Section 115BAC of Income Tax Act
In the Union Budget 2020, the Government of India has introduced Section 115BAC of Income Tax Act, which primarily deals with new income tax slabs and rates exclusively applicable to Individuals and HUFs.
However, this new tax regime is an optional one and the taxpayers have the option to select Old Tax Regime Vs New Tax Regime as per their advantages. This is very important to note that this new tax regime shall apply to the individual and member of HUF only if they do not have any income from business or profession.
Most advantageously, one individual can choose the Tax Regime(Old or New). He can select his desired Tax regime at the time of filing his income tax return.
What is Section 115BAC of Income Tax Act?
With the growing agitations and dissatisfactions among the taxpayers regarding enhancement of income tax slabs and to balance between Govt. revenue and growing expectations of income taxpayers, utmost research was made to introduce Section 115BAC of Income Tax Act in the form of a new tax regime with reduced tax slabs.
By introducing Section 115BAC, the G.O.I has tried to curb such hue and cry of the income taxpayers to a certain extent. However, this 115BAC Section has come up with a double-edged sword. As it has taken away many previous income tax deductions that you all used to avail earlier.
Now, let’s have a look at the new tax slabs under this 115BAC Section
| Tax Rate | Individual Tax Payer (Below 60 Years) |
|---|---|
| NIL | ₹2.5 Lakh |
| 5% | ₹2.5 Lakh- ₹5 Lakh |
| 10% | ₹5 Lakh- ₹7.5 Lakh |
| 15% | Above ₹7.5 Lakh to ₹10 Lakh |
| 20% | Above ₹ 10 Lakh to ₹12.5 Lakh |
| 25% | Above ₹12.5 Lakh to ₹15 Lakh |
| 30% | Above ₹15 Lakh |
Salient Features of Section 115BAC of Income Tax Act
Let us see what are the important features of Section 115BAC
- The new tax regime is available only to individuals and HUFs;
- This tax regime is an optional one and one can choose his tax regime accordingly;
- It does not allow income from business;
- It takes away the majority of the income tax deductions U/S 80C and under chapter VI-A;
- It does not allow any previous set off of losses;
- It does not allow any non-compliance of section 115BAC.
What Deductions/Exemptions are not allowed under Section 115BAC of Income Tax Act?
You need to know that this new tax regime has done away with the majority of the Deductions/Exemptions under Chapter VIA. Below is the list of such disallowed deductions:
Following Deductions are not allowed U/S 115BAC
- Standard Deduction;
- Professional Tax Deductions;
- Deductions U/S 10;
- Entertainment Allowance;
- Leave Travel Allowance;
- Housing Loan Interest U/S24(b);
- Family Pension deductions;
- Chapter VIA deductions such as 80C, 80CCC,80CCD,
- Section 80D,80DD,80DDB;
- Section 80E,80EE,80EEA;
- Donation U/S 80G and etc.
- Other deductions pertaining to business such as Depreciation U/S 32 and etc.
Following Deductions are allowed under New Tax Regime U/S 115BAC
- Conveyance allowance to perform Office Duties;
- Conveyance allowance for tour, travel and transfer;
- Transport allowance for differently abled employees;
- Employers’ contribution to your NPS account U/S 80CCD(2);
- Daily allowances under certain conditions.
Allowed Deductions U/S 115BAC
- Conveyance allowance to perform Office Duties;
- Conveyance allowance for tour, travel and transfer;
- Transport allowance for differently abled employees;
- Employers’ contribution to your NPS account U/S 80CCD(2);
- Daily allowances under certain conditions.
Disallowed Deductions U/S 115BAC
- Standard Deduction;
- Professional Tax Deductions;
- Deductions U/S 10;
- Entertainment Allowance;
- Leave Travel Allowance;
- Housing Loan Interest U/S24(b);
- Family Pension deductions;
- Chapter VIA deductions such as 80C, 80CCC,80CCD,
- Section 80D,80DD,80DDB;
- Section 80E,80EE,80EEA;
- Donation U/S 80G and etc.
- Other deductions pertaining to business such as Depreciation U/S 32 and etc.
Old Tax Regime Vs New Tax Regime(Section 115BAC) Comparison
Old Tax Regime Vs New Tax Regime
Old Tax Regime
- It encourages investment in tax saving instruments;
- Existing income tax deductions are allowable;
- Standard deductions and Professional Tax are deducted from income (Max Rs.52,400);
- Benefit of Housing Loan interest payment is allowed U/S 24(b);
- Only 3 tax slabs — 5%, 20% and 30% applicable;
- 5% Tax rate is basically non-functional as tax is negated by Rebate U/S 87;
- Deductions under Chapter VIA are allowed;
- This tax regime is more beneficial for income up to ₹15 Lakh;
- Housing loan interest plays a significant role in reducing your total tax liabilities;
- Any taxpayers can use this Old tax regime
New Tax Regime
- It discourages investments in tax saving instruments;
- Major existing deductions are disallowed;
- No deduction is permissible for Standard Deduction & Professional Tax;
- Housing loan interest payment deduction is not permitted;
- 6 tax slabs — 5%, 10%, 15%, 20%, 25% and 30% applicable;
- For every ₹2.5 Lakh, the tax slab changes by 5%;
- No deductions under Chapter VIA are allowed except Employer’s contribution to NPS U/S 80CCD(2);
- This tax regime is more beneficial for income above ₹15 Lakh;
- New tax regime is beneficial when you don’t have any housing loan;
- Only applicable to individual and HUF
Old Tax Regime Income Tax Slabs
| Tax Rate | Individual Tax Payer (Below 60 Years) | Senior Citizen (61-80 Years) | Super Senior Citizen (Above 80 Years) |
|---|---|---|---|
| NIL | ₹2.5 Lakh | ₹3 Lakh | ₹5 Lakh |
| 5% | ₹2.5 Lakh- ₹5 Lakh | ₹3 Lakh- ₹5 Lakh | NIL |
| 20% | ₹5 Lakh- ₹10 Lakh | ₹5 Lakh- ₹10 Lakh | ₹5 Lakh- ₹10 Lakh |
| 30% | Above ₹10 Lakh | Above ₹10 Lakh | Above ₹10 Lakh |
Hypothetical Example: Now, let us take a hypothetical example where a person has different series of income starting from ₹7.5 Lakh to ₹17.5 Lakh. He has a deduction U/S 80 C for ₹1,50,000 and ₹25,000 U/S 80 D. Now, let us make an income tax comparison between the two regimes.
| Gross Income | Tax under Old Regime | Tax under New Regime | Tax Difference | Winner |
|---|---|---|---|---|
| 7.5 Lakh | 17,700 | 39,000 | 21,300 | Old Tax Regime |
| 10 Lakh | 69,700 | 78,000 | 8,300 | Old Tax Regime |
| 12.5 Lakh | 124,050 | 130,000 | 5,950 | Old Tax Regime |
| 15 Lakh | 202,050 | 195,000 | -7,050 | New Tax Regime |
| 17.5 Lakh | 280,050 | 273,000 | -7,050 | New Tax Regime |
So, from the above comparison table what you can see is that with the increased income level, the tax is being reduced gradually under the new tax regime. But for up to income level of ₹15 Lakh, tax under old regime is lower.
But if your income is above ₹15 Lakh and you don’t have any other deductions like House Building Loan Interest, additional NPS contribution U/S 80CCD(1B) and etc., the new tax regime is a clear winner.
