An alternative tax regime under Section 115BAC was announced in the Budget 2020. It introduced concessional tax rates without considering the legal mandates required for exemptions or deductions. You can choose between the old and the new tax rates based on your financial situation.

Eligibility Criteria for the New Tax Regime

Any individual or HUF with income from sources apart from their profession is eligible to make claims under Section 115BAC of the Income Tax Act, 1961. However, their declared income must not cover any of the business income. 

 

The income calculation for this is done without considering any exemptions or deductions provided under the following provisions: 

  • Chapter VI-A (except those mentioned u/s 80CCD and 80JJAA)

  • Clauses (5), (13A), (14), (17), and (32) of sections 10, 10AA, and 16

  • Section 24b

  • Sections 35, 35AD, and 35CCC

  • Sections 32(1), 32AD, 33AB, and 33ABA

  • Clause (iia) of Section 57

 

In addition to the above, the income calculation should not reflect the following: 

  • Previous assessment years’ losses resulting from deductions mentioned above

  • Losses from residential property owned by the taxpayer 

  • Deductions or exemptions for any allowances or benefits 

  • Claims related to depreciation u/s 32 clause (iia)

Tax Rates Under the New Regime

The income tax slabs under the new tax regime have been changed in the Budget 2023. 

 

Here is an overview of the rates falling under new tax regime under Section 115BAC of the Income Tax Act:

New Tax Regime Slab Rates 22-23 (Pre-Budget)

New Tax Regime Slab Rates 23-24 (Post-Budget)

Up to ₹2.5 Lakhs

Nil

Up to ₹3 Lakhs

Nil

₹2.5 Lakhs to ₹5 Lakhs

5%

₹3 Lakhs to ₹6 Lakhs

5%

₹5 Lakhs to ₹7.5 Lakhs

10%

₹6 Lakhs to ₹9 Lakhs

10%

₹7.5 Lakhs to ₹10 Lakhs

15%

₹9 Lakhs to ₹12 Lakhs

15%

₹10 Lakhs to ₹12.5 Lakhs

20%

₹12 Lakhs to ₹15 Lakhs

20%

₹12.5 Lakhs to ₹15 Lakhs

25%

Over ₹15 Lakhs

30%

Over ₹15 Lakhs

30%

 

 

Given below is an overview of tax slabs and rates for the alternative tax regime and old tax regime:

Old Tax Regime Slab Rates 

New Tax Regime Slab Rates 

Income Levels 

Tax Rate 

Income Levels 

Tax Rate 

₹2.5 Lakhs to ₹5 Lakhs

5%

₹3 Lakhs to ₹6 Lakhs

5%

₹5 Lakhs to ₹10 Lakhs

20%

₹6 Lakhs to ₹9 Lakhs

10%

Above ₹10 Lakhs

30%

₹9 Lakhs to ₹12 Lakhs

15%

 

₹12 Lakhs to ₹15 Lakhs

20%

Above ₹15 Lakhs 

30%

*Note: Over 70 deductions and exemptions are not applicable under the new tax regime. 

 

Given below is a table illustrating the tax you would have to pay under the old or new tax regime without claiming deductions for the financial year 2023-24:

Income Level (Post Standard Deduction)

Old Tax Regime 

New Tax Regime 

Tax Savings Under the New Regime 

Up to ₹7.50 Lakhs

₹65,000

₹31,200

₹33,8000

Up to ₹10 Lakhs

₹1.17 Lakhs

₹62,400 

₹54,600

Up to ₹12.50 Lakhs

₹1.95 Lakhs

₹1.04 Lakhs

₹65,000

Up to ₹15 Lakhs

₹2.73 Lakhs 

₹1.56 Lakhs

₹1.17 Lakhs

Disclaimer: The above calculation is just an illustration. Actual tax liability may vary.

Deductions Allowed Under Section 115BAC

Here are some permissible deductions in the new tax regime: 

  • Conveyance allowances owed in lieu of performing officer duties 

  • Costs associated with business travel and transfers 

  • Daily allowance provided in certain circumstances will be exempt 

  • Deductions featured under sections 80JJAA and 80CCD (2) 

  • Transportation costs of a specially-abled person

  • Costs involved in the purchase of business and official prerequisites

  • Gifts of up to ₹5,000

  • Exemptions on gratuity u/s 10(10), voluntary retirement 10(10C), and leave encashment u/s 10(10AA)

  • Interest accrued on a housing loan (let-out property) as specified under Section 24

 

In addition to the above, the following provisions were also added to the Section 115BAC deduction list after Budget 2023:

  • Standard deduction of ₹50,000 from financial year 2023-24

  • Deduction under Section 57 (iia) for expenses related to income from family pension

  • Deduction for deposits in the Agniveer Corpus Fund under Section 80CCH (2)

Deductions Not Applicable Under Section 115BAC

If individuals and HUFs choose to file their taxes under Section 115BAC of the Income Tax Act, they will not be allowed to make the following deductions: 

  • Children Education Allowance (CEA)

  • Helper allowance

  • House Rent Allowance (HRA)

  • Leave Travel Allowance (LTA)

  • Minor child income allowance

  • Entertainment allowance 

 

Additionally, deductions made under business income will not be considered as per the new regime outlined in Section 115BAC. In accordance with this rule, here is a list of some deductions you cannot claim in the alternate tax regime: 

  • Additional depreciation, as mentioned under Section 32

  • Investment allowance, as made clear under Section 32AD

  • Sector-specific business deductions made clear in Sections 33ABA and 33AB

  • Expenditure incurred owing to scientific research, as mentioned in Section 35

  • Capital expenditure defined in Section 35AD

  • Exemptions made clear under Section 10AA for SEZ units


Note that the above is not an exhaustive list of deductions and allowances exempt under the new tax regime. You can find the complete list on the income tax website.

Important Points to Consider About the New Tax Regime

  • Opting for the new regime means you cannot claim deductions and exemptions of the old regime 

  • Taxpayers can choose either the new or old regime; neither option is mandatory 

  • The new regime was made the default tax regime from FY 23-24

  • Individuals cannot choose the new regime if they have any business income in the given fiscal year 

  • The same surcharge rate is applicable for both regimes, except when the income is above ₹5 Crores, resulting in the rate going down to 25% from 37%

Frequently Asked Questions

Which entities are entitled to use Section 115BAC of the Income Tax Act?

Individuals and Hindu Undivided Families (HUFs) can opt for the new tax regime provided they qualify as per the provisions under Section 115BAC.

Is choosing the new tax regime mandatory?

Using this taxation style is not mandatory, and you can opt for either the new or old regime. However, the new tax regime is now the default one. If you want to choose the old regime, ensure you do so before you start filing your return.

What deductions are not permissible in the new tax regime?

As per the provisions of the new tax regime under Section 115BAC of the Income Tax Act, 1961, you cannot claim Chapter VI-A deductions with some exceptions. You also cannot claim certain allowances, such as children’s education, HRA, and LTA. You can find all the deduction rules on the income tax portal.

Who should opt for the new tax regime u/s 115BAC of the Income Tax Act?

Individuals with deductions under ₹1.5 Lakhs are likely to benefit more by choosing the alternate tax regime. This is because the regime offers concessional rates.

How is the old and new tax regime different in terms of income tax slab rates?

The alternate tax regime, as per Section 115BAC, offers concessional rates compared to the old regime. The new regime also has more tax slabs than the previous regime, which has only 3 slabs.

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

Yes, provided you are either an individual or HUF with no income from business or profession. Remember, the new regime is the default tax regime, and you can make the switch only before you file the return.

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