Introduction:

Section 115 BAC of the Indian Income Tax Act, introduced through the Finance Act of 2020, provides individuals with the option to select between the conventional tax rates and the new concessional tax rates, disregarding legal specifics such as deductions and exemptions.

Upon the enactment of Section 115 BAC, ambiguity arose regarding whether employees were required to assess the new tax system at the time of salary tax withholdings. To address this uncertainty, the CBDT (Central Board of Direct Taxes) issued Circular C1 of 2020. The circular clarified that employers must calculate tax deductions at source (TDS) in accordance with Section 115BAC when applicable. This calculation should be based on notifications received by the employer from individual employees.

Section 115 BAC: 

Section 115 BAC of the Income Tax Act presents the new tax provisions introduced in  Union Budget 2020 for the financial year 2020-21 and subsequent years. While it offers a lower tax rate, it limits many of the deductions and exemptions available under the old regime.

Tax rates: 

The new tax system provides lower tax rates compared to the existing tax system. Below is a table showing the tax rates applicable to individual taxpayers under the new regime:

Income	Tax Rates
Up to Rs. 2.5 lakhs	Nil
Rs. 2.5 lakhs – Rs. 5 lakhs	5%
Rs. 5 lakhs – Rs. 7.5 lakhs	10%
Rs. 7.5 lakhs – Rs. 10 lakhs	15%
Rs. 10 lakhs – Rs. 12.5 lakhs	20%
Rs. 12.5 lakhs – Rs. 15 lakhs	25%
Above Rs. 15 lakhs	30%

Deductions Available Under New Regime of section 115 BAC :

Under new tax regime you can claim exemptions for the following.

• Conveyance allowance is provided to cover transportation expenses related to employment.
• Daily allowances are provided to cover the usual expenses for non-permanent facilities.
• Exemptions are available for voluntary retirement (section 10(10c)), gratuity (section 10(10)), and leave encashment (Section 10(10AA)).
• Gifts worth up to Rs 5,000 are eligible 
• Deduction for additional employee costs is available under  80JJA.
• Budget 2023 also introduced  deduction under Section 57(iia) on family pension income.
• Travel allowances are available for individuals with exceptional abilities.
• Remuneration for travel expenses incurred for travel or transfer time.
• Interest on Home Loan for let-out property is eligible for deduction under Section 24.
• Under Section 80CCD(2), employer contributions to NPS account are deductible.
• In Budget 2023, a deduction under Section 80 CCH(2) was also introduced for amounts paid or credited to the Agniveer Corpus Fund .

Deductions that are Not Applicable Under section 115 BAC:

The new tax system eliminates many deductions and exemptions available under the existing tax system. Some deductions and exemptions that are not eligible to be claimed under the new regime include:

• The standard deduction of Rs. 50,000 is applicable for salaried taxpayers.
• Leave Travel Concession 
• The deductions under Section 80C include investments in Provident Fund (PF), Public Provident Fund (PPF), National Pension Scheme (NPS), and similar instruments.
• House Rent Allowance 
• Deductions under Section 80D apply to medical insurance premiums.
• The deduction under Section 80G applies to donations to charitable institutions.
• Allowance for minor child income.

Eligibility criteria: 

For the year 2024-25, individuals and Hindu Undivided Families (HUFs) are required to file tax returns under the new tax scheme, unless they opt for the old scheme to file their income tax returns before the due date they pay him arrival. Under the new tax regime, all income must meet the conditions listed below.

• All deductions under Chapter VI-A apply except those specifically mentioned in Section 80CCD/80JJAA.
• Deductions specified in Section 24(b) are applicable.
• The calculations are made without allowance for any losses from prior years of analysis, including losses from the exemptions described above or losses on household property
• As per clause (iia) of Section 32, any depreciation shall be accounted for without claim.

Benefits of the new tax regime:

The new tax system brings many benefits to taxpayers. Key benefits include:

• The new tax regime provides lower tax rates compared to the existing regime, potentially resulting in significant tax savings for taxpayers
• The new tax system simplifies the tax system by removing many deductions and exemptions, making it easier to understand.
• With fewer deductions and exemptions, taxpayers will spend less time and effort maintaining records and filing tax returns.
• Taxpayers have the right to choose between the existing tax system and the new tax system, choosing the one that provides the greatest benefit.

Key points to Remember:

• Once a taxpayer chooses a new tax regime, they cannot revert to the old regime in the same fiscal year. However, taxpayers retain the right to switch between the two regimes each year, depending on which regime provides the greatest benefit.
• The new tax system does not change the tax rate on capital gains. High-income taxpayers will continue to be taxed at the existing rates that apply to them.
• Seniors and seniors aged 60 or over and 80 or over are eligible to opt for the new tax plan. However, tax benefits up to Rs. 50,000, available under the existing tax regime.
• Taxpayers aiming to claim tax benefits for charity have the option of choosing an existing or new tax structure. However, under the new tax regime, taxpayers cannot claim a deduction for donations to certain charitable organizations under Section 80G of the Tax Act, unlike the provision under the existing tax regime
• Although the new tax system eliminates many taxes and exemptions, taxpayers are eligible for some deductions and exemptions that remain unaffected for example, tax deductions Section 80CCD(1B) under for contribution to National Pension Scheme (NPS) and exemption in agricultural income is not affected by new regime.
• Taxpayers engaged in trade or commerce with a turnover of Rs. 2 crore, there is an option of tax assessed under Section 44ADA or Section 44AD of the Income Tax Act. Under presumptive taxation, taxpayers are considered to have earned a certain amount of money, and taxes are calculated on the basis of this amount. Those who elect the estimated tax rate cannot claim any tax deduction or exemption and must pay the tax in full. Regardless of the calculated tax election, taxpayers retain the existing tax regime and the new tax regime.
• Taxpayers who obtained a home loan to purchase a home and claim tax benefits on the interest paid on the loan have the option of an existing or new tax regime but under the new tax regime taxpayers cannot claim a deduction for interest paid on home loan under Section 24(b) of the Income Tax Act
• Non-Resident Indians (NRIs) earning income in India are required to pay domestic tax. NRIs also have a choice of existing and new tax schemes. However, the tax rates for foreign nationals differ from the tax rates for resident taxpayers.

Conclusion:

Section 115 BAC of the Income Tax Act introduced by Finance Bill 2020 provides a new tax regime for individual taxpayers who wish to opt out of the existing tax regime and pay tax at a lower rate. Despite the benefits of the new tax system, taxpayers should carefully consider their options before making a decision. When choosing between the two tax plans, factors such as income, deductions, exemptions and future financial goals should be considered and it is recommended that you seek the advice of a tax professional before deciding decision-making.