The introduction of a new tax regime u/s 115BAC in the Income Tax Act was announced by Finance Minister Nirmala Sitharaman during the Union Budget 2020 speech. The new and alternative income tax regime, which goes into effect in FY 2020–21, is covered by Section of the new tax regime u/s 115BAC. Hindu Undivided Families and Individuals (HUF). Let’s examine the new slab rates, the requirements for entering the new system, and the deductions that are permitted or prohibited under a section of the new tax regime u/s 115BAC. Additionally, we will contrast the two regimens so that you can select the one that best suits your needs.
What is Section 115BAC?
The Income Tax Act of 1961 contains a newly added section, Section of the new tax regime u/s 115BAC, that deals with the new income tax system. Only private people and Hindu Undivided Families are covered by this clause and the alternative tax scheme, which were both introduced in the Union Budget 2020. (HUFs). The fact that the income tax bracket rates have been significantly decreased is one of the primary characteristics of this new system. The new rates, however, eliminate certain important income tax exemptions and deductions that are now permitted under the previous (current) income tax system.
The following table shows the new slab rates as per Section of the new tax regime u/s 115BAC for FY 2023-2024
| Annual Income | New Income Tax Slab Rate |
| Nil to Rs. 3 lakhs | Exempt |
| Rs. 3 lakhs to Rs. 6 lakhs | 5% |
| Rs. 6 lakhs to Rs. 9 lakhs | 10% |
| Rs. 9 lakhs to Rs. 12 lakhs | 15% |
| Rs. 12 lakhs to Rs. 15 lakhs | 20% |
| Above Rs. 15 lakhs | 30% |
What are the requirements to be eligible for the new tax system?
Individuals and HUFs will have the option to pay income tax according to the new (lower) income tax slab rates beginning with the assessment year 2021–2022, providing their total income for the applicable financial year complies with the following requirements.
- No business revenue is included in the declared income.
- This is calculated without any exemptions or deductions provided under the following
- Chapter VI-A except those u/s 80CCD/ 80JJAA,
- Section 24b,
- Clause (5)/(13A)/(14)/(17)/(32) of Section 10/10AA/16,
- Section 32(1)/ 32AD/ 33AB/ 33ABA,
- Section 35/ 35AD/ 35CCC,
- Clause (iia) of Section 57.
- It is computed without setting off losses from any earlier assessment year (AY) due to the above-mentioned deductions or from house property.
- It is computed without claiming any depreciation under clause (iia) of section 32.
- It is calculated without any exemption or deduction with regard to any allowances or perquisites.
Deductions and exemptions not permitted under section 115BAC
The main income tax exemptions and deductions that are no longer permitted under the new income tax system are listed in the following table. Please be aware that the old (current) regime, under which all of the above deductions may be claimed, is still available in FY 2023–24 if you want.
| Major Deductions under Chapter VIA (u/s 80C, 80CCC, 80CCD, 80DD, 80DDB, 80E, 80EE, 80EEA, 80G, 80IA, etc) | House Rent Allowance (HRA) u/s 10(13A) | Home Loan Interest u/s 24(b) |
| Standard Deduction | Leave Travel Allowance u/s 10(5) | Deduction for Donation or Expenditure on Scientific Research |
| Allowances u/s 10(14) | Deduction for Entertainment Allowance and Employment/Professional Tax u/s 16 | Depreciation u/s 32(iia) |
| Deductions u/s 32AD, 33AB, 33ABA, 35AD, 35CCC | Exemption for SEZ unit u/s 10AA | Deduction from Family Pension u/s 57(iia) |
Deductions allowed under Section 115BAC
While most of the income tax deductions have been discontinued under the new income tax regime (as mentioned in the earlier section), the following deductions are permitted:
| Deduction u/s 80CCD(2) (employer’s contribution to your pension account) | Deduction u/s 80JJAA (additional employee cost) | Transport Allowance for Differently Abled Employees (Divyang) |
| Conveyance Allowance for Performance of Office Duties | Any Allowance for the Cost of Travel/ Tour/ Transfer | Employees are provided a daily allowance under certain circumstances. |
significant considerations for the new tax system
- Section of the new tax regime u/s 115BAC of the Income Tax Act deals with the new income tax slab rates, which are applicable only to individuals and Hindu Undivided Families (HUFs).
- While the new regime comes with significantly lower slab rates, it takes away a major chunk of tax deductions and exemptions that could have been availed under the old regime.
- The new income tax regime is optional, and you may still opt for the old (existing) regime.
- If you have any business income in the applicable FY, you cannot opt for the new regime.
- The rates of surcharge and cess in the new income tax regime are the same as in the old (existing) regime.
- If the individual or HUF fails to fulfill any of the conditions mentioned in section 115BAC, the option to pay income tax as per the new regime may become invalid for the relevant financial year.
Old tax regime vs. new tax regime
The old (current) tax system is appropriate for the majority of taxpayers since it offers a wide range of income tax deductions and exemptions. However, people who have not made sizable investments in various tax-saving plans like the Employees’ Provident Fund (EPF), Equity Linked Savings Scheme (ELSS), life insurance, National Pension Scheme (NPS), etc. may find that the new tax regime is advantageous. possess experience with National Savings Certificates (NSC), tax-saving Fixed Deposits (FD), etc. The HRA allowance and the normal deduction of Rs. 50,000 for salaried people are also not applicable under the new tax system.
Let’s look at the following table to see how the overall tax payment is affected by the two regimes.:
| Income Value (₹) | Old Tax Regime | New Tax Regime (2023) | |||||
| Standard Deduction | Extra Deductions* | Net Taxable Income | Tax @ Old Slabs # | Standard Deduction | Net Taxable Income | Tax @ New Slabs # | |
| ₹240,000 | ₹50,000 | ₹0 | ₹190,000 | ₹0 | ₹50,000 | ₹190,000 | ₹0 |
| ₹580,000 | ₹50,000 | ₹50,000 | ₹480,000 | ₹0 | ₹50,000 | ₹530,000 | ₹0 |
| ₹1,050,000 | ₹50,000 | ₹250,000 | ₹750,000 | ₹37,500 | ₹50,000 | ₹1,000,000 | ₹60,000 |
| ₹1,550,000 | ₹50,000 | ₹350,000 | ₹1,150,000 | ₹157,500 | ₹50,000 | ₹1,500,000 | ₹150,000 |
Note:
# Calculations of taxes do not include surcharges or cess.
*Extra Deductions include
HRA Exemption
Loss from House Property
Deductions Under Sec 80C
Deductions Under Sec 80D
Other Deductions
As a result, high-income groups may benefit from the new system under the section of the new tax regime u/s 115BAC with little investment in tax-saving securities. However, if they make sufficient investments in various tax-saving strategies, the low- to middle-income group may benefit more from the old (current) system. As a result, there is no predetermined method for choosing between the two regimes. Before deciding whether to use the section of the new tax regime u/s 115BAC slab rates or not, one should compute the entire tax expense using both the old and new slab rates.