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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.
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 based on earlier years' income when filing their returns under Section 139(1). This change was applied starting from the 2020-21 financial year and covers income earned from April 1, 2020, onward.
A key aspect of this tax regime, outlined in Section 115BAC of the Income Tax Act, is the significant reduction in income tax slab rates. However, those who opt for this new regime will need to give up various deductions and exemptions available in the existing tax structure.
Under this new section of the Income Tax Act, the concessional tax rate is applicable only after computing total income, excluding certain deductions or exemptions like set off of a loss and additional depreciation.
In the Budget for 2023, revisions have been made to the income tax slabs within the deduction under the new tax regime. The table below displays the updated income slabs and corresponding tax rates for the financial year 2023-24.
| Income Slabs | New Regime Tax Rates (FY23-24) |
|---|---|
| Up to Rs 3 lakh | Nil |
| Rs 3 lakh to Rs 6 lakh | 5% |
| Rs 6 lakh to Rs 9 lakh | 10% |
| Rs 9 lakh to Rs 12 lakh | 15% |
| Rs 12 lakh to Rs 15 lakh | 20% |
| Income above Rs 15 lakh | 30% |
Hindu Undivided Families and individuals have the option to pay income tax according to the new tax slab rates. However, certain conditions must be met for the total income of the financial year:
The calculation of eligibility under section 115BAC is done without taking into account the account losses caused due to the above deductions in the past assessment year or from any real estate owned by the individual or HUF.
Some major deductions and exemptions that cannot be claimed under the new tax regime are given below -
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 -
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. Get Tax Consultation Now!
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.
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.
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.
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.
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.
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.
