New Tax Regime – Section 115BAC of Income Tax Act, 1961

“Explore the New Tax Regime (Section 115BAC) introduced in the Income Tax Act, 1961 by the Indian government. With lower tax rates and simplified rules, discover its applicability, income tax rates for FY 2023-24, and the impact on exemptions. Make informed choices for FY 2023-24 with our detailed guide.”

The Indian government ushered in a new tax regime under Section 115BAC of the Income Tax Act, 1961, through the Union Budget 2020-21. This new tax system offers lower tax rates but reduces the number of deductions and exemptions compared to the old regime. The objective is to simplify the income tax system and make it more user-friendly for taxpayers.

Applicability of the New Tax Regime for FY 2023-24

The New Tax Regime (also known as alternative tax regime) is applicable to –

• Individuals
• HUF
• Association of Persons (AOP)
• Body of Individuals (BOI)
• Artificial Juridical person

For the Assessment Year 2024-25, the new tax regime is a default tax regime and if assessee wants to opt -out from default new tax regime, he has to exercise the option under section 115BAC (6).

Income Tax Rates for FY 2023-24 (AY 2024-25) in the New Tax Regime:

• Under the new income tax regime, a maximum rebate of Rs. 25,000 is allowed under section 87A, from FY 2023-24 (AY 2024-25) if the total income of a resident individual, who is opting for the new tax scheme under Section 115BAC(1A), is up to Rs. 7,00,000. Further, if the total income of the resident individual opting section 115BAC(1A) exceeds Rs. 7,00,000 and the tax payable on such income exceeds the difference between the total income and Rs. 7,00,000, he can claim a rebate with marginal relief to the extent of the difference between the tax payable on such total income and the amount of income by which it exceeds Rs. 7,00,000
• If an assessee has opted for new tax regime, the provisions of AMT shall not be applicable.

Exemptions/Deductions Not Available Under the New Tax Regime:

The option to pay tax at lower rates under new tax regime shall be available only if the total income of assessee is computed without claiming following exemptions or deductions:

1. Salary Income – Exemptions / Deductions Not Available

a) Leave Travel concession [Section 10(5)]

b) House Rent Allowance [Section 10(13A)]

c) Official and personal allowances (other than those as may be prescribed) [Section10(14)]

d) Allowances to MPs/MLAs [Section 10(17)]

h) Entertainment Allowance [Section 16((ii)]

i) Professional Tax [Section 16(iii)]

Note – Salaried taxpayers are eligible for the standard deduction [Section 16(ia)] of Rs. 50,000 under new tax regime from Financial Year 2023-24 (Assessment Year 2024-25)

2. Home Loan – Deductions / Exemptions Not Available

Under the New Tax Regime, the taxpayer cannot claim the deduction for Interest on Home Loan u/s 24b on: Self-occupied or vacant property

The loss from house property cannot be set off against other heads of income under the new tax regime.

3. Business and Profession Income – Deductions / Exemptions Not Available

Following are the deductions /exemptions not available under New Tax Regime for the tax payers who are filing returns with Income under the head Profits and Gains from Business and Profession (Section 115BAC) –

i. Additional depreciation in respect of new plant and machinery [Section 32(1)(iia)];

ii. Deduction for investment in new plant and machinery in notified backward areas [Section 32AD];

iii. Deduction in respect of tea, coffee or rubber business [Section 33AB];

iv. Deduction in respect of business consisting of prospecting or extraction or production of petroleum or natural gas in India [Section 33ABA];

v. Deduction for donation made to approved scientific research association, university college or other institutes for doing scientific research which may or may not be related to business [Section 35(1)(ii)];

vi. Deduction for payment made to an Indian company for doing scientific research which may or may not be related to business [Section 35(1)(iia)];

vii. Deduction for donation made to university, college, or other institution for doing research in social science or statistical research [Section 35(1)(iii)];

viii. Deduction for donation made for or expenditure on scientific research [Section35(2AA)];

ix. Deduction in respect of capital expenditure incurred in respect of certain specified businesses, i.e., cold chain facility, warehousing facility, etc. [Section 35AD];

x. Deduction for expenditure on agriculture extension project [Section 35CCC];

xi. Deduction for units established in Special Economic Zones (SEZ) (Section 10AA)

4. Other Income – Deductions

Under section 115BAC, the total income of the taxpayer shall be computed without any deduction under the provisions of

• Allowances for income of minor [Section 10(32)]

Note – Deduction for family Pension [Section 57(iia)] is allowed from Financial Year 2023-24 (Assessment Year 2024-25)

5. Chapter VI A Deductions

Chapter VIA of the Income Tax Act contains a number of deductions that are available to taxpayers. However, under the new tax regime, only the following deductions from Chapter VIA are allowed:

• Section 80CCD(2): Deduction for employer’s contribution to the National Pension System (NPS) account of employee.
• Section 80JJAA deduction in Respect of New Employees Recruited.
• Section 80CCH – All contributions to Agniveer Corpus Fund from Financial Year 2023-24 (Assessment Year 2024-25)
• Deduction under section 80LA for Unit located in IFSC [Part C of Chapter VI-A].

All other deductions under Chapter VIA, are not allowed under the new tax regime.

Choice of Regime

The new tax regime is the default tax regime for the taxpayers from the financial year 2023-24. However, taxpayers will have the option of continuing with the old tax regime by submitting Form 10IEA.  Form 10IEA is required to be filed before filing ITR.

Salaried taxpayers (not having business income) can opt for the old tax regime directly in the ITR to be filed on or before the due date u/s 139(1) for furnishing the return of income for such assessment year.

In case of eligible taxpayers having income from business and profession and wants to opt for the old tax regime, the assessee would be required to furnish Form-10-IEA on or before the due date u/s 139(1) for furnishing the return of income for such assessment year.  Also, for the purpose of withdrawal of such option i.e., opting out of old tax regime shall also be done by way of furnishing Form No. 10-IEA.

Tax Calculators – Several online tax calculators and tools are available to help taxpayers determine which regime is more beneficial for them based on their income and deductions.

This article provides a comprehensive overview of Section 115BAC and the new tax regime in India for FY 2023-24, helping taxpayers understand its applicability, tax rates, and impact on deductions and exemptions.