Section 115 BAC of Income Tax Act - Understanding the New Tax Regime

Section 115 BAC of the Income Tax Act, 1961, is a new section introduced in 2020 allowing HUFs and Individuals to pay taxes at a lower rate. Simply put, this section allows you to choose between the existing income tax structure and a new concessional tax regime with more streamlined tax slabs. Section 115 BAC was enacted to simplify the taxation process and offer greater flexibility.

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What is Section 115 BAC of the Income Tax Act?

Section 115 BAC in the Income Tax Act introduces an optional tax regime for individuals and Hindu Undivided Families (HUFs). 

It offers you the option to choose between the existing tax structure that offers higher tax deductions and exemptions or a new simplified tax structure with lower tax rates but without certain deductions. You can opt for the scheme that suits you best based on your financial circumstances.

Key Features of Section 115 BAC

  • Reduced Tax Rates: Section 115 BAC offers lower tax rates compared to the old regime. However, if you choose a new tax regime, you will not be able to claim most of the tax deductions and exemptions that were earlier available under the old regime.

  • Simplified Calculations: Choosing Section 115 BAC means skipping complex deductions and calculations. Just report your income and pay tax at the specified rate.

  • Limited Deductions: Several deductions, like HRA, medical expenses, education loan interest, etc., are not allowed under Section 115 BAC.

  • Standard Deduction Introduced: From FY 2023-24, a standard deduction of Rs. 50,000 is available under the new tax regime. This deduction is available with the old tax regime as well.

  • No Carry Forward of Losses: Losses you incur under the old regime cannot be carried forward if you switch to the new tax regime under Section 115 BAC in FY 2023-24.

  • Option to Choose: Individuals can choose between the old and new tax regimes each year based on their income and deductions. However, once selecting a tax regime while filing your tax returns, businesses can not switch back to the other tax regime.

Introduction of New Tax Regime in FY 2023-24 under Section 115 BAC

The Indian government introduced a revamped New Tax Regime under Section 115 BAC for FY 2023-24. Let us have a quick overview:

  • Simplified Slabs and Increased Basic Exemption Limit: The new regime boasts a streamlined structure with fewer slabs and a higher basic exemption limit of ₹3 lakhs. 

  • Reduced Tax Rates: Compared to the old regime, the new regime offers lower tax rates across all income slabs. 

  • Standard Deduction Benefit: The new regime now re-included the standard deduction of ₹50,000 for salaried individuals that are also available in the old tax regime. 

  • Forgoing Exemptions and Deductions: To avail the benefits of the new regime, you must forego certain deductions and exemptions like those under Sections 80C, 80D, and HRA. 

  • Expanded Applicability: The new regime is now available not just for individuals and HUFs but also for Association of Persons (AOPs) other than co-operative societies.

  • Higher Tax Rebate Limit: The new regime offers a higher tax rebate limit of ₹7 lakhs on taxable income compared to the old regime's ₹5 lakhs.

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Income Tax Slab Rates of New Tax Regime under Section 115 BAC

New Tax Regime (FY 2023-24) New Tax Regime (FY 2022-23)
Tax Slab Income Tax Rates (in % p.a.) Tax Slab Income Tax Rates (in % p.a.)
Up to ₹3 lakhs NIL Up to ₹2.5 lakhs NIL
> ₹3 lakhs to 6 lakhs 5% > ₹2.5 lakhs to 5 lakhs 5%
> ₹6 lakhs to 9 lakhs 10% > ₹5 lakhs to 7.5 lakhs 10%
> ₹9 lakhs to 12 lakhs 15% > ₹7.5 lakhs to 10 lakhs 15%
> ₹12 lakhs to 15 lakhs 20% > ₹10 lakhs to 12.5 lakhs 20%
> 15 lakhs 30% > ₹12.5 lakhs to 15 lakhs 25%
> 15 lakhs 30%

Old Tax Regime and New Tax Regime for FY 2023-24:

The tax rates for the old vs new tax regime for Financial Year 2023-24 (AY 2024-25) are as follows:

Tax Slab Income Tax Rates (in % p.a.)
Old Tax Regime (FY 2023-24) New tax Regime (FY 2022-23) New Tax Regime (FY 2023-24)
For Individuals/ HUFs (age < 60 years) For Individuals/ HUFs (age 60 to < 80 years) For Individuals/ HUFs (age ≥ 80 years)
0 – 2.5 lakhs NIL NIL NIL NIL NIL
2.5 lakhs – 3 lakhs 5%  NIL NIL 5%  NIL
3 lakhs – 5 lakhs 5%  5%  NIL 5%  5%
5 lakhs – 6 lakhs 20% 20% 20% 10% 5%
6 lakhs – 7.5 lakhs 20% 20% 20% 10% 5%
7.5 lakhs – 9 lakhs 20% 20% 20% 15% 10%
9 lakhs – 10 lakhs 20% 20% 20% 15% 15%
10 lakhs – 12 lakhs 30% 30% 30% 20% 15%
12 lakhs – 12.5 lakhs 30% 30% 30% 20% 20%
12.5 lakhs – 15 lakhs 30% 30% 30% 25% 20%
> ₹15 lakhs 30% 30% 30% 30% 30%

Old vs. New Tax Regime: Which Income Tax Regime is Better in FY 2023-24?

You can save more money by choosing the right tax regime. Let us learn why you should choose the old tax regime over the newly introduced tax regime under Section 115 BAC:

  • More Deductions and Exemptions: You can claim tax deductions for investing the investment options like ULIP Plans, Child Education Plans, Pension Plans, PPF, NPS, and home loan interest.

  • Lower Effective Tax Rates: If you utilize your deductions well, your taxable income is reduced. This potentially brings you down to a lower tax bracket.

  • Flexibility: You have more control over your tax planning by choosing the old tax regime.

Eligibility Criteria for New Tax Regime under Section 115 BAC for FY 2023-24

To qualify for the new tax regime under Section 115 BAC for the 2023-24 assessment year, Individuals and Hindu Undivided Families (HUFs) must fulfil the following conditions related to their total income in the respective financial year:

  • Calculate income without considering deductions or exemptions, excluding:

    • Deductions specified in Section 24b.

    • All deductions under Chapter VI-A, except those specified in Section 80CCD/80JJAA.

    • Clause (iia) of Section 57.

    • Deductions specified in Section 35/35AD/35CCC.

    • Deductions specified in Section 32(1)/32AD/33AB/33ABA.

    • Clause (5)/(13A)/(14)/(17)/(32) of Section 10/10AA/16.

  • The calculation should not offset any losses from previous assessment years resulting from the mentioned deductions or losses from house property.

  • Do not consider any deductions or exemptions related to perquisites or allowances.

  • The calculation should exclude claiming any depreciation as per clause (iia) of Section 32.

  • Submit Form 10IE on the income tax portal before filing the Income Tax Return (ITR).

Deductions and Exemptions Unavailable under Section 115 BAC for FY 2023-24

Deductions/ Exemption NOT Available Description
Section 80C, 80CCC, 80CCD (except 80CCD(2), 80JJAA) Investments & Expenses (e.g., PPF, ELSS, tuition fees, home loan principal)
Section 80D Health Insurance Premiums
Section 24(b) Home Loan Interest
Section 80E, 80EEA Education Loan Interest & Interest on Savings Account
Section 80DD, 80DDB Medical Expenses for Disabled Dependents and Self
Section 80G Donations to Charities
Section 32AD, 32(iia): Business Income Deductions
Section 35, 35AD, 35CCC: Expenditure in Scientific Research and Development
Section 24  Interest paid on loan for own house or unoccupied property
Employee's NPS Contribution Own contribution to the National Pension Scheme
Donations to Political Parties/Trusts Donations made for political purposes
LTA, Professional Tax, Entertainment Allowance Salary components
Deductions on Business Income Various business expenses
Set-off of House Property Loss Loss from rental property
Perquisites & Allowances Food allowance, mobile bill reimbursement, etc.

Available Deductions and Exemptions under Section 115 BAC

While most deductions and exemptions are not available under Section 115 BAC, a few continue under the new regime:

Deduction/Exemption AVAILABLE under Section 11 BAC Details
Transport allowances for disabled For specially-abled persons
Travel and transfer compensation Costs incurred during official travel or relocation
Daily allowance For everyday expenses while away from regular duty
Perquisites (official) Certain benefits are provided for official purposes.
Section 10(10C), 10(10), 10(10AA) Voluntary retirement, gratuity, leave encashment
Let-out property (Section 24) Interest paid on loan for a rented property
Tax-free gifts Gifts up to Rs 50,000
NPS employer contribution Employer's contribution to your National Pension Scheme account
Section 80JJA deductions Specific expenses are claimed as deductions.
Standard deduction of Rs 50,000 Fixed deduction of Rs 50,000
Family pension income (Section 57(iia)) Pension received from the employer after an employee's death
Agniveer Corpus Fund contribution (80CCH(2)) Amount paid/deposited into this specific fund

Deductions Not Available for Business Income under New Tax Regime for 2023-24

Under the new tax regime for FY 2023-24, expenses incurred in running your business cannot be deducted from your taxable income. 

Some of the deductions and exemptions unavailable for business income are mentioned below:

Deduction/Exemption NOT Available for Business Income Details
Section 35AD deduction for expenditure on scientific research for specified businesses
Section 35CCD deduction for expenditure on rural development for specified businesses
Section 80JJAA deduction for profits of MSME units
Section 32AD Investment allowance
Section 33AB Deductions for tea development account
Section 33ABA Deductions for site restoration fund, agricultural extension project
Section 10AA Exemption for Special Economic Zone (SEZ) units

In Summary

Section 115 BAC of the Income Tax Act introduces an optional new tax regime to provide you with simplified and concessional tax rates. You can choose between the existing tax structure of the old tax regime and the new regime based on your financial circumstances. This allows for greater flexibility in tax planning. This section marks a significant step towards easing the tax burden on you while enhancing transparency and simplicity in the income tax system.

FAQ's

  • What is under Section 115 BAC?

    Section 115 BAC of the Income Tax Act, 1961 deals with the optional new tax regime introduced in India. It allows individuals and Hindu Undivided Families (HUFs) with income other than from profession or business to choose between the existing tax slabs and rates (old regime) and the simplified new tax regime with lower rates but without most deductions and exemptions.
  • What is Section 115H in income tax?

    Section 115H of the Income Tax Act, 1961, deals with a specific situation where someone who was a non-resident Indian (NRI) in the previous year becomes a resident in the current year. It allows them to continue enjoying concessional tax rates on certain specified incomes earned from foreign exchange assets, even after becoming a resident.
  • When should I opt for 115 BAC?

    Deciding whether to opt for Section 115 BAC of the new tax regime involves considering the following factors:
    • Opt for 115 BAC if:

      • Your total income is within the lower tax slabs (5% - 10%)

      • You don't claim many deductions and exemptions

      • Do you prefer the ease of filing

      • You receive certain taxable allowances from your employer

    • Avoid 115BAC if:

      • You claim significant deductions and exemptions under the old regime

      • You have income from a profession or business

      • You have long-term capital gains on listed securities

      • You have agricultural income

  • What is Section 115 BAD of income tax?

    Section 115 BAD of the Income Tax Act, 1961, introduced by the Finance Act, 2020, provides a lower tax rate for certain domestic companies in India. These companies can opt to pay income tax at a flat rate of 22% if they forgo claiming certain deductions and exemptions available under the Act. By opting for Section 115 BAD, qualifying entities can benefit from reduced tax liability, fostering economic growth and promoting the 'Make in India' initiative.
  • When should I opt for 115 BAC?

    You should opt for Section 115 BAC in the following cases:
    • Your income falls entirely within the lower tax slabs (up to Rs 7.5 lakhs)

    • You don't claim many deductions

    • You invest mainly in instruments not eligible for deductions under the new regime.

    • Compliance under the old regime is cumbersome

  • What is Section 115 BAA?

    Section 115BAA of the Income Tax Act, 1961, introduced in 2019, provides domestic companies with the option to pay a reduced corporate tax rate of 22% (plus applicable surcharges and cess) instead of the regular rate. The option is available for domestic companies (Indian companies) for assessment years starting from April 1, 2017.
  • What is Section 115 BAC Finance Act 2023?

    Section 115 BAC of the Finance Act 2023 introduces a revised alternate tax regime for individuals and Hindu Undivided Families (HUFs) in India. This regime operates alongside the existing traditional tax regime with its various deductions and exemptions.
  • Is Section 87A available under the new tax regime?

    The rebate under Section 87A remains unchanged, and as such, it is available under Section 115BAC also.
  • Is there any change in the cess and surcharge rates under the IT Act, 1961?

    The existing cess and surcharge rates continue unchanged under the new tax regime and are computed on the tax liability to arrive at the final tax outgo.
  • Does the employer generate Form 16 for the employee under Section 115BAC?

    Yes, the employer issues Form 16 to the employee per the old system after 31 May for the previous financial year.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
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