What’s new in section 115BAC: Optional scheme to default scheme of taxation

Introduction: The Finance Act of 2023 has brought in some new rules that have left many taxpayers feeling a bit confused and uncertain. We’re here to clear up any confusion and explain these changes in simple and easy-to-understand terms. In our previous articles, we talked about things like ULIP and LIC taxation, helping readers navigate through complex tax matters. Now, we’re focusing on a new tax scheme called the default scheme, which starts from the year 2024-2025. This scheme, introduced under section 115BAC, is important for taxpayers to understand so they can fulfill their tax obligations correctly and efficiently. To help with this, we’ve put together a straightforward FAQ-based analysis on section 115BAC. This comprehensive article covers everything you need to know about how the scheme works, what forms you need to fill out, who is eligible, and other important details those taxpayers should be aware of. While this change may not be entirely new, taxpayers will soon need to assess their income and file their tax returns. So, we think it’s essential to discuss this topic now and provide clarity on these important tax changes.

Moreover, we’ve also compared how section 115BAC has changed from AY 2021-2022 to AY 2024-2025. This comparison helps taxpayers understand how the scheme has evolved, making it easier to see the effects of the recent tax amendments starting from AY 2024-2025.

Q.1 What is the tax slab under section 115BAC From AY 2024-2025?

Ans. Section 115BAC (1A) Notwithstanding anything contained in this Act but subject to the provisions of this Chapter, the income-tax payable in respect of the total income of a person, being an individual or Hindu undivided family or association of persons (other than a co-operative society), or body of individuals, whether incorporated or not, or an artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2, other than a person who has exercised an option under sub-section (6), for any previous year relevant to the assessment year beginning on or after the 1st day of April, 2024, shall be computed at the rate of tax given in the following Table, namely:-

Sr.No	Total Income	Rate of tax
1	Upto 300000	Nil
2	From Rs.300001 to 600000	5 Per cent
3	From Rs. 6,00,001 to Rs. 9,00,000	10 Per cent
4	From Rs. 9,00,001 to Rs. 12,00,000	15 Per Cent
5	From Rs. 12,00,001 to Rs. 15,00,000	20 Per Cent
6	Above Rs. 15,00,000	30 Per Cent

Q.2 What is the tax slab under section 115BAC From AY 2021-2022 upto AY 2024-25?

Ans. 15BAC. (1) Notwithstanding anything contained in this Act but subject to the provisions of this Chapter, the income-tax payable in respect of the total income of a person, being an individual or a Hindu undivided family, for any previous year relevant to the assessment year beginning on or after the 1st day of April, 2021 [but before the 1st day of April, 2024], shall, at the option of such person, be computed at the rate of tax given in the following Table, if the conditions contained in sub-section (2) are satisfied, namely:—

Sr.No	Total Income	Rate of tax
1	Upto 2,50,000	Nil
2	From Rs. 2,50,001 to Rs. 5,00,000	5 Per cent
3	From Rs. 5,00,001 to Rs. 7,50,000	10 Per cent
4	From Rs. 7,50,001 to Rs. 10,00,000	15 Per Cent
5	From Rs. 10,00,001 to Rs. 12,50,000	20 Per Cent
6	From Rs. 12,50,001 to Rs. 15,00,000	25 Per Cent
7	Above Rs. 15,00,000	30 Per Cent

Q.3 Who can Exercise the option under section 115BAC?

Ans.

From AY 21-22 up to AY 2024-25	From AY 2024-25
Individual and HUF only	Individual, HUF, BOI, AOP (other than co-op Society), Artificial Jurisdiction Person whether incorporated or not.
Optional Scheme	Default tax regime

Q.4. How to opt for this tax regime?

Ans.

From AY 21-22 up to AY 2024-25	From AY 2024-25
1. If Total income includes income from Business and profession then on or before date specified u/s 139(1). Form 10IE and ITR both needs to file before due date for PY in which option is opted. 2. If Total Income does not comprise income from business and profession then option may be opted along with ITR no need to file specific form. But ITR should be on or before due date u/s 139(1).	1. This is default tax regime so no need to opt. But if you wants to opt out and file your return under regular tax regime and your total income includes income from Business and profession then on or before date specified u/s 139(1), form 10IEA needs to be filed for PY in which you wish to opt out from New default scheme to regular scheme or wants to switch in from regular scheme to default scheme. 2. If Total Income does not comprise income from business and profession then you may opt out or exercise the default scheme by filing your ITR before the due date specified u/s 139(1) of the act.
Optional Scheme	Default tax regime
In this case Option should be exercised on or before due date u/s 139(1) by filing form 10IE or filing ITR (incase of Total income is other than income from business and profession)	In this case filing form 10IEA is mandatory only for those who have income from business and profession. This form requires to be filed at the time of both re-entering the scheme and opting out from the scheme. What important here is filing the form 10IEA before due date. For those who do not have income from business and profession may freely re-enter in the scheme or opt out from the scheme by simply filing their income tax return before due date u/s 139(1) what important here is filing return before due date.

You may visit : https://www.incometax.gov.in/iec/foportal/help/all-topics/statutory-forms/file-statutory-form/popular-form/form-10-IEA-um to obtain information about how to file form 10IEA.

Q.5 Is there any limit for switch in and out from this scheme?

Ans.

From AY 21-22 up to AY 2024-25	From AY 2024-25
1. Persons who don’t have income from business and profession may change scheme every year.	Persons who don’t have income from business and profession may change scheme every year.
2. Once this new scheme is exercised by person having income from business and profession then applicable to all subsequent years and he is allowed to opt out from section 115BAC only once.	Once this new scheme is exercised by person having income from business and profession then applicable to all subsequent assessment years and he is allowed to opt out from section 115BAC only once and thereafter, the person shall never be eligible to exercise the option under this default scheme, except where such person ceases to have any income from business or profession.

Q.6 Which exemptions and deductions are not allowed under this scheme?

Ans. Following are the exemptions and deductions which are not allowed when you declare income under section 115BAC

From AY 21-22 up to AY 2024-25	From AY 2024-25
Leave Travel concession [Section 10(5)]	Leave Travel concession [Section 10(5)]
House Rent Allowance [Section 10(13A)]	House Rent Allowance [Section 10(13A)]
Official and personal allowances (other than those as may be prescribed) [Section10(14)]	Official and personal allowances (other than those as may be prescribed) [Section10(14)]
Allowances to MPs/MLAs [Section 10(17)]	Allowances to MPs/MLAs [Section 10(17)]
Exemption for minor income [Section 10(32)]	Exemption for minor income [Section 10(32)]
SEZ Exemptions [Section 10AA]	SEZ Exemptions [Section 10AA]
Standard deduction, Entertainment allowance, Professional tax [Section 16]	Entertainment allowance, Professional tax [Section 16 (ii) and (iii)]
Interest on self-occupied property [Section 24(b)]	Interest on self-occupied property [Section 24(b)]
Additional depreciation in respect of new plant and machinery [Section 32(1)(iia)];	Additional depreciation in respect of new plant and machinery [Section 32(1)(iia)];
Deduction for investment in new plant and machinery in notified backward areas [Section 32AD]	Deduction for investment in new plant and machinery in notified backward areas [Section 32AD]
Deduction in respect of tea, coffee or rubber business [Section 33AB]	Deduction in respect of tea, coffee or rubber business [Section 33AB]
Deduction in respect of business consisting of prospecting or extraction or production of petroleum or natural gas in India [Section 33ABA]	Deduction in respect of business consisting of prospecting or extraction or production of petroleum or natural gas in India [Section 33ABA]
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)]	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)]
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)]	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)]
Deduction for donation made to university, college, or other institution for doing research in social science or statistical research [Section 35(1)(iii)]	Deduction for donation made to university, college, or other institution for doing research in social science or statistical research [Section 35(1)(iii)]
Deduction for donation made for or expenditure on scientific research [Section35(2AA)]	Deduction for donation made for or expenditure on scientific research [Section35(2AA)]
Deduction in respect of capital expenditure incurred in respect of certain specified businesses, i.e., cold chain facility, warehousing facility, etc. [Section 35AD]	Deduction in respect of capital expenditure incurred in respect of certain specified businesses, i.e., cold chain facility, warehousing facility, etc. [Section 35AD]
Deduction for expenditure on agriculture extension project [Section 35CCC]	Deduction for expenditure on agriculture extension project [Section 35CCC]
Deduction for family Pension [Section 57(iia)	Allowed
Deductions under Chapter VI-A other than (means these allowed as dedcutions) 80CCD (2) : Employers contribution to National Pension Scheme 8CCH (2): Central Govt..Contribution to Agniveer Corpus Fund. 80JJAA : Amount paid to employees.	Deductions under Chapter VI-A other than (means these allowed as dedcutions) 80CCD (2) : Employers contribution to National Pension Scheme 8CCH(2) : Central Govt..Contribution to Agniveer Corpus Fund. 80JJAA : Amount paid to employees.
Set off of any loss,— (a) carried forward or depreciation from any earlier assessment year, if such loss or depreciation is attributable to any of the deductions referred above; (b) Under the head “Income from house property” with any other head of income	Set off of any loss,— (a) carried forward or depreciation from any earlier assessment year, if such loss or depreciation is attributable to any of the deductions referred above; (b) Under the head “Income from house property” with any other head of income.
Without any exemption or deduction for allowances or perquisite, by whatever name called, provided under any other law for the time being in force.	Without any exemption or deduction for allowances or perquisite, by whatever name called, provided under any other law for the time being in force.

Note : Standard deduction allowed from AY 2024-2025 from salary under the default scheme of taxation.

Q.7 Explain the tax rate for capital gains if we exercise default scheme of income tax under section 115BAC.

Ans. When you opt for default scheme of income tax under section 115BAC the special incomes u/s 111A,112,112A etc shall be taxable at special rate applicable to them.

Q.8 What is the rate of surcharge in this default scheme?

Ans. Rate of surcharge is same as applicable to regular scheme of income tax.

Q.9 Is there any rebate allowed if we opt for this default tax system?

Ans. Proviso to section 87A inserted from AY 24-25 which states that

“Provided that where the total income of the assessee is chargeable to tax under sub-section (1A) of section 115BAC, and the total income—

(a) does not exceed seven hundred thousand rupees, the assessee shall be entitled to a deduction from the amount of income-tax (as computed before allowing for the deductions under this Chapter) on his total income with which he is chargeable for any assessment year, of an amount equal to one hundred per cent of such income-tax or an amount of twenty-five thousand rupees, whichever is less;

(b) exceeds seven hundred thousand rupees and the income-tax payable on such total income exceeds the amount by which the total income is in excess of seven hundred thousand rupees, the assessee shall be entitled to a deduction from the amount of income-tax (as computed before allowing the deductions under this Chapter) on his total income, of an amount equal to the amount by which the income-tax payable on such total income is in excess of the amount by which the total income exceeds seven hundred thousand rupees.”

Which means For resident individual having total income upto Rs.700000

I) 100% of the tax amount; or

II) 25000/-

Whichever is lower is rebate.

Further marginal relief is also available if income exceed Rs. 7,00,000/- and tax on such income exceeds the amount by which income exceeds Rs.7,00,000/-

However this marginal relief is not available in regular scheme.

Q.10 What is the treatment of brought forward unabsorbed additional depreciation if the assesse first time opting section 115BAC?

Ans. Such unabsorbed additional depreciation is not allowed as deduction and therefore added back to the WDV of the assets.

Q.11 Is AMT is applicable to default scheme?

Ans. Assessee not required to pay AMT under default scheme.

Brought forward AMT credit cannot be set off against income u/s 115 BAC.

Q.12 If we don’t choose the default tax scheme then what slab rate is applicable to us?

Ans. For Individual, HUF, AOP, BOI, AJP

Total Income upto 250000	Nil
Total income above 250000 upto 500000	5 Per cent
Total income above 500000 upto 1000000	20 Per cent
Total income above 1000000	30 Per cent

For Individual, HUF, AOP, BOI, AJP (Age 60 Years or more)

Total Income upto 300000	Nil
Total income above 300000 upto 500000	5 Per cent
Total income above 500000 upto 1000000	20 Per cent
Total income above 1000000	30 Per cent

For Individual, HUF, AOP, BOI, AJP (Age 80 Years or more)

Total Income upto 500000	Nil
Total income above 500000 upto 1000000	20 Per cent
Total income above 1000000	30 Per cent

Conclusion: Understanding the latest amendments in tax laws is crucial for every taxpayer to effectively manage their financial responsibilities. In this article, we’ve aimed to simplify the complexities surrounding the new default scheme introduced under section 115BAC of the Finance Act of 2023. By breaking down the procedures, forms, eligibility criteria, and other provisions related to this scheme, we’ve provided a comprehensive guide to help taxpayers navigate the changes seamlessly. As taxpayers prepare to assess their income and file their tax returns, it’s imperative to grasp the implications of these amendments and ensure compliance with the law. We hope that our insights have shed light on this topic and empowered readers to make informed decisions regarding their tax obligations.