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Section 115BAC - Understanding the New Tax Regime

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Laxmi Navlani

Income Tax
Income Tax Filing
New Tax Regime
Section 115BAC
Last updated on July 5th, 2021

The Finance Minister, Nirmala Sitharaman had presented the Budget 2020 on the 1st of February 2020. Finance Minister had many major announcements including introduction of new tax regime under section 115BAC of Income Tax Act, 1961. The new tax regime is available only to individuals and HUF. Also, new regime comes with reduced income tax slab rates and the removal of rebates and exemptions.

New Tax Slab Rates

Under section 115BAC, new tax slabs have been introduced with existing rates which are slashed on income up to INR 15 Lakh. The tax slab rates as per the New Income Tax Regime are as follows:

Income Range Rates as per New Tax Regime
Up to INR 2,50,000 Nil
INR 2,50,000 – 5,00,000 5%
INR 5,00,000 – 7,50,000 10%
INR 7,50,000 – 10,00,000 15%
INR 10,00,000 – 12,50,000 20%
INR 12,50,000 – 15,00,000 25%
Above INR 15,00,000 30%

Changes in Deductions and Exemptions in as per section 115BAC

According to the announcement made in the Budget 2020, there have been major removals of tax exemptions and deductions. This has made tax compliance less tedious. Here is the list of what deductions that have been removed as per clause (i) of sub-section (2) of section 115BAC:

  1. Leave travel concession as per section 10(5);
  2. House rent allowance as per section 10(13A);
  3. Official and personal allowances (other than those as may be prescribed) as per section 10(14);
  4. Allowances to MPs/MLAs as per section 10(17);
  5. Allowance for income of minor as per section 10(32);
  6. Exemption for SEZ unit as per section 10AA;
  7. Standard deduction, the deduction for entertainment allowance and employment/professional tax as per section 16;
  8. Interest under section 24 in respect of self-occupied or vacant property as per section 23(2).
  9. Additional depreciation under clause (iia) of sub-section (1) of section 32;
  10. Deductions u/s 32AD, 33AB, 33ABA;
  11. Various deduction for donation or expenditure on scientific research contained in section 35;
  12. Deduction u/s 35AD or section 35CCC;
  13. Deduction from family pension under clause (iia) of section 57;
  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,etc). However, deduction under sub-section (2) of section 80CCD (employer contribution on account of employee in notified pension scheme) and section 80JJAA (for new employment can be claimed.

Set-off of Losses and Unabsorbed depreciation as per section 115BAC

As per section 115BAC, losses from house property can only be set off against other income from house property. Moreover, losses from income from house property cannot be carried forward in the new income tax regime.

In the case of a business income, an individual or HUF cannot claim set-off of the brought forward business loss or unabsorbed depreciation and also cannot carry forward the same to the extent they relate to deductions/exemptions withdrawn in clause (i) of sub-section (2) of section 115BAC.

Opting for new scheme

As per the income tax laws, an individual having business income shall submit form 10-IE before the due date of filing ITR i.e. July 31 (unless extended by the government). For salaried individuals, they can submit form before/at the time of ITR filing.

Switching between Old Tax Regime & New Tax Regime

FAQs

Can I choose a new tax regime at the time of filing ITR, if I have opted for the old tax regime with my employer?

If an individual who has opted for old tax regime with his/her employer for TDS on salary, plans to opt new tax regime at the time of filing ITR, then he/she can do that by filling the new form i.e. 10-IE.”

Is standard deduction on salary u/s 16 available under new tax regime?

No, standard deduction on salary u/s 16 is not available under new tax regime

How to inform the IT Department which tax regime is selected?

The Central Board of Direct Taxes (CBDT) has released Form 10-IE. Any person who wish to pay income tax as per the new tax regime has to communicate his/her choice to the Income Tax Department through form 10-IE.

I have incurred short-term and long-term capital losses. Also, I have losses from trading in derivatives. Can I carry forward those in the new tax regime?

Yes, You can carry forward short-term and long-term capital losses as well as loss from trading in derivatives in the new tax regime because only the losses that relate to deductions/exemptions withdrawn in clause (i) of sub-section (2) of section 115BAC cannot be set off or carried forward.

Got Questions? Ask Away!

  1. If I want to opt for the New regime but had told my employer that I am choosing the existing one, can I select new tax regime while filing ITR??

  2. Hey @riya_gupta

    An individual having salaried income and no business income has the option to choose between the old and new tax regimes every year i.e. he/she can switch regimes from year to year.

    However, individuals having business income are not eligible to choose between the new and old tax regime every year. Once they have opted for the new tax regime, they only have a one-time option of switching back to the old tax regime in their lifetime.

    Once they switch back, they will not be allowed to opt for new tax regime again.

  3. Hey @TanyaChopra

    If you have opted for old tax regime with your employer for TDS on salary, and plan to opt the new tax regime at the time of filing ITR, then you can do that by filling the new form i.e. 10-IE.

  4. Can full-time traders claim expenses like Broker charges STT, GST + other expenses like computer buy for trading, internet connection bill etc under new tax slabs?

  5. Apart from the tax-saving criteria, which tax slab is better for a first-time taxpayer?

  6. Hey @HarishMehta

    If you forget to fill the new form i.e. Form 10-IE, at the time of filing ITR, then you may be disallowed the tax rates available under the new tax regime. The tax department will calculate your income tax liability based on the existing/old tax regime.

  7. Hey @SonalYadav

    These budget changes will be applicable from FY 2020-21. From FY 2020-21 it will be up to the taxpayer to select the tax regime based on their Income and Investments situation.

    Following are the pros of following a new tax regime:

    1. The Income Tax Slab Rates are lower,
    2. A simplified Tax Structure i.e, Ease in filing ITR.
    3. Individuals can invest freely according to their financial goals without any compulsion to make an investment to avail deduction.

    Following are the cons of following a new tax regime:

    1. Discourages New Home buyers since no benefit will be available on Interest paid on Home Loans.
    2. Salaried individuals who live in rented properties will not be able to claim Exemption on HRA which will increase their tax burden.
    3. No tax benefit under section 80C or 80CCD(1B) upon investment in different tax savings schemes.

    Hope this helps! :slight_smile:

  8. Hey @HarshitShah

    Yes, any individual taxpayer can opt for new tax slabs, there are no restrictions based on type of income earned by a taxpayer.

    Under new tax slabs, you will be able to claim all the direct expenses related to your business activity while calculating your taxable income.

    Hope this helps!

  9. I have carry forward losses in the previous financial years, is it allowed to claim losses under the new tax regime?

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