Section 115BAC of Income Tax Act

A new Section 115 BAC of the Income Tax Act has been added by the Finance Act of 2020, giving individuals the opportunity to choose between the old regular tax rates and new concessional tax rates without taking into account the legal requirements for exemptions or deductions.

It was unclear, though, whether an employer may review the new tax regime at the time of withholding taxes from salaries due to the implementation of this new Section 115 BAC.

To answer these questions, the Central Board of Direct Taxes (CBDT) released Circular No.C1 of 2020, which clarified that an employer should compute the tax deduction at source (TDS) by taking Section 115BAC into account, where appropriate, based on the notification received from the individual employee.

What is Section 115BAC

A person, whether an individual or an undivided Hindu family (HUF), who has income other than income from a profession or business, may exercise the option regarding a prior year to be taxed under Section 115 BAC along with his or her return of income to be furnished under Section 139(1) of the Income-tax Act for each year, according to the new Section 115BAC of the Income-tax Act, 1961.

The requirement that the total income is computed without any specific exemption or deduction set off of a loss and additional depreciation applies to the concessional rate offered under Section 115BAC of the Income Tax Act.

Tax Rates Under the New Regime

The new income tax slabs and income tax rates under the new tax regime for FY 2023-24 (AY 2024-25) and FY 2022-23 (AY 2023-24) are as follows-

• New Regime Tax Rates (FY23-24)

• New Regime Tax Rates (FY22-23)

Who is Eligible for Section 115BAC

HUFs and individuals could exercise the choice of paying income tax according to the new income tax slab rates given their total income for the exact financial year satisfy the conditions that are mentioned below:

• The declared income should not cover any of the business income.
• The calculation of it is done without any deductions or exemptions given under the following:
• Chapter VI-A except those under section 80CCD/ 80JJAA
• Section 24b
• Clause (5)/(13A)/(14)/(17)/(32) of Section 10/10AA/16
• Section 32(1)/ 32AD/ 33AB/ 33ABA
• Section 35/ 35AD/ 35CCC
• Clause (iia) of Section 57
• The calculation is done without taking into account losses from past AYs caused by the aforementioned deductions or from real estate owned by the homeowner.
• It is determined without making any exemptions or deductions for any perks or allowances.
• Without claiming any depreciation under clause (iia) of Section 32, the calculation is completed.

Exemptions and Deductions of Section 115BAC of Income Tax Act

Under the new income tax system, most tax deductions are no longer available. The ones listed below, however, are permitted by section 115BAC of the Income Tax Act.

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

Deductions that are Not Claimable Under Section 115BAC

There are various exemptions and deductions under section 115BAC, as was mentioned in the previous section. However, the key ones that have been cancelled under this new regime are as follows:

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