Section 115BAC: New Tax Regime

In the 2020 budget, Finance Minister Nirmala Sitharaman introduced a new tax regime under section 115BAC of the Income Tax Act, 1961. This revised tax structure applies exclusively to individuals and Hindu Undivided Families (HUF). The updated regime features lower income tax slab rates while eliminating various rebates, exemptions, and deductions.

Despite the introduction of lower slab rates, a significant number of taxpayers continued to file their Income Tax Returns (ITR) under the old tax regime. To enhance ease of compliance and encourage more taxpayers to choose the new regime, the Finance Minister, adjusted the tax slabs and rates under the new regime. Consequently, the new regime was declared as the default tax structure for taxpayers starting from the financial year 2023-24.

New Tax Slab Rates

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

Modifications in the New Regime as per Budget 2023

• The new regime will be the default tax regime. However, taxpayers can still opt for and file ITR under the old tax regime.
• As the new regime is the default regime, any return filed after the due date will be processed under the New regime.
• The rebate u/s 87A is INR 25,000 previously which was INR 12,500. Hence, taxpayers having income up to INR 7,00,000 do not have to pay any tax.
• The introduction of the standard deduction of INR 50,000 for Salaried individuals, pensioners, and family pensioners.
• The highest rate of surcharge on income above INR 5 crore has been reduced to 25% from 37%. As a result, the maximum marginal rate is reduced to 39% from 42.74%.
• Marginal tax relief has been introduced for taxpayers whose taxable income is between INR 7 lakhs – INR 7.5 lakhs after claiming eligible deductions. So you only need to pay taxes for income slightly above INR 7 lakhs.
  For example, if your total taxable income is INR 7,10,000, then the tax payable will be INR 10,000 instead of INR 26,000.

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 are 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 the 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 on IT Portal.

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

Switching between Old Tax Regime & New Tax Regime

• Business Income
  • Individuals having business income are not eligible to choose between the new and old tax regimes 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 cannot opt for the new tax regime again.
  • Essentially, people with business income may have to fill out Form 10-IE twice, once to use the new tax regime and the second to switch back to the old regime.
• Non-Business Income
  • An individual having salaried income and no business income has the option to choose between the old and new tax regimes every year.

FAQs