Section 115BAC of Income Tax Act: New Tax Regime Deductions Allowed

What is Section 115BAC of Income Tax Act?

According to Section 115BAC of the Income Tax Act, individuals or Hindu undivided families (HUFs) with income other than from a profession or business can choose to be taxed under the new tax regime with reduced tax slab rates. This regime was introduced in the financial year 2020-21 and became the default tax regime from the financial year 2023-24. While opting for the new regime offers lower tax rates, it comes with the trade-off of losing various deductions and exemptions available under the old tax regime. Taxpayers can still opt for the old tax regime by filing Form 10-IEA before the due date of filing their income tax return.

What are the Income Tax Slab Rates Under Section 115BAC?

The Union Budget 2024 introduced significant changes to the new tax regime. These changes are expected to provide significant tax relief to the middle class and make the new tax regime more appealing.

115bac slab rates:

What is the Eligibility for Section 115BAC?

Hindu Undivided Families and individuals have the option to pay income tax under the new tax slab rates. To be eligible, total income should exclude income from business or profession.

• Income must be calculated without claiming most deductions/exemptions, except for:
  • Standard deduction of Rs. 75,000
  • Family pension deduction of Rs. 25,000
  • Long-term capital gains exemption up to Rs. 1.25 lakh
• Deductions under Chapter VIA (excluding 80CCD and 80JJAA) and sections 24b, 10, 32, 35, etc., should not be claimed.
• Exclusions under Sections 10, 10AA, and 16 should be considered.
• Carry forward losses from deductions or owning a house cannot be set off.
• No exemptions or deductions for allowances or perquisites are allowed.
• Depreciation under Section 32(iia) cannot be claimed.
• Eligibility is calculated without considering losses from the above deductions in previous years or from real estate ownership.

Which Exemptions and Deductions Are Not Claimable Under the New Regime?

Some major deductions and exemptions that cannot be claimed under the new tax regime are given below -

• The standard deduction under section 80TTB/80TTA.
• Entertainment allowance and professional tax on salaries.
• Leave Travel Allowance (LTA).
• House Rent Allowance (HRA).
• Helper allowance
• Minor child income allowance.
• Special allowances under section 10(14).
• Children's education allowance.
• Interest on housing loan on the self-occupied property or vacant property.
• Chapter VI-A deductions (except Section 80CCD(2) and Section 80JJAA).
• Exemption and deduction for allowances and other perquisites, including food allowance of Rs.50 per meal to a maximum of 2 meals a day.
• Donations are made to a trust or a political party.
• Employee’s own contribution to NPS.
• No deduction for family pension income is allowed from FY 2023-24 onwards.
• A standard deduction of Rs.50,000 upto FY 22-23 is allowed as a deduction.

Which Deductions Are Allowed Under the New Tax Regime?

Despite the long list of deductions unavailable under the new regime, it still offers various other tax-saving options. The various deductions and exemptions available under the new tax regime are given below -

• Transport allowance is provided to specially-abled persons.
• A conveyance allowance was received as compensation for the expenditure incurred as a part of the employment.
• Allowance is received to meet the expenses of tour, transfer, or travel.
• Daily allowance received in order to meet the ordinary expenses due to his absence from the place of duty.
• Perquisites received for official purposes.
• Exemption on voluntary retirement under section 10(10C), leave encashment u/s 10(10AA) and gratuity under section 10(10).
• Interest on a home loan on the let-out property (section 24).
• Gifts received upto Rs.50,000.
• Deduction for employer’s contribution to NPS account under section 80CCD(2).
• Deduction for additional employee cost.
• The standard deduction is Rs.50,000 under the new regime, applicable from FY 23-24.
• Deduction for family pension scheme under section 57(iia).
• Deduction of the amount deposited or paid in the Agniveer Corpus Fund under section 80CCH(2).

Deductions Excluded from Business Income Under the New Regime

Deductions and exemptions that cannot be claimed against business income include:

• Additional depreciation (Section 32)
• Investment allowance (Section 32AD)
• Sector-specific deductions (Sections 33AB and 33ABA)
• Expenses on scientific research (Section 35)
• Capital expenditure deductions (Section 35AD)
• SEZ unit exemption (Section 10AA)

Old vs New - Which Regime to Choose?

Both the old and the new regimes offer a fair share of tax-saving opportunities. Therefore, there cannot be a single answer to this question. The choice of regime depends on your individual financial situation, including your investments, income sources, etc. But, ever since the introduction of the new regime and the constant amendments, many taxpayers find it difficult to choose the most beneficial regime for themselves. Don’t worry! We have made this easier for you. You can compare your tax liability under both regimes using our old vs new tax regime calculator.

And if you want to know about more ways to save taxes under both the old and the new regime, you can reach out to our tax experts, who navigate through 300+ tax provisions to make sure you can maximize your tax-savings. Hire online CA now!