Section 115BAC was introduced in the Finance Act 2020 by Honourable Finance Minister Nirmala Sitharaman. This section is targeted at individual taxpayers and HUFs. As per the provisions of this section, the taxpayers can pay tax on their taxable income at a reduced rate. This benefit is available subject to fulfilling certain conditions specified under this section. Tax under this section is also levied based on a slab rate structure like the old tax regime.
Updates in Section 115BAC announced in Budget 2023
- Budget 2023 has made the new tax regime as default, but taxpayers have the choice to opt for the previous system.
- The tax exemption limit has been raised from Rs. 2.5 lakhs to Rs. 3 lakhs in the new tax regime.
- Standard deduction of Rs. 50,000 extended to the new tax regime.
- Tax rebate will be applicable for taxable income under Rs. 7 lakhs, exempting taxpayers within this income from paying any taxes.
- Tax slabs have been revised as follows in the new tax regime:
- 5% for Rs. 3 – 6 lakhs
- 10% for Rs. 6 – 9 lakhs
- 15% for Rs. 9-12 lakhs
- 20% for Rs. 12-15 lakhs
- 30% for income above Rs. 15 lakhs
- The highest surcharge rate has been reduced from 37% to 25%, impacting taxpayers earning more than Rs. 5 crores annually and lowering their overall tax rate from 42.74% to 39%.
Applicable slab rates under section 115BAC
As mentioned above, the new tax structure is also based on slab rates. Given below is the comparison between the slab rates under the new tax regime and the old tax regime.
|Tax Slabs||New tax regime|
|Up to 3,00,000||0%|
|From 3,00,000 to 6,00,000||5%|
|From 6,00,00 to 9,00,000||10%|
|From 9,00,001 to 12,00,000||15%|
|From 12,00,000 to 15,00,000||20%|
The basic exemption limit under the new tax regime for individuals, senior citizens and super senior citizens is Rs. 3,00,000. Taxpayers also have the benefit of rebate under section 87A. This rebate is offered to resident individuals whose taxable income is under Rs. 5,00,000. The rebate available under section 87A is up to Rs.12,500.
Eligibility for Section 115BAC
The new tax regime is applicable to individuals and HUFs from AY 2021-22. The conditions to be met for the eligibility of section 115BAC are mentioned below.
- This scheme can be opted for by an individual or HUF who does not have any business income
- The option to avail benefits under this section is also available to persons having business income provided they fulfill certain conditions.
It is important to note that eligible taxpayers have to select the option to pay tax as per the new regime at the start of the financial year. Once the option is selected, it cannot be changed for that year or for subsequent years. However, the option to avail, of the new tax regime will become invalid if the taxpayer fails to meet the conditions specified under section 115BAC.
Applicability of deductions under Section 115BAC
Section 115BAC has a specific list of deductions that are allowed and disallowed under this section. Given below is the list of such deductions.
- Deductions not allowed under section 115BAC
- Standard deduction U/s. 16(ia) of Rs. 50,000/-
- Leave Travel Concession (LTA) [Section 10(5)]
- Standard deduction in case of family pension U/s. 57(iia)
- Interest on Housing Loan [ Available Rs. 2,00,000/ max on two self-occupied properties] Section 24(b)
- Deduction U/s. 80C to 80U [ employers’ contribution towards NPS U/s. 80CCD (2), deduction U/s. 80JJAA and Deduction U/s. 80LA(1A) are allowed]
- Minor Child income rebate Rs. 1500/-pm [ section 10(32)]
- House Rent Allowance (HRA) [Section 10(13A)]
- Special Economic Zone [ Section 10AA]
- Additional depreciation U/s. 32(1)(iia)
- Entertainment Allowance U/s.16(ii)
- Capital Expenditure pertaining to specified businesses U/s. 35AD
- All Special Allowances except,
- Travelling Allowance
- Transfer Allowance
- Conveyance Allowance for official purposes; and
- Transport Allowance to an employee who is blind or deaf or dumb or orthopaedically handicapped [Rs. 3200/-pm u/s. 10(14)].
- Allowance to MPs/MLAs [Section 19(17)]
- Exemption of perks [ Free Food and non-alcoholic beverage (i.e., Rs. 50.00 /meal)
- Professional Tax Paid U/s. 16(iii)
- Investment Allowance in case of backward areas U/s. 32AD
- Tea/Coffee Development Fund Allowances U/s. 33AB
- Site Restoration Fund Allowance U/s. 33ABA
- Deduction for Scientific Research Section 35(1)(ii)/(iia)/(iii) & 35(2AA)
- Agriculture Extension Project U/s. 35CCC
- Deductions allowed under section 115BAC
Deductions available under section 1154BAC are mentioned below.
- Exemption pertaining to payment of Gratuity U/s. 10(10)
- Exemption pertaining to Leave Encashment U/s. 10(10AA)
- Exemption pertaining to payment received under life insurance policy U/s. 10(10D)
- Exemption pertaining to payment from Super Annuation Fund U/s. 10(13)
- Exemption pertaining to Commutation of pension U/s. 10(10A)
- Exemption pertaining to payment including withdrawal from NPS U/s. 10(12A)/(12B)
- Exemption pertaining to Retrenchment Compensation Scheme U/s. 10(10B)
- Exemption pertaining to payment scheme of voluntary retirement /separation U/s. 10(10C)
- Exemption pertaining to tax paid by the employer on non-monitory perks U/s. 10(10CC)
- Exemption pertaining to interest and withdrawal from RPF U/s. 10(12)
Related provisions under section 115BAC
Apart from the above provisions, there are certain other provisions that are also applicable to individuals and HUFs under the new scheme of taxation. The details of the same are given below.
- Previous losses
Under the new tax structure, the assessee will not be allowed to carry forward or set off the past losses if such past losses are pertaining to any deductions that are excluded from the purview of section 115BAC.
Brought forward depreciation will be deemed to have been given full effect and will not be allowed to be deducted in subsequent years. The current year’s depreciation (except additional depreciation) will be accounted for to calculate the total taxable income under the new tax regime.
As per provisions of section 115BAC, the provision of section 115JC relating to minimum alternate tax will not be applicable. The accumulated MAT will lapse and will not be eligible to be carried forward for set off in future years.
How to calculate tax liability as per new tax regime
Here’s how you can calculate taxes under the new regime:
- Starting from the FY 2023-24 (AY 2024-25), the tax slabs under the new tax regime have undergone changes, as specified in the table earlier in the article.
- To begin the calculation, determine your gross total income after including the standard deduction of Rs.50,000.
- If you are eligible for deductions such as 80CCD(2) or 80JJA, claim these deductions from your gross total income to arrive at your net taxable income.
- Use the revised tax slabs to compute taxes on the net taxable income. If eligible, claim the rebate under Section 87A.
- Lastly, add the cess of 4% to the tax amount to arrive at your total tax payable.
The provisions of section 115BAC were introduced to provide ease of tax payment for the majority of the taxpayers. However, there is no set formula to determine the applicability of the new tax structure on a particular category of taxpayers. It is essential that the taxpayers calculate the net tax liability under both the tax structures to get a clear idea of the preferred tax structure.
1. Is it necessary to file the tax return on time to opt for a new tax structure?
Yes. It is necessary for the taxpayers to file the tax return on time as per section 139(1).
2. Can a person withdraw from the new tax structure?
Yes. The provisions of section 115BAC allow the taxpayer to withdraw from the new tax structure only once.
3. Is HRA allowed to be deducted under the new tax regime?
No. Taxpayers cannot claim HRA under the new tax regime.