Section 115BAC of the Income Tax Act, of 1961, introduces an alternative tax regime for individual taxpayers. It allows taxpayers to choose between the old tax rates and the new concessional tax rates without considering the legal mandates required for exemptions or deductions. 

 

This provides taxpayers with flexibility based on their financial situations, allowing them to choose the regime that suits them best.  

Who is Eligible for Section 115BAC?

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

 

The calculation for this is done without considering any exemptions or deductions provided under the below-mentioned 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

 

For this calculation, the previous assessment years’ losses are not taken into account by the above deductions. This also includes losses from real estate owned by the taxpayer. The resulting calculation is derived without making any deductions or exemptions for any allowances or benefits. The calculation is completed without claims related to depreciation u/s 32’s Clause (iia) 

What are the tax rates under the new regime?

The income tax slabs under the new tax regime have been changed in the 2023 Budget. Here are the new tax regime u/s 115BAC slabs for the financial year 2023-24:

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%

 

 

Here’s a table showing the 115BAC slab rates under the old tax regime and the new tax regime for the financial year 2022-23:

Old Tax Regime Slab Rates 22-23  

New Tax Regime Slab Rates 23-24 

Income Levels 

Tax Rate 

Income Levels 

Tax Rate 

₹2.5 Lakhs to ₹5 Lakhs

5%

₹2.5 Lakhs to ₹5 Lakhs

5%

₹5 Lakhs to ₹10 Lakhs

20%

₹5 Lakhs to ₹7.5 Lakhs

10%

Above ₹10 Lakhs

30%

₹7.5 Lakhs to ₹10 Lakhs

15%

 

₹10 Lakhs to ₹12.5 Lakhs

20%

₹12.5 Lakhs to ₹15 Lakhs

25%

Above ₹15 Lakhs 

30%

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

 

Here’s a table showing the tax that you should pay under the old or new tax regime without claiming deductions for the financial year 2022-23:

Income Level

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

Deductions Not Applicable Under Section 115BAC

In case individuals and HUFs choose to file their taxes under Section 115BAC, they will not be allowed to make the following deductions: 

  • Chapter VI-A deductions such as those outlined in Section 80CCD(2) and Section 80JJAA being the exceptions

  • Children Education Allowance (CEA)

  • Deductions applicable to a family pension income

  • Helper allowance

  • House Rent Allowance (HRA)

  • Interest accrued on a housing loan as specified under Section 24

  • Leave Travel Allowance (LTA)

  • Minor child income allowance

  • Other special allowances outlined under Section 10 (14)

  • Standard deductions, professional taxes, and entertainment allowances aren’t claimable

 

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 are some types of incomes that will not be permitted under Section 115BAC: 

  • 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

Deductions Allowed under Section 115BAC

Here are some deductions that are permissible under Section 115BAC of the Income Tax Act: 

  • Conveyance allowances owed in lieu of performing officer duties are applicable

  • Costs associated with business travel and transfers 

  • Daily allowance provided in certain circumstances will be exempt 

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

  • 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)

  • Employer’s contribution to the NPS account under Section 80CCD(2) is claimable

  • Deductions under Section 80JJA for employee expenses

  • As per Budget 2023, a standard deduction of ₹50,000 under the New Tax Regime will be applicable for the financial year 2023-24

  • As per Budget 2023, you can make a deduction under Section 57 (iia) for expenses related to income from family pension

  • As per Budget 2023, you can also claim a deduction deposited in the Agniveer Corpus Fund under Section 80CCH(2)

Important points to consider about the new tax regime

  • Opting for the new regime to avail reduced tax rates means you cannot claim deductions and exemptions provided under the old regime 

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

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

  • Both regimes share the same cess and surcharge rates 

  • Individuals or HUF may become ineligible to avail of income tax as per the new regime if they fail to meet the conditions listed u/s 115BAC

Conclusion

Section 115BAC is an optional route that you can take as a taxpayer, provided that you are eligible for the same. Alternatively, you can also continue to file taxes as per the previous taxation regime as per the Income Tax Act of 1961.

 

The Section 115BAC route is a great one to take to save on taxes provided that you have not invested in securities such as life insurance, employee provident fund, etc. 

FAQs

Which entities are entitled to use Section 115BAC of the Income Tax Act and is using this taxation style mandatory or not?

Individuals and Hindu Undivided Families (HUFs) are entitled to avail of the provisions under Section 115BAC. Using this taxation style is not mandatory, and taxpayers can choose to opt for either the new or old regime.

What deductions are not permissible under Section 115BAC of the Income Tax Act?

The following deductions are not allowed u/s 155BAC: 

  • Chapter VI-A deductions 

  • Children Education Allowance (CEA)

  • Deductions applicable to a family pension income

  • Helper allowance

  • House Rent Allowance (HRA)

  • Interest accrued on a housing loan as specified under Section 24

  • Leave Travel Allowance (LTA)

  • Minor child income allowance

  • Other special allowances outlined under Section 10 (14)

  • Standard deductions, professional taxes, and entertainment allowances l

What individuals are best suited to filing their taxes as per the tax rules outlined in Section 115BAC of the Income Tax Act?

Individuals who haven’t invested in any tax-saving schemes, such as life insurance or EPF, are most likely to benefit from Section 115BAC.

How does the old tax regime differ from the new tax regime outlined in Section 115BAC in terms of income tax slab rates?

In terms of income tax slab rates, the new tax regime mentions more tax slabs in contrast to the previous regime which outlined only 3 slabs. 

  1. Income range of ₹2.5 Lakhs to ₹5 Lakhs - 5% tax

  2. Income range of ₹5 Lakhs to ₹10 Lakhs - 20% tax

  3. Income exceeding ₹10 Lakhs - 30% tax 

Income falling below ₹2.5 Lakhs isn’t taxable in the case of both tax regimes.

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