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

Section 115BAC of the Income Tax Act allows eligible taxpayers to opt for the new tax regime, which offers revised income tax slab rates with fewer deductions and exemptions. Understanding how this provision works can help you compare the old and new tax regimes and choose the one that best suits your financial situation.

In summary

Section 115BAC allows eligible individuals and HUFs to opt for the new tax regime with lower tax rates but fewer deductions and exemptions. Compare both tax regimes based on your income and eligible deductions before making your choice.

• Lower income tax slab rates under the new tax regime.
• Choice between the old and new tax regimes for eligible taxpayers.
• Most deductions and exemptions under the old regime are not available.
• The right option depends on your income and tax-saving needs.

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Section 115BAC allows eligible individuals and Hindu Undivided Families (HUFs) to choose the new tax regime, which offers lower income tax rates in exchange for giving up several deductions and exemptions available under the old regime. Taxpayers should compare both tax regimes before choosing the one that best suits their financial situation.

The new tax regime under Section 115BAC follows a revised income tax slab structure. These slab rates apply to eligible resident and non-resident individuals, irrespective of age, including those below 60 years, between 60 and 80 years, and above 80 years.
 

Tax rates for individuals (resident or non-resident) below 60 years

Tax rates for individuals (resident or non-resident) aged 60 years or more but below 80 years

Tax rates for individuals (resident or non-resident) aged 80 years or above

Individuals and Hindu Undivided Families (HUFs) can opt for the new tax regime under Section 115BAC, subject to the applicable provisions of the Income Tax Act. Salaried taxpayers can choose between the old and new tax regimes while filing their income tax returns. Non-salaried taxpayers with business or professional income are subject to separate rules regarding opting in or out of the new regime.

To calculate taxable income under Section 115BAC, the following conditions generally apply:

• Income is computed without claiming most deductions and exemptions available under the old tax regime.
• Deductions under Chapter VI-A are not available, except those specifically permitted, such as Sections 80CCD(2) and 80JJAA.
• Deductions under Sections 35, 35AD and 35CCC cannot be claimed.
• Deductions under Section 24(b) relating to self-occupied house property are not available.
• Exemptions under Sections 10, 10AA and 16, wherever applicable, are generally not permitted.
• Additional depreciation under Section 32(1)(iia) cannot be claimed.
• Losses arising from deductions or exemptions not allowed under the new regime cannot be adjusted.
• Exemptions related to allowances and perquisites are generally not available while calculating taxable income.

One of the key differences between the old and new tax regimes is the availability of deductions. Taxpayers choosing Section 115BAC generally give up several commonly claimed deductions and exemptions in exchange for lower tax rates.
 

The following deductions and exemptions are generally not available under the new tax regime:
 

• Deduction under Sections 80TTA and 80TTB.
• Professional tax and entertainment allowance.
• Leave Travel Allowance (LTA).
• House Rent Allowance (HRA).
• Allowances available to Members of Parliament (MPs) and Members of Legislative Assemblies (MLAs).
• Minor child income allowance.
• Helper allowance.
• Children's education allowance.
• Special allowances under Section 10(14).
• Additional depreciation under Section 32(1)(iia).
• Deductions under Sections 32AD, 33AB and 33ABA.
• Deductions for scientific research under the applicable provisions of Section 35.
• Deductions under Sections 35AD and 35CCC.
• Interest on housing loans for self-occupied or vacant property under Section 24.
• Most deductions available under Chapter VI-A, including Sections 80C, 80D and 80E, except those specifically permitted under the Act.
• Exemptions relating to allowances and perquisites, including eligible food allowances.
• Employee's own contribution to the National Pension System (NPS).
• Donations made to political parties or eligible trusts.

Also, check: Tax benefits of term insurance

Although the new tax regime under Section 115BAC restricts many exemptions and deductions, taxpayers can still claim certain specified deductions. These are available only if the prescribed conditions under the Income Tax Act are met.
 

The following deductions are permitted under the new tax regime:

• Employer's contribution to the National Pension System (NPS) under Section 80CCD(2).
• Deduction under Section 80JJAA for eligible businesses employing additional workers.
• Standard deduction for salaried individuals and pensioners, as applicable under the prevailing tax provisions.

Before choosing the new tax regime, compare the available deductions under both tax regimes to determine which option offers greater tax efficiency based on your income and financial goals.

Taxpayers opting for Section 115BAC cannot claim several exemptions and deductions that are available under the old tax regime. These restrictions are intended to simplify the tax structure while offering lower income tax slab rates.
 

The following exemptions and deductions are generally not available:
 

• Standard deduction under the earlier provisions, along with deductions under Sections 80TTA and 80TTB.
• Salary-related exemptions, including House Rent Allowance (HRA), Leave Travel Allowance (LTA), professional tax and entertainment allowance.
• Other allowances, such as helper allowance, children's education allowance, minor child income allowance, allowances for Members of Parliament (MPs) and Members of Legislative Assemblies (MLAs), and specified allowances under Section 10(14).
• Additional depreciation under Section 32(1)(iia) and deductions under Sections 32AD, 33AB and 33ABA.
• Scientific research deductions available under the applicable provisions of Section 35.
• Deductions under Sections 35AD and 35CCC.
• Interest deduction on housing loans for self-occupied or vacant properties under Section 24.
• Most deductions under Chapter VI-A, including Sections 80C, 80D and 80E, except those specifically allowed under the new tax regime.
• Exemptions for various allowances and perquisites, including eligible food allowances.
• Employee's own contribution to the National Pension System (NPS).
• Donations made to eligible trusts or political parties.

Also read: 87A rebate

Choosing between the old and new tax regimes depends on your income, eligible deductions and tax liability. Salaried taxpayers can choose their preferred regime while filing their income tax return, while taxpayers with business or professional income must follow the applicable rules for switching. Compare both tax regimes to determine which one offers better tax savings.

Health insurance premiums may qualify for tax deductions under the applicable provisions of the Income Tax Act.
 

• Premium deduction: Premiums paid for yourself, your spouse, children, or parents may qualify for deduction under Section 80D.
• Senior citizen benefit: Higher deduction limits are available for eligible senior citizens.
• Preventive health check-ups: Expenses for preventive health check-ups can be claimed within the overall Section 80D limit.
• Critical illness: Eligible premiums may qualify for deduction under Section 80DDB.
• Health insurance for parents: Separate deduction limits are available for premiums paid for your parents.
• These tax benefits can help you save while ensuring financial protection against medical expenses.

Explore in detail: Tax benefits on health insurance

Section 115BAC offers lower tax rates but fewer deductions and exemptions. Compare both tax regimes to choose the option that best suits your financial needs.

Section 115BAC offers lower tax rates under the new tax regime but limits several deductions and exemptions. Compare both tax regimes to choose the option that best suits your financial goals. If you're also looking to save on healthcare costs, explore plans that match your needs.