What Is Section 115BAC Of The Income Tax Act?

If you choose to pay taxes at lower rates under the new tax regime, you need to be aware of Section 115BAC of the Income Tax Act, 1961. The government introduced Section 115BAC, which came into effect from the financial year 2020-21 (AY 2021-22), during the Union Budget 2020 announcements. This section is commonly referred to as the new tax regime, and it allows taxpayers to pay taxes at a lower rate if they opt in for it. 

It's important to note that opting for the new tax regime means taxpayers have to give up around 70 tax exemptions and deductions allowed under the old tax regime. So, individuals who select this new tax regime will have to forgo these exemptions and deductions in exchange for lower tax rates. 

Since Section 115BAC of the Income Tax Act, 1961, came into effect, the tax rates in the new tax regime, as of April 1, 2023, are applicable as follows:

Moreover, a tax rebate has been introduced under the new tax regime on income up to ₹7,00,000. If your income for a financial year is below ₹7,00,000, you are not required to pay tax on it by taking advantage of the tax rebate.

Some of the major tax exemptions and deductions that are not applicable under the new tax regime or Section 115BAC are: 

• Deductions under Section 80C, 80D, and 80E, except Section 80CCD(2) and Section 80JJAA

• Deduction on interest income under Section 80TTA/80TTB

• Professional tax and entertainment allowance

• Leave Travel Allowance 

• House Rent Allowance

• Interest on housing loans under Section 24

• Employee’s contribution to NPS

• Donation to a political party/trust

Some of the main exemptions and deductions available under the new tax regime or Section 115BAC include: 

• Transport allowances for specially-abled persons

• Gifts of up to ₹5,000

• Employer's contribution to the NPS

• Standard deduction of ₹50,000 (applicable FY 23-24)

• Deduction under Section 57(IIA)