Section 115BAC: Key Features of the New Tax Regime
The introduction of Section 115BAC in the Income Tax Act marked a significant shift in the way individual taxpayers and Hindu Undivided Families (HUFs) can calculate their taxes. The section, introduced by the Finance Act, 2020, provides taxpayers with the option to choose a simplified tax regime that offers lower tax rates but comes with certain conditions. Let’s delve into the key features, benefits, and implications of this new tax regime.
What is Section 115BAC?
Section 115BAC allows individuals and HUFs to opt for an alternative tax regime. Under this regime, taxpayers can avail of concessional tax rates but must forego certain deductions and exemptions.
Applicability of Section 115BAC
- Who Can Opt: Individual taxpayers and HUFs.
- Eligibility: Applicable to income earned during the financial year starting April 1, 2020.
- Exclusions: Not available to companies, LLPs, or partnership firms.
Key Features of Section 115BAC
- Concessional Tax Rates
The section introduces lower tax rates for different income slabs as compared to the old regime:- ₹0 to ₹2,50,000 – Nil
- ₹2,50,001 to ₹5,00,000 – 5%
- ₹5,00,001 to ₹7,50,000 – 10%
- ₹7,50,001 to ₹10,00,000 – 15%
- ₹10,00,001 to ₹12,50,000 – 20%
- ₹12,50,001 to ₹15,00,000 – 25%
- Above ₹15,00,000 – 30%
- No Exemptions and Deductions
Taxpayers opting for this regime cannot claim certain deductions, such as:- Standard Deduction (₹50,000 under Section 16)
- House Rent Allowance (HRA)
- Chapter VI-A Deductions like 80C, 80D, and 80TTA
- Interest on Home Loan under Section 24(b)
- Flexibility to Choose
- Salaried individuals can choose between the old and new tax regimes every financial year.
- Business income earners must make a one-time decision that is applicable for future years.
- Simplified Tax Filing
The new regime simplifies tax filing as taxpayers do not need to maintain records for deductions and exemptions.
Benefits of Section 115BAC
- Lower Tax Burden for Certain Income Groups: Ideal for individuals who do not claim significant deductions under the old regime.
- Flexibility for Salaried Employees: They can evaluate and choose between old and new regimes annually.
- Ease of Compliance: Simplified calculations reduce paperwork.
Challenges and Limitations
- Loss of Deductions: Taxpayers lose the benefit of popular deductions like 80C, 80D, and HRA exemptions.
- Not Suitable for All: Taxpayers with higher investments in tax-saving instruments may find the old regime more beneficial.
Example: Tax Calculation Under Section 115BAC
Scenario:
- Gross Total Income: ₹12,00,000
- Deductions under 80C and 80D (Old Regime): ₹2,00,000
Old Regime Tax Calculation:
- Income after deductions: ₹10,00,000
- Tax:
- ₹2,50,000 @ 5% = ₹12,500
- ₹5,00,000 @ 20% = ₹1,00,000
Total Tax: ₹1,12,500
New Regime Tax Calculation (Section 115BAC):
- Income: ₹12,00,000
- Tax:
- ₹2,50,000 @ 5% = ₹12,500
- ₹2,50,000 @ 10% = ₹25,000
- ₹2,50,000 @ 15% = ₹37,500
Total Tax: ₹75,000
Conclusion:
In this example, the new regime saves ₹37,500 in taxes, provided the taxpayer does not claim deductions.
Frequently Asked Questions
1. Can I switch between the old and new regimes every year?
Yes, salaried taxpayers can switch between the two regimes annually. Business income earners, however, must decide once.
2. Is the new tax regime beneficial for everyone?
No, it depends on the individual’s income structure and the deductions they claim under the old regime.
3. Are there any mandatory conditions for opting for Section 115BAC?
Yes, taxpayers must forgo certain exemptions and deductions to avail of the new regime.
4. Can I claim Section 80D under the new regime?
No, deductions under Chapter VI-A, including Section 80D, are not available under Section 115BAC.
5. Do I need to submit any form to opt for Section 115BAC?
Salaried individuals need to inform their employer about their preference. Business income earners must file Form 10-IE.
By understanding the nuances of Section 115BAC, taxpayers can make informed decisions that align with their financial goals and tax-saving strategies. Evaluate both regimes thoroughly before filing your income tax return.