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

Section 115BAC of the Income Tax Act allows individuals to choose between old and new tax rates, highlighting the deductions under the new tax regime.
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3 min
16-January-2025

Incorporated by the Finance Act of 2020, Section 115BAC was added to the Indian Income Tax Act. This provision grants individuals the option to select either the traditional tax rates or the newly reduced tax rates, each accompanied by its own set of deductions and exemptions. In this article, we will discuss the specifications, eligibility, exemptions, deductions and more related to Section 115BAC of the Income Tax Act, along with the tax benefits that can be claimed by buying health insurance policies in the country.

What is Section 115BAC of the New Tax Regime?

As outlined in Section 115BAC of the Income Tax Act, individuals or Hindu undivided families (HUFs) with income sources other than those from a profession or business can choose to be taxed based on the preceding year's income when filing their returns under Section 139(1). This provision, effective from the fiscal year 2020-21, applies to income earned from April 1, 2020, onward. One prominent aspect of this tax regime is the significant reduction in income tax slab rates. Furthermore, taxpayers who opt for this regime will need to forgo various deductions and exemptions available under the current tax structure.

Check out: Deductions under Section 80D

Income tax slab rates under Section 115BAC

Given below is an overview of tax slabs under the New Tax Regime:

Tax rates for Individual (resident or non-resident) less than 60 years of age anytime during the previous year are as under:

Tax slab

Tax rate

Up to Rs. 3 lakh

Exempt

Rs. 3 lakh to Rs. 6 lakh

5%

Rs. 6 lakh to Rs. 9 lakh

10%

Rs. 9 lakh to Rs. 12 lakh

15%

Rs. 12 lakh to Rs. 15 lakh

20%

Above Rs. 15 lakh

30%


Tax rates for Individual (resident or non-resident), 60 years or more but less than 80 years of age anytime during the previous year are as under:

Tax slab

Tax rate

Up to Rs. 3 lakh

Exempt

Rs. 3 lakh to Rs. 6 lakh

5%

Rs. 6 lakh to Rs. 9 lakh

10%

Rs. 9 lakh to Rs. 12 lakh

15%

Rs. 12 lakh to Rs. 15 lakh

20%

Above Rs. 15 lakh

30%


Tax rates for Individual (resident or non-resident) 80 years of age or more anytime during the previous year are as under:

Tax slab

Tax rate

Up to Rs. 3 lakh

Exempt

Rs. 3 lakh to Rs. 6 lakh

5%

Rs. 6 lakh to Rs. 9 lakh

10%

Rs. 9 lakh to Rs. 12 lakh

15%

Rs. 12 lakh to Rs. 15 lakh

20%

Above Rs. 15 lakh

30%

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What is the eligibility for Section 115BAC of Income Tax Act?

Individuals and Hindu Undivided Families (HUFs) are obliged to adhere to the new tax regulations under sec 115BAC of Income Tax Act unless they choose to revert to the old regime when filing their income tax returns before the due date. In the new tax regime, the total income must fulfill the following conditions:

  • Income is calculated without factoring in any deductions or exemptions, including:
    • All deductions under Chapter VI-A, except those specified in section 80CCD/80JJAA.
    • Deductions specified in Section 35/35AD/35CCC.
    • Clause (iia) of Section 57.
    • Deductions specified in Section 24b.
    • Clause (5)/(13A)/(14)/(17)/(32) of Section 10/10AA/16.
    • Deductions specified in Section 32(1)/32AD/33AB/33ABA.
  • Losses from previous assessment years resulting from the above deductions or losses from house property are not offset in the calculation.
  • No deductions or exemptions related to perquisites or allowances are considered.
  • Depreciation as per clause (iia) of Section 32 is not claimed in the calculation.

Deductions of Section 115BAC of Income Tax Act

Here are some of the key deductions that cannot be claimed under the new tax regime:

  • Deduction under Section 80TTA/80TTB
  • Professional tax and entertainment allowance on salaries
  • Leave Travel Allowance (LTA)
  • House Rent Allowance (HRA)
  • Allowances to MPs/MLAs
  • Minor child income allowance
  • Helper allowance
  • Children education allowance
  • Other special allowances [Section 10(14)]
  • Additional depreciation under section 32(1)(iia)
  • Deductions under section 32AD, 33AB, 33ABA
  • Various deductions for donation for or expenditure on scientific research contained in section 35(2AA) or 35(1)(ii) or (iia) or (iii)
  • Deduction under section 35AD or section 35CCC
  • Interest on housing loan on the self-occupied property or vacant property (Section 24)
  • Chapter VI-A deduction (Section 80C, 80D, 80E and so on, except Section 80CCD(2) and Section 80JJAA)
  • Exemption or deduction for any other perquisites or allowances including food allowance of Rs 50/meal subject to 2 meals a day
  • Employee's (own) contribution to NPS
  • Donation to Political party/trust, etc.

Also, check: Tax benefits of term insurance

What deductions are allowed under the New Tax Regime?

Under the new tax regime, deductions are limited, and the following are allowed:

  • Employer's contribution to NPS under Section 80CCD(2).
  • Section 80JJAA for additional employee cost deduction.
  • Standard deduction of Rs. 50,000 for salaried individuals and pensioners.

These are applicable under the 115BAC slab rates.

Exemptions and deductions not allowed under the new tax regime (Section 115BAC)

The new tax regime does not permit the following significant deductions and exemptions:

  • Standard deduction: Benefits under sections 80TTB (interest on deposits for senior citizens) and 80TTA (interest on savings bank accounts).
  • Salary-related benefits: Entertainment allowance, professional tax on salaries, Leave Travel Allowance (LTA), and House Rent Allowance (HRA).
  • Other allowances: Helper allowance, Minor child income allowance, allowances for MPs/MLAs, special allowances under section 10(14), and children's education allowance.
  • Depreciation and capital allowances: Additional depreciation under section 32(1)(iia) and deductions under sections 32AD, 33AB, and 33ABA.
  • Research and development: Deductions for donations or expenses related to scientific research under sections 35(2AA), 35(1)(ii), 35(1)(iia), and 35(1)(iii).
  • Other deductions: Deductions under sections 35AD and 35CCC. Interest on housing loans for self-occupied or vacant properties.
  • Chapter VI-A deductions: Most deductions under Chapter VI-A are not permitted, with exceptions for Section 80CCD(2) (employee contributions to NPS) and Section 80JJAA (deductions for new businesses).
  • Allowances and perquisites: Exemption and deduction for most allowances and perquisites, including a food allowance of Rs.50 per meal (maximum two meals per day).
  • Donations: Donations to trusts or political parties.
  • Employee contributions to NPS: Employee's own contributions to the National Pension System (NPS).

Also read: 87A rebate

How to choose between Old and New Tax Regime

For salaried taxpayers, the option to choose the old regime instead of the default 115BAC new regime commences at the start of the FY 2023-24, and they must inform their employer accordingly. Once made, this choice cannot be altered during the fiscal year but can be adjusted when filing the income tax return in July 2024.

If an employee doesn't opt for the old tax regime at the fiscal year's onset, their employer will deduct tax (TDS) under the default new regime. Salaried taxpayers can alternate between the new and regular tax regimes from one year to another.

Non-salaried taxpayers must select the new regime under 115BAC of the Income Tax Act when filing their tax returns and aren't required to declare their choice during the year. However, once a non-salaried taxpayer (those with income from business or profession) opts out of the new tax regime, they cannot opt back in for future years.

Tax benefits of health insurance

Tax benefits associated with health insurance can include:

Premium deduction

The premiums paid towards health insurance policies for self, spouse, children, or parents are eligible for deduction under Section 80D of the Income Tax Act.

Additional deduction for senior citizens

For individuals aged 60 years or above, the maximum deduction limit under Section 80D is higher, providing further tax benefits.

Preventive health check-up

Expenses incurred on preventive health check-ups are also eligible for deduction within the overall limit specified under Section 80D.

Critical illness policies

Premiums paid for specific critical illness policies are eligible for deduction under Section 80DDB.

Health insurance for parents

Separate deduction limits are available for health insurance premiums paid for parents, providing additional tax benefits.

These tax benefits encourage individuals to invest in health insurance, promoting financial security and well-being.

Explore in detail: Tax benefits on health insurance

Taxpayers have the option under Section 115BAC to choose a lower tax slab rate. Nonetheless, it's crucial to weigh the trade-off of relinquishing various deductions and exemptions associated with opting for the new tax regime.

Frequently asked questions

What is Section 115BAC income tax?

In the Finance Act 2020, a new section 115BAC was introduced to the Income Tax Act, providing individuals with the option to choose between the actual income tax rates and the new concessional tax rates. This choice does not take into account prescribed deductions and exemptions.

What is Section 115BAA of Income Tax Act?

According to Section 115BAA, domestic companies can opt to pay tax at a rate of 22%, along with a surcharge of 10% and cess of 4%.

Should I opt for 115BAC?

Opting for 115BAC is beneficial if you prefer lower tax rates without claiming common deductions and exemptions. However, if you benefit more from deductions like HRA, home loan interest, and 80C, the old regime might be better.

Who can opt out from 115BAC?

Salaried individuals can choose between the old regime and 115BAC annually when filing their returns. Non-salaried taxpayers (with business or professional income) can opt out once, but they cannot switch back to 115BAC in future years.

How do I choose 115BAC?

To choose 115BAC, salaried individuals must inform their employer at the start of the financial year. Non-salaried taxpayers should select the option directly when filing their income tax returns for that financial year.

Is professional tax deductible under the new tax regime?

Yes, professional tax remains deductible under the new tax regime. This deduction is available for individuals and businesses alike.

Is PPF (Public Provident Fund) eligible for deductions under the new tax regime?

Yes, contributions to PPF are eligible for deductions under the new tax regime. However, the deduction limit may be different compared to the old regime.

What is the basic exemption limit for income tax under the new regime?

The basic exemption limit under the new tax regime is generally higher than the old regime. However, it may vary based on factors like age and income.

Can I switch from the new tax regime to the old regime?

Yes, you can generally switch from the new tax regime to the old regime.

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