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New Income Tax Regime- Section 115BAC

Updated on: 06 Feb, 2023 03:51 PM

New Tax Regime Slabs, Rates, Exemptions & Deductions Availability analysis
New income tax regime for Individuals and HUF has been proposed under Section 115BAC in the budget 2020. This scheme provides an option to the taxpayers to pay tax at reduced rates subject to fulfillment of certain conditions. This new system is applicable from the FY 2020-21(AY 2021-22).
Let’s understand this proposed scheme in detail-

What are the new Income Tax Slab Rates under the New tax regime?

As per Budget 2020 individual and HUF taxpayers including are provided a choice to pay income tax under an optional new tax regime. The new tax regime came up with lower tax rates and fewer deductions.
Let us discuss further the changes made in the new tax regime and how you can benefit from them:-

Taxable Income for FY 2022-23 Tax Rate under new regime Tax Payable Tax Rate under old regime Tax Payable
Upto 2,50,000 Exempt - Exempt -
From 2,50,001- 5,00,000 5% 12,500 5% 12,500
From 5,00,001-7,50,000 10% 25,000 20% 50,000
From 7,50,001-10,00,000 15% 37,500 20% 50,000
From 10,00,001-12,50,000 20% 50,000 30% 75,000
From 12,50,001-15,00,000 25% 62,500 30% 75,000
Above Rs 15 Lakhs 30% To be calculated on the basis of income 30% To be calculated on the basis of income

The introduction of new tax regime made people more confused on which tax regime to opt for. Let us give you more clear picture on this.
The basic exemption limit has still been kept unchanged i.e. there will be no tax upto Rs 2.5lakhs for an individual/HUF. But, if the income of such taxpayer does not exceed Rs 5 lakhs then no tax would be payable after availing the benefit of rebate u/s 87A.
As soon as your taxable income crosses the threshold of Rs 5 lakhs the benefit u/s 87A will not be available and tax would be payable at 5% for income above Rs 2.5 lakhs but up to Rs 5 lakhs. Let us understand this with the help of an example

Particulars Old Regime Old Regime New Regime New Regime
Taxable Income 5,00,000 6,00,000 5,00,000 6,00,000
Less: Basic Exemption Limit 2,50,000 2,50,000 2,50,000 2,50,000
Taxable income after basic exemption limit 2,50,000 3,50,000 2,50,000 3,50,000
Tax Rate @5% on Rs 2,50,000 @5% on Rs 2,50,000 + @20% on Rs 1,00,000 @5% on Rs 2,50,000 @5% on Rs 2,50,000 + @10% on Rs 1,00,000
Tax Computed 12,500 32,500 12,500 22,500
Less: Rebate u/s 87A 12,500 - 12,500 -
Tax Payable* - 32,500 - 22,500

*The above calculations are excluding cess.

What is the eligibility criteria to opt for New Tax Regime?

Every year at the time of return filing, the new tax regime can be opted by the individual or the HUF who has no business/professional income They do not have a choice to opt-in or opt out of the regime every year. The option shall become invalid for a previous year or previous years, as the case may be, if the Individual or HUF fails to satisfy the conditions and other applicable provisions of the Act.
However, if the non-salaried taxpayer opts out of the new regime, he cannot opt for this regime in the future. Taxpayers having business income and wanting to opt for a new tax regime have to communicate to the Income tax department by filing from-10IE before the due date of filing ITR. This option once exercised for a previous year shall be valid for that previous year and all subsequent years.

What are the Income Tax Deductions & Exemption not available under the New Tax Regime?

The taxpayer opting for the new tax regime under section 115BAC shall not be entitled to the following exemptions/ deductions:

  1. Leave travel concession u/s section 10(5);
  2. House rent allowance u/s section 10(13A);
  3. Some of the allowance as contained in section 10(14);
  4. Allowances to MPs/MLAs as contained in section 10(17);
  5. Allowance for the income of minor as contained in section 10(32);
  6. Exemption for SEZ unit contained in section 10AA;
  7. The standard deduction, a deduction for entertainment allowance and employment/professional tax as contained in section 16;
  8. Interest under section 24 in respect of self-occupied or vacant property referred to in subsection (2) of section 23. (Loss under the head income from house property for the rented house shall not be allowed to be set off under any other head and would be allowed to be carried forward as per extant law);
  9. Additional depreciation under section 32(1)(iia);
  10. Deductions under section 32AD, 33AB, 33ABA;
  11. Various deduction for donation for or expenditure on scientific research contained in section 35(2AA) or 35(1)(ii) or (iia) or (iii);
  12. Deduction under section 35AD or section 35CCC;
  13. Deduction from family pension under section 57(iia);
  14. Any deduction under chapter VIA (like section 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA,80TTA, 80TTB etc).

What are the Income Tax Exemptions and Allowances available under New Tax Regime?

Following exemptions and allowances are allowed to the Individual or HUF :

  1. Transport Allowance granted to a divyang employee to meet the expenditure for the purpose of commuting between place of residence and place of duty.
  2. Conveyance Allowance granted to meet the expenditure on conveyance in performance of duties of an office;
  3. Any Allowance granted to meet the cost of travel on tour or on transfer;
  4. Daily Allowance to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty.
  5. Employer’s contribution to the NPS for up to 10% of employee’s salary under Section 80CCD (2) [ 14% in case of Govt employee]
  6. Deduction for additional employee cost (Section 80JJAA).

Which income tax regime is beneficial for FY 2022-23(AY 2023-24)?

For the FY 2020-212022-23 (AY 2023-24) the taxpayer can choose amongst the old and new tax regimes. The new optional tax regime has reduced the income tax rate however has removed a few of the deductions and allowances that were available under the old tax regime. Let’s get a comparative study of the pros and cons of both tax slabs available to the taxpayer

Applicability Applicable to Individual, HUF, AOP, BOI, AJP Individual & HUF
Chapter VI A Deductions Available Not available except 80CCD(2), 80JJAA,
Allowances, and Exemptions Available Ony few available
Suitable for Taxpayers who are willing to take benefit of allowances like HRA, LTA, etc and have contributions to PPF, LIC, PF, Home Loan repayment, donations, medical policies, NPS and other eligible tax saving instruments etc Those who do not have tax-saving investments / exemptions and are not willing to make the same anytime sooner. Normally more suitable for New employees, low tax bracket earners or senior citizens willing to have greater liquidity in hand at the old age.
Rebate u/s 87A Available Available
Health & Education Cess 4% 4%
Surcharge Applicable Applicable at same rates
Basic Exemption Limit The basic exemption limit under the old scheme were Rs 2,50,000 for those aged less than 60 years Rs 3,00,000 for senior citizens Rs 5,00,000 for super senior citizens Under the new tax regime there is only one exemption limit of Rs 2,50,000 which is applicable for both individuals and HUF

Your tax outflow will be effected in a below-depicted manner under the new tax structure. For calculations, taxable income has been taken after all the deductions and allowances allowed (if any)

Taxable Income for FY 2022-23 Tax Rate under new regime Tax Payable Tax Rate under old regime Tax Payable
Upto 2,50,000 Exempt - Exempt -
From 2,50,001- 5,00,000 5% 12,500 5% 12,500
From 5,00,001-7,50,000 10% 25,000 20% 50,000
From 7,50,001-10,00,000 15% 37,500 20% 50,000
From 10,00,001-12,50,000 20% 50,000 30% 75,000
From 12,50,001-15,00,000 25% 62,500 30% 75,000
Above Rs 15 Lakhs 30% To be calculated on the basis of income 30% To be calculated on the basis of income

Frequently Asked Questions

Q- What are the conditions for availing optional new income tax regime by a person having income from business?

An Person individual having business income can opt to pay tax as per the new tax slab structure if

  • To claim benefit of proposed tax rates, option is exercised, on or before the due date of return of income u/s 139(1).
  • Option once exercised can be withdrawn only once.
  • In case of assessee ceases to have business income, option can be exercised again.
  • In case of Business income, the option once exercised for a previous year shall by default be valid for that financial year and all subsequent years as well.

Q- What will be the best for me to opt for :- New tax regime or Old tax regime?

The new tax regime is different to the old one in two aspects- lower tax rate, removed tax deductions. To opt for the best, you should first calculated all your exemptions and deductions and minus them from your salary. Now check what is your taxable income iif you let go these deduction or allowances. Here is the deciding factor.
Further you can also seek help of our Tax Palnning Optimizer tool that gives you recommendations basis on your input and let you decide on what regime will be the best for you.

Q- What is the time to choose the tax regime?

The decision to make the choice between new and old regime is before filing the income tax return of the relevant financial year.

Q- Can I claim deductions under Section 80C in new tax regime?

No, the new tax regime has not provided many of the deductions and exemptions that were provided in old regime.

CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.