Are you an Income Tax payer and have paid your income tax skillfully in the recent past? This blog describes the CBDT clarification on section 115BAC of income tax act.
Latest update: Budget 2023 Changes Under New Tax Regime
Under the Section 115BAC Of Income Tax act, if the taxable income exceeds ₹5.5 lakhs, the standard deduction is set at ₹52,500. The government is encouraging the adoption of the new tax regime, which will now be the default option. Moreover, the basic exemption limit under this regime has been raised from ₹2.5 lakhs to ₹3 lakhs.
What is 115BAC of Income Tax Act?
Section 115BAC Of Income Tax act is an optional tax regime that was introduced in the Union Budget 2020 for the financial year 2020-21 and subsequent years. It offers lower tax rates but does not allow many deductions and exemptions that are available under the old regime.
What are the tax rates under the new regime?
| Income Slab | Tax Rate | Tax Amount |
| Up to ₹3,00,000 | Nil | Nil |
| ₹3,00,000 to ₹6,00,000 | 5% | 5% of (Income – ₹3,00,000) |
| ₹6,00,000 to ₹9,00,000 | ₹15,000 + 10% | ₹15,000 + 10% of (Income – ₹6,00,000) |
| ₹9,00,000 to ₹12,00,000 | ₹45,000 + 15% | ₹45,000 + 15% of (Income – ₹9,00,000) |
| ₹12,00,000 to ₹15,00,000 | ₹90,000 + 20% | ₹90,000 + 20% of (Income -₹12,00,000) |
| Above ₹15,00,000 | ₹150,000 + 30% | ₹150,000 + 30% of (Income – ₹15,00,000) |
Rates Under 115BAC of Income Tax Act
| Income (yearly) | Slab Rates |
| 0 to ₹2,50,000 | Exempt |
| More than ₹2,50,000 to ₹5,00,000 | 5% |
| More than ₹5,00,000 to ₹7,50,000 | 10% |
| More than ₹7,50,000 to ₹10,00,000 | 15% |
| More than ₹10,00,000 to ₹12,50,000 | 20% |
| More than ₹12,50,000 to ₹15,00,000 | 25% |
| More than ₹15,00,000 | 30% |
Exemptions and Deductions of 115BAC Of Income Tax Act
Under section 115BAC, taxpayers can choose between two tax regimes – the old regime and the new regime. The new regime offers lower tax rates, but taxpayers have to forgo certain deductions and exemptions. The exemptions and deductions that are available under the new regime include standard deduction, deduction under section 80TTA, and deduction for rent paid.
What Are the Exemptions and Deductions Available Under the New Regime of 115BAC Of Income Tax Act?
Under the new tax regime, you are eligible to claim tax exemptions for the following:
- Transport allowances for specially-abled individuals
- Conveyance allowance received to cover the expenses of transportation related to employment
- Compensation received for travel costs during tours or transfers
- Daily allowances for ordinary expenses incurred due to absence from the regular place of duty
- Perquisites provided for official purposes
- Exemption on voluntary retirement (Section 10(10C)), gratuity (Section 10(10)), and leave encashment (Section 10(10AA))
- Interest on Home Loan for let-out property (Section 24)
- Gifts valued up to ₹5,000
- Deduction for employer’s contribution to the NPS account (Section 80CCD(2))
- Deduction for additional employee costs (Section 80JJA)
- Budget 2023 introduced a standard deduction of ₹50,000 under the New Tax Regime, applicable from FY 2023-24
- Budget 2023 also introduced a deduction under Section 57(iia) for family pension income
- Budget 2023 further introduced a deduction for amounts paid or deposited in the Agniveer Corpus Fund under Section 80 CCH(2).
Deductions that are Not Applicable Under Section 115BAC Of Income Tax Act
Under the new tax regime of Section 115BAC, taxpayers have to forgo certain deductions and exemptions that are available under the old regime. These include deduction under Section 80C, deduction for housing loan interest, deduction for medical insurance premium, deduction for education loan interest, and deduction for donations.
Withholding Taxes from salary
Employers must deduct income tax from employee salaries based on the prevailing rates for the financial year in which payments are made. These rates are applicable to income categorised under ‘Salaries’. Currently, there’s uncertainty about whether employers can apply the new tax regime when withholding taxes.
Deductions that are Not Applicable Under Section 115 BAC
Individuals and Hindu Undivided Families (HUFs) who earn income from sources other than their profession or business have the option to be taxed under Section 115BAC.
- Chapter VI-A deductions, such as those mentioned in Section 80C, 80D, 80E, except for Section 80CCD(2) and Section 80JJAA
- Children education allowance (CEA)
- Deductions applicable to family pension income
- Helper allowance
- House rent allowance (HRA)
- Interest accrued on housing loan (as specified under Section 24)
- Leave travel allowance (LTA)
- Minor child income allowance
- Other special allowances mentioned under Section 10(14)
- Standard deductions, professional taxes, and entertainment allowances are not claimable.
It is important to note that deductions related to business income will not be considered under the new regime of Section 115BAC.
- Additional depreciation (Section 32)
- Investment allowance (Section 32AD)
- Sector-specific business deductions outlined in Sections 33ABA and 33AB
- Expenditure incurred for scientific research (Section 35)
- Capital expenditure as defined in Section 35AD
- Exemptions mentioned under Section 10AA for SEZ (Special Economic Zone) units.
115bac of income tax act calculator
The 115BAC income tax calculator is a tool that can be used to calculate the tax liability of taxpayers who opt for the new tax regime under Section 115BAC. It takes into account the taxable income of the taxpayer and applies the tax rates under the new regime to calculate the tax liability.
CBDT Clarification On Section 115BAC Of Income Tax Act
The Central Board of Direct Taxes (CBDT) has issued the following clarifications regarding Section 115 BAC of the Income Tax Act,1961 :
- Employee Income Notification: Employees with additional income beyond their salary must inform their employer annually if they wish to avail the concessional tax rates under Section 115 BAC
- Failure to Inform: If the employee does not provide this notification, the employer will deduct TDS without considering the provisions of Section 115 BAC.
New Incorporations in the Income Tax Regulatory Framework: What Do You Need to Know?
As a result of the Finance Act of 2020, the Income Tax Act now contains a new section 115BAC that enables a person to choose between accurate taxation rates and the latest financial assistance tax rates sans accounting for predetermined deductions or discounts. Nevertheless, there has been considerable uncertainty regarding whether a company can consider the new tax system while withholding payments from a person’s wages since the introduction of Section 115BAC of Income Tax Act. To alleviate these worries, the Central Board of Direct Taxes (CBDT) issued Circular No.C1 of 2020, which clarified that, based on the notification obtained from the specific employee, a business should calculate the Tax Deduction at Source (TDS) utilizing the requirements of Section 115BAC, if appropriate.
How Does Section 115BAC of Income Tax Act Work?
The new income tax system is covered by Section 115BAC of Income Tax Act of 1961: https://incometaxindia.gov.in/pages/acts/income-tax-act.aspx, which was recently incorporated. This clause and the alternative tax scheme included in the Union Budget 2020 only apply to people and Hindu Undivided Families (HUFs). An essential component of the new system is the sharp reduction in revenue tax bracket levels. Nevertheless, many significant income tax breaks and credits previously possible under the former (current) tax system are eliminated in favor of the more excellent rates.
Information on the New Tax System in India
The Finance Act of 2020’s new optional tax structure, which includes revised tax bands and levels, will be advantageous to both individuals and HUFs. If certain conditions are met, an individual or HUF may elect to file their income tax return using new bracket rates rather than the current taxation system and compute their tax on their total income sans adjusting for the specified exclusions or credits.
Who is Eligible for Section 115BAC of the Income Tax Act?
- It is calculated without exclusions or adjustments for any subsidies or perks, and it does not include any company revenue.
- It is calculated without any exclusions or reductions allowed by the following Chapter VI-A, except those under Sections 80CCD/80JJAA, Section 24b, Clause (5)/(13A)/(14)/(17)/(32) of Section 10/10AA/16, Section 32(1)/ 32AD/ 33AB/ 33ABA, Section 35/ 35AD/ 35CCC, and Section 57.
It’s calculated without accounting for any deficits from prior years of assessment (AYs) brought on by the above exclusions or losses from housing, in addition to without accounting for Section 32 amortization.
Key Points
In order to understand the CBDT clarifications, please go through the following:
As far as the regulatory framework goes, the CBDT clarifications’ key points are as follows:
Use Vakilsearch`s Income tax calculator to decide your taxable profits and document your Individual Tax Return (ITR) with ease.
- If the payer is a worker who receives income from sources other than the company. If he anticipates applying for a discounted rate under Section 115 BAC, he must tell the detector every previous year.
- If the worker neglects to inform the company, the contractor must deduct source tax (TDS) without respect to Section 115BAC of Income Tax Act of 1961.
Section 115BAC of Income Tax Act discusses the new income tax slab rates, which exclusively apply to individuals and Hindu Undivided Families (HUFs). Even though the new system has far lower slab rates, many tax breaks and exclusions accessible under the old system are now gone.
You are not required to use the new taxation system; you may continue to do so. A person or a HUF may lose the ability to pay income tax under the new plan for the relevant financial year if they fail to comply with any of the requirements outlined in Section 115BAC of income tax act.
Key Points of the CBDT Clarifications on Section 115 BAC
The clarifications issued by CBDT highlight the following key points:
- Employees who have additional income apart from their earnings from the organization and wish to avail the concessional rate under Section 115 BAC must inform their employer each financial year.
- If the employee fails to provide the necessary intimation, the employer will deduct tax at source (TDS) without considering the provisions of Section 115 BAC.
New Tax Regime Under Section 115BAC of Income Tax Act
Alternate Tax Regime
Have you ever heard of the Alternate Tax regime? An alternate Tax Regime has been developed in order to provide maximum benefit to Indian citizens. Please read on to understand the maximum advantages that a citizen might get from an alternate tax regime.
The CBDT has ruled that a customer with revenue must tell his company of his desire to transfer to a new tax system with reduced premiums without considering any permitted exclusions or credits. A notice issued by a worker is final for the fiscal year and in the issue. Thus, the company must calculate total income and pay TDS in line with the new tax system.
- The company will be required to calculate total earnings and withhold TDS by the old tax system if the worker does not notify the company.
- According to section 115BAC of income tax Act, notifying the company would not constitute taking option (5). Because of this, the choice to submit the return throughout that time frame might not coincide with the employee’s notice to his company for that fiscal year.
Additionally, if the choice is used and taxpayers have a net profit, they will be required to inform their work and apply it to all long-term financial seasons. Except in exceptional cases, once an indication has been given for the subsequent fiscal year, it cannot be modified.
How Do I Choose the New Regime and Plan My Tax?
When it comes to tax planning, it is crucial to select the appropriate tax regime at the start of the financial year. The taxpayer should carefully evaluate the income tax implications under both the new tax regime and the existing regime. Once the choice is made, the taxpayer’s investment decisions and calculations related to TDS or advance tax payment should align with the chosen tax regime. Additionally, if the taxpayer intends to opt for the new tax regime, they need to provide Form 10IE to the income tax department before filing their tax return.
Example: In cases where the new tax regime offers a more favorable tax outflow (FY 2023-24),
| Old Regime | New Regime | |
| Salary | 1,250,000 | 1,250,000 |
| Less: Standard Deduction | 50,000 | 50,000 |
| Less: Professional Tax | 2,400 | 2,400 |
| Gross Total Income | 1,197,600 | 1,200,000 |
| Less: Deduction u/s 80C | 150,000 | – |
| Total Income | 1,047,600 | 1,200,000 |
| Income Tax | 126,780 | 90,000 |
| Add: Education Cess @ 4% | 5,071 | 3,600 |
| Total Tax | 131,851 | 93,600 |
In the given example, where the income is ₹12,50,000, it can be observed that the new tax regime results in a significant benefit of ₹38,251 in terms of tax outflow. However, it’s important to note that if additional deductions are claimed for items such as interest on housing loans for SOP, health insurance, investment in NPS, education loans, etc., the old regime would be more advantageous in terms of tax savings.
Example: In cases where the old tax regime offers a more favorable tax outflow (FY 2023-24)
| Old Regime | New Regime | |
| Salary | 1,000,000 | 1,000,000 |
| Less: HRA Exemption | 70,000 | 70,000 |
| Less: Standard Deduction | 50,000 | 50,000 |
| Less: Professional Tax | 2,400 | 2,400 |
| Gross Total Income | 947,600 | 950,000 |
| Less: Deduction u/s 80C | 150,000 | – |
| Less: Deduction u/s 80D | 50,000 | – |
| Total Income | 747,600 | 950,000 |
| Income Tax | 48,020 | 52,500 |
| Add: Education Cess @ 4% | 1,921 | 2,100 |
| Total Tax | 49,941 | 54,600 |
In the given example, where the income is ₹1,000,000, it can be observed that the new tax regime results in a higher tax outflow of ₹54,600, compared to the old regime where the tax outflow is ₹49,941.
Can I Choose Between the New Tax Regime and the Existing Regime?
A salaried individual has the option to select the new tax regime at the commencement of the FY 2023-24 and inform their employer accordingly. Once the choice is made, it cannot be altered during the financial year. However, during the tax filing process in July 2024, the taxpayer can change their selection.
The deadline for filing taxes for the FY 2022-23 (AY 2023-24) is 31st July 2023.
If an employee does not choose the new tax regime at the beginning of the financial year, their employer will deduct tax (TDS) based on the existing tax regime. A salaried individual can choose the new tax regime in one year and switch back to the regular tax regime in another year.
On the other hand, non-salaried individuals need to opt for the new regime when filing their tax return. They are not required to declare or inform anyone about their choice during the year. However, non-salaried individuals, specifically those with income from business or profession, cannot switch between the new tax regime and the regular tax regime on an annual basis. Once a non-salaried individual opts out of the new tax regime, they cannot opt back into it in the future.
Conclusion
The implementation of the new tax format under Section 115BAC of Income Tax Act can really cause havoc. If you do not pay attention, you may have to lose out on your valuable income at the end of the day. However, the CBDT’s calculations can be quite intricate and one needs to comprehend the pros and cons associated with the same. However, if you are a taxpayer in the given framework, you can deploy a professional consultant to deal with the same.
The CBDT’s clarifications clear up any confusion surrounding the employer’s need to implement the new tax law when calculating TDS on salaries.
Because of the interaction, employees will experience fewer inconveniences and be able to get reimbursements for over-taxes withheld (if any).
FAQ on 115BAC of Income Tax Act
Section 115BAC of the Income Tax Act applies to individual taxpayers, Hindu Undivided Family (HUF), and other taxpayers not availing of certain specified deductions or exemptions. It is an optional tax regime introduced in the Union Budget 2020 for the financial year 2020-21 and subsequent years.
Whether to opt for section 115BAC depends on your income, deductions, and exemptions. The new tax regime offers lower tax rates but does not allow many deductions and exemptions available under the old regime. If your income is not very high and you claim a lot of deductions and exemptions, then the old regime is more beneficial for you. However, if your income is higher and you don't claim many deductions and exemptions, then the new regime might be more suitable for you. You should consult a tax professional to determine which regime is more beneficial for you.
No, the new income tax system under section 115BAC is optional. Taxpayers can choose between the old and the new regime based on their preferences.
Yes, the employer is required to generate Form 16 for the employee under section 115BAC. The Form 16 will contain details of the tax deducted at source (TDS) by the employer and other relevant information.
If the employee does not give any intimation to the employer regarding the choice of regime, then the employer will deduct tax at source (TDS) under the old regime. The employee can later file their income tax return and claim the benefits under the new regime, if eligible.
Yes, the employee can change their declaration to switch between the old and the new regime. However, they can only do so once in a financial year, and the new declaration must be submitted to the employer before the beginning of the financial year. Who is eligible for section 115BAC?
Should you opt for 115BAC?
Is the new income tax system required?
Does an employer generate Form 16 for the employee under Section 115BAC?
What if no Intimation is received from Employee?
Can Employee Change Declaration to change method?
