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 May 11th, 2023

The Finance Minister, Nirmala Sitharaman in the Budget 2020 introduced a new tax regime u/s 115BAC of Income Tax Act, 1961. The new tax regime is available only to individuals and HUF. The new regime comes with reduced income tax slab rates and the removal of rebates, exemptions, and deductions.

Even after lower slab rates, majority of the taxpayers were filing ITR under the old tax regime. Hence, to make compliance easier and make it attractive for the taxpayers to opt for the new regime, the Finance Minister in Budget 2023 revised the tax slabs and rates under the new regime and announced it as the default tax regime for the taxpayers from FY 2023-24 onwards.

New Tax Slab Rates u/s 115BAC as per Budget 2023

The below table shows the new income tax slabs and rates under the new regime for FY 2023-24/AY 2024-25 onwards:

Tax Slab Tax Rate
Up to INR 3,00,000 Nil
INR 3,00,001 – 6,00,000 5%
INR 6,00,001 – 9,00,000 10%
INR 9,00,001 – 12,00,000 15%
INR 12,00,001 – 15,00,000 20%
Above INR 15,00,000 30%

Other Modifications in the New Regime as per Budget 2023

Changes in Deductions and Exemptions under section 115BAC

According to the announcement made in the Budget 2020, there have been major removal of tax exemptions and deductions under the new tax regime. This has made tax compliance less tedious. Here’s a list of 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 minors as per section 10(32);
  6. Exemption for SEZ unit as per section 10AA;
  7. The 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 deductions for donation or expenditure on the scientific research available 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 the employee in notified pension scheme), 80CCH investment in agni veer fund, and section 80JJAA (for new employment) can be claimed.

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

As per section 115BAC of income tax act, 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 the 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 under non-audit cases and 31st October under audit applicable cases.

For individuals not having any income from Business and Profession, filing of Form 10-IE is not mandatory.
Tip
For individuals not having any income from Business and Profession, filing of Form 10-IE is not mandatory.

Income Tax Slab and Rates under New Regime for FY 2022-23

Income Tax Slab Tax Rate
Up to INR 2,50,000 Nil
INR 2,50,001 – 5,00,000 5%
INR 5,00,001 – 7,50,000 10%
INR 7,50,001 – 10,00,000 15%
INR 10,00,001 – 12,50,000 20%
INR 12,50,001 – 15,00,000 25%
Above INR 15,00,000 30%

Switching between Old Tax Regime & New Tax Regime

FAQs

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

If an individual who has opted for the old tax regime with their employer for TDS on salary, plans to opt new tax regime when filing ITR, then they can do that by filling the form i.e.10IE.”

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

Standard deduction on salary u/s 16 is not available under the new tax regime up to FY 2022-23. From FY 2023-24 onwards salaried individuals can claim a deduction of INR 50,000.

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

Any taxpayer who wishes to pay income tax as per the new tax regime has to communicate to the Income Tax Department by filing form 10IE.

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

Yes, you can carry forward short-term and long-term capital losses 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 of income tax act cannot be set off or carried forward.