Section 115BAC of Income Tax Act

HUF and individuals are now eligible to select a new tax regime from FY 2020-21. From this financial year, one can opt to pay income tax under an optional new tax regime. This new regime is available for HUFs and individuals with lower tax rates and zero exemptions or deductions.

Let us find out the various vital aspects related to section 115BAC of the Income Tax Act.

What Is Section 115BAC of the Income Tax Act?

During the speech for Budget 2020, India’s Finance Minister announced the insertion of a new section 115BAC into the Income Tax Act, 1961. Section 115BAC of the Income Tax Act was effective from FY 2020-21, and it deals with a new and optional income tax regime for HUFs and individuals.

The new system is applicable for income earned from 1st April 2020 (FY 2020-21). This relates to AY 2021-22.

A key feature of the new regime is that there has been a significant reduction in the income tax slab rates. However, these new rates come at the cost of some vital deductions and exemptions that are presently available under the existing or old regime. While a section 115BAC calculator can prove to be handy for calculating taxes, one should be aware of the applicable slab rates.

What Are the New Slab Rates as per Section 115BAC of the Income Tax Act?

The following table lists down the new slab rates as per section 115BAC of the Income Tax Act, which can be used for calculation -

Annual Income	New Income Tax Slab Rate
Nil to ₹2.5 lakh	Exempted
Above ₹2.5 lakh to ₹5 lakh	5%
Above ₹5 lakh to ₹7.5 lakh	10%
Above ₹7.5 lakh to ₹10 lakh	15%
Above ₹10 lakh to ₹12.5 lakh	20%
Above ₹12.5 lakh to ₹15 lakh	25%
Above ₹15 lakh	30%

One can use an income tax calculator 115BAC for calculating the taxes. This tool asks for several data from a user. Once these are entered, the required result is displayed on the screen.

What Are the Eligibility Criteria for the New Tax Regime on Section 115BAC?

In AY 2021-22, HUFs and individuals can exercise the option to pay income tax according to the new (reduced) income tax slab rates given their total income for the relevant financial year satisfies the conditions mentioned below -

The declared income does not cover any business income.
The calculation for the same is done without any deductions or exemptions provided under the following -
- Chapter VI-A except those under section 80CCD/ 80JJAA
- Section 35/ 35AD/ 35CCC
- Clause (iia) of Section 57
- Section 24b
- Clause (5)/(13A)/(14)/(17)/(32) of Section 10/10AA/16
- Section 32(1)/ 32AD/ 33AB/ 33ABA
The calculation is carried out without setting off losses from earlier AY due to the deductions stated above or from house property.
It is calculated without any deduction or exemption with respect to any perquisites or allowances.
The calculation is done without claiming any depreciation under clause (iia) of Section 32.

What Are the Exemptions and Deductions Under Section 115BAC of the Income Tax Act?

A majority of the income tax deductions are discontinued under the new income tax regime. But the ones mentioned below are allowed under section 115BAC of the Income Tax Act.

Deduction under section 80CCD(2) (employer’s contribution to one’s pension account)
Any allowance for the cost of tour or travel or transfer
Conveyance allowance for performance of office dutie
Deduction under section 80JJAA (additional employee cost)
Daily allowance offered to employees under certain circumstances
Transport allowance for differently-abled employees (Divyang)

What Are the Deductions Not Applicable Under Section 115BAC of the Income Tax Act?

As stated in the previous section, there are several exemptions and deductions under section 115BAC. But at the same time, the following are the major ones that have been discontinued under this new regime -

Major deductions under Chapter VIA (under section 80C, 80CCC, 80CCD, 80DD, 80DDB, 80E, 80EE, 80EEA, 80G, 80IA, etc.)
Leave Travel Allowance under section 10(5)
House Rent Allowance (HRA) under section 10(13A)
Allowances under section 10(14)
Deduction for Entertainment Allowance and Employment/Professional Tax under section 16
Depreciation under section 32(iia)
Deduction for Expenditure or Donation on Scientific Research
Home loan interest under section 24(b)
Deductions under section 32AD, 33AB, 33ABA, 35AD, 35CCC
Deduction from Family Pension under section 57(iia)
Standard deduction

One must keep in mind that the new regime is optional in FY 2020-21. Hence, there is always the option to go for the existing or old regime, including all of the aforementioned deductions.

What Is the Difference between Old and New Tax Regime on Section 115BAC?

The existing or old tax regime provides different income tax exemptions and deductions. Hence it turns out to be suitable for most taxpayers. This regime might be better suited to the people belonging to the low-to-middle income group if they make adequate investments in various tax-saving schemes.

However, the new regime might be beneficial for those who have not invested significantly in tax-saving schemes like Life Insurance, Equity Linked Savings Scheme (ELSS), National Pension Scheme (NPS), National Savings Certificate (NSC), Employee Provident Fund (EPF), tax-saving Fixed Deposit (FD), etc.

Furthermore, standard deduction amounting to ₹50000 for salaried individuals and HRA allowance do not apply under this new regime.

Having mentioned all these, one should note that there is no set formula for deciding between these two regimes. One must calculate the total tax outgo according to both the old and new slab rates before deciding.

When is the New Regime Better?

This particular section can be best explained with the help of an example. Go through the following tables.

The following calculations have been carried out considering an income amounting to ₹1,25,0000.

As Per Old Regime

Parameters	Resulting amount (₹)	Old regime (₹)
Salary	1250000	1250000
Less: Standard Deduction	50000	50000
Less: Professional Tax	2400	2400
Gross Total Income	1197600	1197600
Less: Deduction Under Section 80C	150000	150000
Total Income	1047600	1047600
Income Tax	-	126780
Add: Education Cess at 4%	-	5071
Total Tax	-	131851

As Per New Regime

Parameters	Resulting amount (₹)	New regime (₹)
Salary	1250000	1250000
Less: Standard Deduction	50000	-
Less: Professional Tax	2400	-
Gross Total Income	1197600	1250000
Less: Deduction Under Section 80C	150000	-
Total Income	1047600	-
Income Tax	-	125000
Add: Education Cess at 4%	-	5000
Total Tax	-	130000

From the above tables, it is clear that the tax difference between the two regimes comes out to be ₹1851. Therefore, for the income stated above, the new regime turns out to be marginally beneficial. However, if one claims further deductions for investment in NPS, education loans, health insurance, etc., the existing regime will be helpful with respect to tax savings.

When Is the Old Regime Better?

Similar to the previous section, this one also is best explained through an example illustrated in the following tables.

Here, the income has been considered as ₹ 10,00000.

As Per Old Regime

Parameters	Resulting amount (₹)	Old regime (₹)
Salary	1000000	1000000
Less: Standard Deduction	50000	50000
Less: Professional Tax	2400	2400
Gross Total Income	947600	947600
Less: Deduction Under Section 80C	150000	150000
Total Income	797600	797600
Income Tax	-	72020
Add: Education Cess at 4%	-	2881
Total Tax	-	74901

As Per New Regime

Parameters	Resulting amount (₹)	New regime (₹)
Salary	1000000	1000000
Less: Standard Deduction	50000	Nil
Less: Professional Tax	2400	Nil
Gross Total Income	947600	1000000
Less: Deduction Under Section 80C	150000	Nil
Total Income	797600	1000000
Income Tax	-	75000
Add: Education Cess at 4%	-	3000
Total Tax	-	78000

From the above tables, it is clear that the existing tax regime turns out to be beneficial for the stated income amount. Suppose an individual claims lower deductions for tax savings towards investment in NPS, health insurance, etc. In that case, the new regime will be more beneficial against individuals who use the tax-saving investments.

One must note that individuals having an income bracket between ₹5 lakh to ₹10 lakh with a lower claim of deductions will benefit from the new regime. On the other hand, individuals who fall under a higher income tax bracket amounting above ₹15 lakh of yearly income can benefit more from the existing regime by making tax-saving investments.

One should keep in mind the above-mentioned aspects to make an informed decision regarding choosing the old or new tax regime under section 115BAC of the Income Tax Act.

Frequently Asked Questions

All

Can one switch from a new to an old income tax regime?

Yes, one gets to switch to the new or old income tax regime only when filing the income tax return.

Is the new income tax regime mandatory?

No, the new income tax regime is optional and can be chosen at one’s discretion.