Section 115BAC of the Income Tax Act, 1961, introduced by the Finance Act 2020, has been a significant development in the realm of taxation in India. It provides an alternative tax regime for individual taxpayers, allowing them to opt for a simplified tax structure with lower tax rates, provided certain conditions are met.
Section 115BAC provides an optional tax regime for individual taxpayers. Taxpayers have the choice to either continue under the existing tax regime with deductions and exemptions or opt for the new regime with lower tax rates but fewer deductions.
New tax regime will be the default tax regime. However, taxpayers can opt for the old regime
Tax Rates
Income Slabs | Rate | Note |
Upto ₹3 Lakhs | Nil |
|
₹3 lakhs to ₹6 lakhs | 5% | Tax Rebate u/s 87A |
₹6 lakhs to ₹9 lakhs | 10% | Tax Rebate upto ₹7 lakhs |
₹9 lakhs to ₹12 lakhs | 15% |
|
₹12 lakhs to ₹15 lakhs | 20% |
|
Above ₹15 lakhs | 30% |
|
Key Features
A tax rebate has been introduced under the new tax regime on income up to Rs.7 lakhs. Therefore, you do not have to pay tax if your taxable income is below Rs.7 lakhs under the new tax regime.
The standard deduction of Rs 50,000 on salary income has been extended to the new tax regime as well.
The highest surcharge rate of 37% has been reduced to 25% under the new tax regime. This moves impacts taxpayers earning more than Rs 5 crore. As a result, their overall tax rate will decrease from 42.74% to 39%
Exemptions
Transport allowances to persons with disabilities: This exemption allows individuals with disabilities to claim deductions for transportation expenses incurred for commuting to work.
Conveyance allowance: This exemption allows employees to claim deductions for expenses incurred on travel for official purposes.
Any compensation received to meet the cost of travel on tour or transfer: This exemption covers expenses incurred during official tours or transfers.
Daily allowance: This exemption allows individuals to claim deductions for ordinary daily expenses incurred due to their absence from their regular place of duty.
Gratuity under Section 10(10): This exemption applies to gratuity received at the time of retirement, resignation, or death.
Leave encashment under Section 10(10AA): This exemption applies to the encashment of earned leave upon retirement and raised exemption limit from 3 lakh to 25 lakh, 8-fold increase.
Interest on Home Loan on let-out property (Section 24): This deduction allows for claiming interest paid on a home loan for a property rented out to tenants.
Gifts up to Rs 50,000: This exemption allows individuals to receive gifts up to Rs 50,000 without any tax implications.
Deductions
Employer's contribution to NPS account (Section 80CCD (2)): This deduction allows employees to claim deductions for their employer's contributions to their NPS account.
Investment in long-term infrastructure bonds (Section 80JJAA): This deduction allows individuals to claim deductions for investments in long-term infrastructure bonds issued by the government.
Standard deduction of Rs. 50,000 (applicable from FY 2023-24 onwards): This deduction is available to salaried individuals in place of various deductions like LTA and HRA.
Drawbacks
In the case of a business income, an individual or HUF cannot claim set-off of the brought forward business loss or unabsorbed depreciation.
Major Exemptions and Deductions Not Claimable
Chapter VI-A Deductions: This chapter houses a wide range of popular deductions, including:
80C: Investments in ELSS, PPF, ULIPs, NPS, tuition fees, etc.
80D: Medical insurance premiums for self, family, and dependent parents.
80E: Interest on education loan.
80G: Donations to specified charitable institutions.
80TTA: Interest on savings account up to Rs. 10,000.
80TTB: Interest on bank deposits up to Rs. 50,000 (senior citizens) or Rs. 25,000 (others).
Other Significant Deductions:
House Rent Allowance (HRA)
Leave Travel Allowance (LTA)
Professional tax
Entertainment allowance on salaries
Helper allowance
Minor child income allowance
Children's education allowance
Interest on housing loan for self-occupied or vacant property (Section 24)
Additional depreciation under Section 32
Investment allowance under Section 32AD
Sector-wise deductions for businesses under Section 33AB and 22ABA
Expenditure on research & development under Section 35
Expenses on capital expansion under Section 35AD
Exemptions under Section 10AA for units in SEZ
By understanding the features, limitations, and considerations of Section 115BAC, you can make an informed choice between the new and old tax regimes, optimizing your tax liability and financial well-being in FY 2023-24 and beyond.
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