People who choose the new tax regime should be aware of Section 115BAC of the Income-tax Act, 1961. This section was added in Budget 2020 and has been applicable since FY 2020-21, or Assessment Year 2021-22. It is commonly referred to as the new tax regime.
If individuals choose to pay taxes at reduced rates under the new tax regime, they must select Section 115BAC when filing their income tax returns. However, selecting Section 115BAC implies giving up around 70 tax exemptions and deductions that are otherwise available under the old tax regime.
Deductions And Exemptions: If an individual chooses the new tax regime under Section 115BAC, he/she will not be able to claim certain common deductions. These include deductions of Rs 1.5 lakh for specified investments or expenses under Section 80C, deductions of Rs 25,000 for medical insurance premiums paid under Section 80D, and deductions of Rs 50,000 for investment in the National Pension System (NPS) under Section 80CCD (1b), among others.
In addition, there are certain tax exemptions that individuals cannot avail of under the new tax regime. These exemptions include allowances, such as house rent allowance and leave travel allowance.
Until financial year 2022-23, salaried individuals were not able to claim the Standard Deduction of Rs. 50,000 from their salary income in the new tax regime. However, in order to make Section 115BAC more appealing to individuals, that has now been allowed.
That said, it should be noted that the Standard Deduction from salary income under Section 115BAC will only apply to income earned between April 1, 2023, and March 31, 2024 (i.e., during the financial year 2023-24). Individuals who opt for the new tax regime in the financial year 2022-23 or any prior year will not be able to claim Standard Deduction from their salary income.
Who Are Eligible To Choose New Tax Regime Under Section 115BAC: The eligibility criteria for Section 115BAC were revised in Budget 2023. Till FY 2023, individuals or Hindu Undivided Families (HUFs) could choose the new tax regime under Section 115BAC of the Income-tax Act, 1961.
Now, the eligibility requirements for the new tax regime have been broadened under Section 115BAC.
Starting from April 1, 2023, Associations of Persons (AOPs) other than cooperative societies, bodies of individuals, and artificial judicial persons can also choose to adopt the new tax regime – in addition to individuals and HUFs.
Income Tax Slabs And Rates In Section 115BAC: Section 115BAC pertains to the new tax regime. Therefore, the income tax slabs and rates applicable under this section will be those of the new tax regime.
Here are the income tax brackets for the new tax regime effective from April 1, 2023:
For incomes up to Rs 3 lakh, the income tax rate will be nil.
For income between Rs 3,00,001 and Rs 6 lakh, the income tax rate will be five per cent.
For income between Rs 6,00,001 and Rs 9 lakh, the income tax rate will be 10 per cent.
For income between Rs 9,00,001 and Rs 12 lakh, the income tax rate will be 15 per cent.
For income between Rs 12,00,001 and Rs 15 lakh, the income tax rate will be 20 per cent.
For income above Rs 15,00,001, the income tax rate will be 30 per cent.
What should be also kept in mind is that income tax payable under the new tax regime is also subject to surcharges and cess.