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.

In other words, section 115BAC of the Income Tax Act allows the taxpayers to choose between the new and the old regime. Under the old regime, they can claim various deductions like HRA, LTA, PPF, 80C, and 80U. However, under the new regime, taxpayers can choose to pay income tax at lower rates.

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Features of Section 115 BAC

Here are the key features of section 115BAC -

• Lower Tax Rates: Section 115 BAC offers lower tax rates compared to the old tax regime. However, you will not be able to avail most of the tax benefits available under the old regime.
• Easier Calculations: Under Section 115 BAC, calculating taxes is simpler. You only need to report your annual income and pay tax at the specified rate without dealing with complex deductions.
• Fewer Deductions: The new tax regime does not allow deductions such as HRA, LTA, Section 80C, 80E, 80D, medical expenses, education loan interest, or investments in certain plans.
• Standard Deduction Update: From FY 2024-25, the new tax system offers a standard deduction of ₹75,000 (increased from ₹50,000 in FY 2023-24), while the old system retains a ₹50,000 deduction.
• No Loss Carry Forward: If you opt for the new tax regime in FY 2023-24, you cannot carry forward any losses from the old regime.

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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 Under New Regime -

The following additional benefits have also been provided to taxpayers opting for the new regime for FY 2024-25:

• The standard deduction for salaried income has increased from ₹50,000 to ₹75,000.
• The maximum deduction for family pension has risen from ₹15,000 to ₹25,000.
• The deduction for employer contributions to the pension scheme under Section 80CCD(2) has been raised from 10% of salary to 14% of salary.

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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.
• Deductions specified under sections 35/35AD/35CCC
• Clause (iia) of Section 57.
• Eligibility is calculated without considering losses from the above deductions in previous years or from real estate ownership.

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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.
• Allowance to MPs/MLAs
• Special allowances under section 10(14).
• Children's education allowance.
• Additional Depreciation under section 32(1)(iia).
• Deductions under section 32AD, 33AB, and 33ABA.
• Deductions for donations or expenses related to scientific research are available under sections 35(2AA), 35(1)(ii), 35(1)(iia), and 35(1)(iii).
• Deductions under section 35AD and 35CCC.
• 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.

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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). The deduction under this section has been increased from 10% to 14% of the salary in budget 2024.
• Deduction for additional employee cost.
• The standard deduction is Rs.75,000 under the new regime, applicable from FY 23-24.
• Deduction for family pension scheme under section 57(iia) upto a maximum of Rs.25,000.
• Deduction of the amount deposited or paid in the Agniveer Corpus Fund under section 80CCH(2).

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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)

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House Property Loss Under the New Tax Regime

Under the new tax regime, you cannot claim a deduction for housing loan interest on a self-occupied property. The Rs 2 lakh deduction available under the old regime is not applicable here, and you cannot offset the Rs 2 lakh loss from house property against your salary income.

For let-out properties, you can claim a deduction for interest paid on the housing loan. However, the new tax regime limits the deduction to the taxable rent received, unlike the old regime. Additionally, you cannot offset any loss from the house property caused by excess interest paid over the rental income, against other income heads. The loss from house property also cannot be carried forward to future years for set-off.

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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!

Note: Did you miss the 31st July ITR filing deadline? You can still file a belated ITR by 31st December 2024. Hurry up! File Now.

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