Section 115BAC of Income Tax Act: New tax Regime | Deductions Allowed, Features and Benefits

What is Section 115BAC – the new tax regime?

The Budget 2020 introduces a new regime under section 115BAC giving individuals and HUF taxpayers an option to pay income tax at lower rates. The new tax regime system came in force from FY 2020-21 (AY 2021-22)

What are the tax rates under the new regime?

In Budget 2023, the income tax slabs under the new tax regime have been revised. The new tax slabs and tax rates under the new tax regime for FY 2023-24 (AY 2024-25) and FY 2022-23 (AY 2023-24) are shown in the table below:

The tax rates under the new tax regime and the old tax regime for FY 2022-23 (AY 2023-24) are compared below:

- The new tax regime does not allow 70+ deductions and exemptions (discussed in para 4). 

The tax payable under both the new and the old regimes without claiming deductions and exemptions for FY 2023-24 (AY 2024-25) is as below:

*Assumed that the annual income is after considering the standard deduction under both old and new regimes.
The above table shows that the new tax regime generally saves taxes for taxpayers who don’t claim any deductions or exemptions.

The Eligibility Criteria for the New Tax Regime on Section 115BAC

For the assessment year 2023-24, individuals and Hindu Undivided Families (HUFs) have the option to pay income tax based on the new tax regime rates, provided their total income for the relevant financial year meets the following conditions:

1. Income calculation is done without considering any deductions or exemptions mentioned below:
   1. All deductions under Chapter VI-A, except those specified in section 80CCD/80JJAA.
   2. Deductions specified in Section 35/35AD/35CCC.
   3. Clause (iia) of Section 57.
   4. Deductions specified in Section 24b.
   5. Clause (5)/(13A)/(14)/(17)/(32) of Section 10/10AA/16.
   6. Deductions specified in Section 32(1)/32AD/33AB/33ABA.
2. The calculation is performed without offsetting any losses from previous assessment years resulting from the above deductions or losses from house property.
3. The calculation does not consider any deductions or exemptions related to perquisites or allowances.
4. The calculation is performed without claiming any depreciation as per clause (iia) of Section 32.
5. Form 10IE is submitted on the income tax portal before filing ITR 

Exemptions and deductions not claimable under the new tax regime

The following are some of the major deductions and exemptions you cannot claim under the new tax regime:

1. The standard deduction under Section 80TTA/80TTB 
2. Professional tax and entertainment allowance on salaries
3. Leave Travel Allowance (LTA)
4. House Rent Allowance (HRA)
5. Minor child income allowance
6. Helper allowance
7. Children education allowance
8. Other special allowances [Section 10(14)]
9. Interest on housing loan on the self-occupied property or vacant property (Section 24)
10. Chapter VI-A deduction (Section 80C, 80D, 80E and so on, except Section 80CCD(2) and Section 80JJAA)
11. Exemption or deduction for any other perquisites or allowances including food allowance of Rs 50/meal subject to 2 meals a day
12. Employee's (own) contribution to NPS
13. Donation to Political party/trust, etc
14. Budget 2023 update- Deduction from family pension income up to FY 2022-23 (From FY 2023-24, it is allowed as deduction)
15. Budget 2023 update- Standard deduction of Rs.50,000 up to FY 2022-23 (From FY 2023-24, it is allowed as deduction)

What are the exemptions and deductions available under the new regime?

Under New tax regime, you can claim tax exemption for the following:

1. Transport allowances in case of a specially-abled person.
2. Conveyance allowance received to meet the conveyance expenditure incurred as part of the employment.
3. Any compensation received to meet the cost of travel on tour or transfer.
4. Daily allowance received to meet the ordinary regular charges or expenditure you incur on account of absence from his regular place of duty.
5. Perquisites for official purposes
6. Exemption on voluntary retirement 10(10C), gratuity u/s 10(10) and Leave encashment u/s 10(10AA)
7. Interest on Home Loan on let-out property (Section 24)
8. Gifts up to Rs 50,000
9. Deduction for employer’s contribution to NPS account [Section 80CCD(2)]
10. Deduction for additional employee cost (Section 80JJA)
11. Budget 2023 introduced a standard deduction of Rs 50,000 under New Tax Regime applicable from FY 2023-24
12. Budget 2023 also introduced deduction under Section 57(iia) of family pension income
13. Budget 2023 further introduced deduction of amount paid or deposited in the Agniveer Corpus Fund under Section 80CCH(2)

Here's a detailed list of exemptions and deductions available under Old vs New Regime.

Can I choose between the new tax regime and the existing regime?

A salaried taxpayer can choose the new tax regime at the beginning of FY 2023-24 and intimate their employer. The employee cannot change their choice anytime during the financial year. However, they can change their choice when filing the income tax return in July 2024.

The due date for tax filing for the FY 2022-23 (AY 2023-24) is 31st July 2023.

In case an employee does not choose the new tax regime at the beginning of the financial year, the employer will deduct tax (TDS) under the existing tax regime. A salaried taxpayer can choose the new tax regime in one year and choose the regular tax regime in another year.

A non-salaried taxpayer has to choose the new regime when filing the tax return. They need not declare or intimate their choice to anyone during the year. However, a non-salaried taxpayer (taxpayers with an income from business or profession) cannot opt-in and opt-out of the new tax regime every year. Once a non-salaried opts out of the new tax regime, they cannot opt-in again for the new tax regime in the future.

How do I choose the new regime and plan my tax?

From a tax planning perspective, choosing the tax regime at the beginning of the financial year is essential. A taxpayer must compare the income tax under the new tax regime with the existing regime. Once the taxpayer chooses the tax regime at the beginning of the year, the investments and TDS or advance tax payable calculations are made accordingly. Also, the taxpayer has to furnish Form 10IE to the income tax department before filing the return if the taxpayer intends to opt for the new tax regime.

Example 1: Where the new regime is better in respect of tax outflow (FY 2023-24)

In the above example, for an income of Rs 12,50,000, the new tax regime is significantly beneficial by Rs 38,251. However, if you claim further deductions for interest on housing loan for SOP, health insurance, investment in NPS, education loans and so on, the old regime will be helpful in respect of tax savings.

Example 2: Where the old regime is better in respect of tax outflow (FY 2023-24)

In Example 2, for an income of Rs 10 lakh having HRA exemption and 80D deduction, the old tax regime is beneficial by Rs 4,659.

If an individual claims lower deductions for tax savings towards health insurance, investment in NPS and so on, the new regime will be more beneficial against individuals who utilise the tax-saving investments.

Also, individuals with an income bracket between Rs 5-15 lakh with lower deductions claims will benefit from the new regime. In contrast, individuals can benefit more from the old regime by making tax-saving investments.

It is important to note that each taxpayer should calculate income tax, consider their tax-saving investments and then choose the regime. Refer to this page for detailed comparison between old tax regime and new tax regime.

House property loss under the new tax regime

In the case of a self-occupied property, you cannot claim a deduction on interest for a housing loan under the new tax regime. The deduction of Rs 2 lakh allowed in the existing system is not available in the new tax regime. Also, you cannot set off the loss of Rs 2 lakh from house property from your salary income.

If you have let out house property, you can claim a deduction for interest paid on the housing loan. Note that the new tax regime restricts the deduction to the taxable rent received from the property against the old regime. In the new regime, you cannot set off the loss arising from the house property due to excess interest paid over the rental income. Also, you cannot carry forward the loss from house property to future years for set off.

Deductions are not allowed against business income under the new regime

Deductions and exemptions not allowed against business income:

1. Additional depreciation under section 32
2. Investment allowance under section 32AD
3. Sector-specific business deductions under section 33AB and 33ABA
4. Expenditure on scientific research under section 35
5. Capital expenditure under section 35AD
6. Exemption under section 10AA for SEZ units

Unabsorbed depreciation and business loss under the new 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. 

The deductions are not available under the new regime to the extent they relate to deductions/exemptions withdrawn.

Conclusion

Based on the provided information, it is evident that the current tax regime offers advantages for the specified income level. If an individual chooses to claim fewer deductions for tax savings, such as investments in NPS or health insurance, the new regime becomes more advantageous compared to individuals who rely on tax-saving investments.

It is important to consider that individuals with an income ranging from Rs.5 lakh to Rs.10 lakh, who opt for lower deductions, will benefit from the new regime. Conversely, individuals falling into higher income tax brackets, earning more than Rs.15 lakh annually, can benefit from the existing regime by utilising tax-saving investments.

FAQs on New Tax Regime in Income Tax

Is new tax regime better than old?

It depends on case-to-case basis. The answer depends on the total taxable income of an assessee and whether they have deductions under Section 80C, 80D, HRA exemptions/housing loan. Suppose, an assessee has total gross income of Rs.7,50,000 for FY 2023-24 (AY 2024-25) and they plan to claim standard deduction (common for both regime) and Section 80C of Rs.1,50,000(only under old regime). When comparing under both old and new regime, they pay no tax under the new tax regime (due to tax rebate) and have to pay tax of Rs.22,500+cess. In this case, they benefit from remaining under the new tax regime (default). But upon considering HRA exemption and 80D, you may tend to benefit by opting into the old tax regime.

Is 80C applicable in new tax regime?

No, Section 80C deductions are not available under the new tax regime.

How to calculate tax in new regime?

From FY 2023-24 (AY 2024-25) onwards, the tax slabs under the new tax regime have been revised, as per the table given in the beginning of this article. Take the gross total income after providing for standard deduction of Rs.50,000. Then, if you have deductions such as 80CCD(2) or 80JJA, you can claim the same and then compute tax as per the slabs on the net total taxable income. Claim rebate if you are eligible under Section 87A. If not, add cess at 4% to the tax and you'll arrive at total tax payable.

Is HRA allowed in new tax regime?

No, HRA exemption is not allowed in the new tax regime.

Is standard deduction allowed in new tax regime?

The standard deduction is not allowed in new tax regime until FY 2022-23 (AY 2023-24). However, as per Budget 2023 proposal, standard deduction of Rs.50,000 is allowed for salaried persons from FY 2023-24 (AY 2024-25) onwards.

Which deductions are allowed in new tax regime?

Some deductions are allowed such as standard deduction (from FY 2023-24), amount paid to Agniveer Corpus Fund (from FY 2023-24), expenses towards income from family pension under Section 57(iia) (from FY 2023-24), transport allowance for specially abled persons, employer’s contribution to NPS account, additional employee cost and a few more listed in the above section of this article. 

Which deductions are not allowed in new tax regime?

Many deductions are not allowed such as: Chapter VIA - Section 80C, 80D (premium on health insurance), 80E and so on, except Section 80CCD(2) and Section 80JJAA, and those listed in the above section of this article.

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