cover routine charges or expenses incurred because of absence from the designated place of duty
  • Transport allowances if people with special needs are employed
  • Exemption on voluntary retirement under section 10 (10C), gratuity under section 10 (10), and leave encashment under section 10 (10AA)
  • Interest on home loan under Section 24 for a property which is rented out
  • Deductions for additional employee costs under Section 80JJA
  • Payments made to cover costs of transfers or trips
  • Deductions on the employer’s payments to NPS accounts under Section 80CCD (2)

Can I choose between the new tax regime and the existing regime?

A salaried taxpayer can notify his/her employer at the beginning of FY 2023-24 in case he/she wishes to stick with the older regime. This is because the newer tax regime is now the default option available for taxpayers. Employees cannot change their selections throughout any specific fiscal year and can only revert to another system when they file their income tax returns again. Non-salaried taxpayers are also required to choose the new regime while filing their income tax returns.

How do I choose the new regime and plan my taxes?

Selecting the tax regime at the start of the financial year is crucial from the standpoint of tax planning. The payable tax amount under the old and new regimes should be compared along with computing the TDS paid and final tax dues. Additionally, if taxpayers wish to continue with the earlier tax regime, then Form 10-IEA should be provided to the income tax department before filing their returns.

Deductions that are Not Claimable Under Section 115BAC

Some of the deductions that cannot be claimed under Section 115BAC include the following:

  • Standard deduction (Section 80TTB/TTA)
  • Leave Travel Allowance
  • Entertainment allowance and professional tax on salary
  • Minor child income allowance
  • House rent allowance
  • Helper allowance
  • Section 10 (14) special allowances
  • Allowance for children’s education
  • Housing loan interest on self-occupied/vacant property
  • Chapter VI-A deductions (except for Sections 80CCD (2) and 80JJAA)
  • Donations to any political party or trust
  • Employee contribution to NPS

Conclusion

Under Section 115BAC of the Income Tax Act, taxpayers can exercise the option to select a lower tax slab rate. However, while selecting the new tax system, it is crucial to remember the numerous deductions and exemptions that must be given up.

To make an educated choice about the new or old tax system under Section 115BAC of the Income Tax Act, take into account every point covered in this article.

FAQs

What is the new tax regime u/s 115BAC?

115BAC is a new section of the Income Tax Act that was inserted by the Finance Act, 2020. Under this section, an individual can choose between the new concessional tax rates and the actual income tax rates without accounting for the specified deductions and exemptions.

Which tax deductions do not fall under Section 115BAC?

There are multiple deductions that do not apply under Section 115BAC. Deductions under Chapter VIA, including Section 80C, 80CCC, 80CCD, etc., are among them. Entertainment allowance and the house rent allowance under Section 10 (13A) also fall under this category.

Can I shift from section 115BAC to the old tax regime?

Of course, you can return to the old tax regime. This can be completed annually at the time of income tax filing.

Is HRA allowed in the new tax regime?

No, the HRA exemption is not allowed in the new tax regime.

Is 80C applicable in the new tax regime?

No, you won't be eligible for any Section 80C tax benefits if you choose to use the new tax regime.

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