Section 115 BAC of Income Tax Act

Section 115 BAC of the Income Tax Act of the Income Tax Act introduces a new tax regime for individuals and Hindu Undivided Families (HUFs) in India.The new tax regime under Section 115 BAC of the Income Tax Act was introduced in 2020-21 and became the default option from 2023-24. This regime offers lower tax rates but restricts access to many deductions and exemptions. However, taxpayers still have the option to choose the old regime by filing Form 10-IEA before the income tax return deadline.

Salient Features of Section 115 BAC of the Income Tax Act

Lower Tax Rates- The new tax regime under Section 115 BAC of the Income Tax Act offers lower tax rates than the old regime. The tax slabs are also expanded in the new regime from FY 2024-25 to the benefit of taxpayers.

Income Tax rates under Section 115 BAC of the Income Tax Act are as following-

Income Tax Rates for Individuals (Section 115 BAC) for FY 2024-25:

• No tax on income up to ₹3,00,000.
• 5% tax on income between ₹3,00,001 and ₹7,00,000.
• 10% tax on income between ₹7,00,001 and ₹10,00,000.
• 15% tax on income between ₹10,00,001 and ₹12,00,000.
• 20% tax on income between ₹12,00,001 and ₹15,00,000.
• 30% tax on income exceeding ₹15,00,000.
• Increased Standard Deduction- For the financial year 2024-25, the Indian government increased the standard deduction under the new tax regime under Section 115 BAC of the Income Tax Act from ₹50,000 to ₹75,000 while the old tax regime still retains a standard deduction of ₹50,000. This change aims to provide additional tax relief to salaried individuals.
• Easier Calculations- Under Section 115 BAC of the Income Tax Act , calculating taxes becomes significantly simpler. You primarily focus on your annual income and apply the corresponding tax rate. This streamlined approach eliminates the need to navigate complex deductions and exemptions, making tax filing more straightforward.
• Increased employer pension deduction- The deduction for employer contributions to the pension scheme under Section 80CCD(2) has been raised to 14% of salary from 10% Under Section 115 BAC of the Income Tax Act.
• Increased family pension deduction- Under the new tax regime under Section 115 BAC of the Income Tax Act of the Income Tax Act, the maximum deduction for family pension has risen from ₹15,000 to ₹25,000.

Deductions not available under Section 115 BAC of the Income Tax Act-

The deductions or exemptions mentioned below are excluded from the new regime:

• All deductions under Chapter VI-A, except those specified under section 80CCD/80JJAA.
• Deductions under Section 35/35AD/35CCC.
• Clause (iia) of Section 57.
• Deductions specified under Section 24(b).
• Clause (5)/(13A)/(14)/(17)/(32) under Section 10/10AA/16.
• Deductions specified under Section 32(1)/32AD/33AB/33ABA.
• Any loss from the previous assessment year resulting from the deductions mentioned above or any loss arising out of house property.
• Any deductions or exemptions related to any perquisites or allowances.
• Any additional depreciation as per clause (iia) under Section 32.

Exemptions and Deductions Available Under the New Regime Under Section 115 BAC of the Income Tax Act

Under the New tax regime, tax exemption/deductions on the following are allowed:

• Transport allowances in case of a specially-abled person.
• Conveyance allowance is provided to meet the conveyance expenditure incurred included in the employment.
• Any compensation given to meet the cost of travel on tour or transfer.
• Daily allowance received to meet the ordinary regular charges or expenses incurred on account of absence from the individual's regular place of duty.
• Perquisites for official purposes
• Exemption provided on voluntary retirement 10(10C), gratuity u/s 10(10) and Leave encashment u/s 10(10AA)
• Interest incurred on Home Loan on let-out property under Section 24
• Gifts up to Rs 50,000
• Deduction for employer’s contribution to NPS account under Section 80CCD(2) up to 14% of salary.
• Deduction for additional employee cost under Section 80JJA
• Standard deduction of Rs.75,000 applicable from FY 2024-25
• Deduction under Section 57(iia) of family pension income up to Rs. 25,000.
• Deduction of amount paid or deposited in the Agniveer Corpus Fund under Section 80 CCH(2)

Switching Between the New Tax Regime under Section 115 BAC of the Income Tax Act and the Existing Regime-

• For salaried individuals, the new regime under Section 115 BAC of the Income Tax Act is now the default. At the beginning of the financial year, they can choose the old regime and inform their employer. This choice cannot be changed during the year but can be reviewed annually when filing income tax returns. If no choice is made, the employer will deduct taxes based on the new regime under Section 115 BAC of the Income Tax Act.
• Non-salaried individuals (with income from business or profession) must choose the regime when filing their returns. However, once they opt out of the new regime under Section 115 BAC of the Income Tax Act, they cannot choose it again in future years.
• The due date for filing income tax returns is typically July 31st, with a belated return window until December 31st. It's crucial to consult with a qualified tax professional for personalized advice, as tax laws and individual circumstances can significantly impact the most advantageous regime.