- How to Calculate Income Tax on Salary with Example FY 2023-24
- How to Calculate Taxable Interest on P.F. Contribution in New Budget: A Guide
- Leave Encashment - Tax Exemption, Calculation & Examples
- 7th Pay Commission Pay (CPC) Matrix Table : Overview, New Updates, Features
- Income Tax Exemption on Gratuity - Eligibility, Maximum Limit & Taxability
- Agricultural Income- Overview, Taxability, Types and Calculation
- Income Tax on Loan Taken from Friends or Relatives - All you need to Know
- Financial Year and Assessment Year - Difference Between Assessment Year and Financial Year - FY vs AY
- Income Tax on Savings Bank Interest - How is Interest on Savings Account Taxed
Section 115BAC of Income Tax Act: New Tax Regime Deductions Allowed
The Finance Act of 2020 introduced Section 115BAC into the Indian Income Tax Act. This section allows individuals to choose between old tax rates and new reduced tax rates. Both regimes come with their own share of deductions and exemptions. This article sheds light upon the deductions under the new tax regime introduced under section 115BAC of the Income Tax Act.
Budget 2024 Update
In a major relief for the taxpayers, Budget 2024 revised the tax slabs under the new tax regime and also increased the standard deduction from Rs.50,000 to Rs.75,000.
The second tax slab has been expanded from Rs 3 lakh - Rs 6 lakh to Rs 3 lakh - Rs 7 lakh.
The third slab now covers Rs 7 lakh - Rs 10 lakh, up from the previous range of Rs 7 lakh - Rs 9 lakh.
Similarly, the fourth slab has been revised to Rs 10 lakh - Rs 12 lakh, from the earlier Rs 9 lakh - Rs 12 lakh.
As a result of this expansion in the tax slabs, the taxpayers can save Rs.5,000 (Rs.1,00,000 * 5%).
Similarly, with the expansion of the 10% slab, there is an additional saving of Rs 5,000 (Rs 1,00,000 * 5%, where 5% is the difference between 15% and 10%).
Further, adding the Rs 7,500 savings at 30% from the increase in the standard deduction by Rs 25,000, the total savings amount to Rs 17,500.
As a result of these changes, a salaried employee in the new tax regime can save up to Rs 17,500 in income tax.
What is Section 115BAC of the New Tax Regime?
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 from 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.
Income Bracket (₹) | FY 2024-25 Tax Rate | FY 2023-24 Tax Rate |
---|---|---|
0-3 lakh | 0% | 0% |
3-6 lakh | 5% | 5% |
6-7 lakh | 5% | 10% |
7-9 lakh | 10% | 10% |
9-10 lakh | 10% | 15% |
10-12 lakh | 15% | 15% |
12-15 lakh | 20% | 20% |
15 lakh+ | 30% | 30% |
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 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 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).
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!
Frequently Asked Questions
Q- What are the deductions allowed for 115bac?
Section 115BAC limits deductions and disallows various expenses such as HRA, medical costs, and education loan interest. Additionally, starting from FY 2023-24, individuals can claim a standard deduction of Rs. 50,000 under both the new and old tax regimes.
Q- What is the basic exemption limit of income tax under the new regime?
The new tax regime currently sets the basic exemption limit at Rs. 3 lakh. This was raised in last year's budget from Rs. 2.5 lakh by Rs. 50,000. The income tax slabs applicable under the new tax regime are given above.
Q- Is professional tax deductible under the new tax regime?
Employers include professional tax paid on behalf of employees as a perquisite in their salary reported in Form 16. Therefore, this amount is eligible for deduction without any limit." However, this deduction is not available in the new tax regime.
Q- Is PPF included in the new tax regime?
Tax is not levied on maturity proceeds from investments in the Public Provident Fund (PPF) and Sukanya Samriddhi Yojana. However, in the new regime, investments in these accounts do not qualify for the section 80C deductions up to Rs 1.5 lakh offered by the old regime.
Q- What is the Section 10 exemption in the new tax regime?
This section grants exemptions for expenses made on the account of your employer's business. It covers costs such as travel, conveyance, research allowances, and others as long as these expenses are genuinely incurred for their intended purposes.
Q- Can we switch from the new to the old regime?
A salaried individual can freely switch between the new and old tax regimes each financial year. Even if they've opted for the new tax regime for TDS throughout the year, they can still easily change their preferred tax regime when filing their ITR.