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 system 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.

Rates Under 115BAC of Income Tax Act

The following table can list the new slab rates according to 115BAC of the Income Tax Act:

Income (yearly)

Slab Rates

0 to Rs. 2,50,000

Exempt

More than Rs. 2,50,000 to Rs. 5,00,000

5%

More than Rs. 5,00,000 to Rs. 7,50,000

10%

More than Rs. 7,50,000 to Rs. 10,00,000

15%

More than Rs. 10,00,000 to Rs. 12,50,000

20%

More than Rs. 12,50,000 to Rs. 15,00,000

25%

More than Rs. 15,00,000

30%

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

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.

  • Section 80JJAA deductions (additional employee cost).
  • Employees are given a daily allowance under specific situations.
  • Transport reimbursement for workers with disabilities.
  • Employer contributions to a pension account are deductible under section 80CCD(2).
  • Any reimbursement for the price of the trip, transportation, or tour.
  • Conveyance reimbursement for office work performed.

Deductions that are Not Applicable 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:

  • Subsections 32AD, 33AB, 33ABA, 35AD, and 35CCC deductions.
  • Section 57 deduction from the family pension (iia).
  • Standard deduction.
  • Under Chapter VIA, significant deductions (under section 80C, 80CCC, 80CCD, 80DD, 80DDB, 80E, 80EE, 80EEA, 80G, 80IA, etc.).
  • Allowance for Leave Travel under Section 10 (5).
  • Section 10 House Rent Allowance (HRA) (13A).
  • Compensation under Section 10 (14).
  • Deduction for employment/professional tax and entertainment allowance under section 16.
  • Under section 32, depreciation (iia).
  • Deduction for Donations to or Expenditures for Scientific Research.
  • Interest on mortgage loans under section 24 (b).
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