Section 115BAC: Choosing Between Concessional Tax Rates and Deductions

In order to manage your finances better, understanding the intricacies of income tax regulations is crucial. One such crucial provision that deserves your attention is section 115BAC of the Income Tax Act. Introduced through the Finance Act of 2020, this section offers taxpayers a choice between the traditional tax structure and a new concessional tax regime.

This article offers a detailed explanation of section 115BAC, helping you make an informed decision.

What is Section 115BAC?

Section 115BAC of the Income Tax Act was introduced to simplify the tax structure while potentially providing lower tax rates for individuals and Hindu Undivided Families (HUFs). This provision enables you to opt between the old tax regime with various deductions and exemptions and the new tax regime with concessional tax rates but fewer deductions.

The fundamental point behind the question of what section 115BAC is revolves around a simple principle. This principle essentially gives you a choice that would you prefer lower tax rates with minimal deductions, or would you rather stick with the traditional higher tax rates while availing numerous deductions and exemptions? The answer varies based on your individual financial situation and tax planning strategies.

Key Features of Section 115BAC

The section 115BAC income tax act comes with several distinct features that differentiate it from the traditional tax regime:

• Lower Tax Rates: The new income tax regime presents lower tax rates as compared to the old regime, potentially benefiting taxpayers with lower incomes.
• Simplified Calculations: Tax calculation under the new regime is more straightforward, requiring less paperwork and documentation.
• Limited Deductions: While offering lower rates, the new regime significantly restricts the deductions and exemptions available to taxpayers.
• Standard Deduction Update: From FY 2024-25 (Assessment Year 2025–26), the new tax system offers a standard deduction of ₹75,000, an increase from the previous ₹50,000.
• Default Tax Regime: From FY 2023-24 onwards, the new tax regime has become the default option for taxpayers, though they can still opt for the old regime.

Also Read : How to File Income Tax Return Online in India

Current Income Tax Slab Rates Under Section 115BAC

As per the Budget 2025-26 updates, the tax slabs under the new regime have been revised. Here is the current structure applicable for FY 2025-26 onwards:

A significant benefit under the new regime is that with the Section 87A rebate limit raised to ₹12 lakh and a standard deduction of ₹75,000, effectively making incomes up to ₹12.75 lakh tax-free.

Eligibility for Section 115BAC

Section 115BAC of the income tax is available to:

• Individuals
• Hindu Undivided Families (HUFs)
• Persons other than companies, firms, or those opting for presumptive taxation schemes

It's important to note that for salaried individuals, the choice between old and new regimes can be made each financial year. However, for individuals with business income, the choice comes with specific conditions:

• Once a business taxpayer opts for the new regime, it remains applicable for subsequent years
• They can revert to the old regime only once in their lifetime
• After switching back, they cannot opt for the new regime again unless under specific, prescribed conditions

Also Read : Income Tax Audits In India: Everything You Need To Know

Exemptions and Deductions Not Available Under New Regime

If you opt for section 115BAC income tax act, you will have to forgo several popular deductions and exemptions. Here are some prominent examples:

• Standard Deductions for Salaried Employees: Though this has been reintroduced in the new regime (₹75,000), it differs from the old regime's structure.
• House Rent Allowance (HRA): Exemption for rental payments is not available.
• Leave Travel Allowance (LTA): Tax benefits for travel expenses are not permitted.
• Chapter VI-A Deductions: Most deductions under this chapter are not allowed, including:
  1. Section 80C investments (PPF, ELSS, etc.)
  2. Section 80D (Medical Insurance)
  3. Section 80E (Education Loan Interest)
  4. Section 80G (Donations)
• Home Loan Interest: Deduction for interest paid on housing loans under Section 24(b) is not available.
• Additional Allowances: Various allowances, like children's education allowance and professional tax, are not exempted.
• Depreciation and Capital Allowances: Benefits under sections 32AD, 33AB, and 33ABA are not permitted.

Deductions Allowed Under the New Tax Regime

Despite the limitations, some deductions are still available under section 115BAC of the income tax:

• Transport allowance for disabled persons
• Conveyance allowance for office duties
• Employer's contribution to NPS under Section 80CCD(2)
• Deductions for new employees under Section 80JJAA
• Certain allowances for travel, daily expenses during official tours, etc.

Also Read : Guide to e-Filing or Online Filing your Income Tax Returns

Old vs New: Which Tax Regime Should You Choose?

The decision between the old and new tax regimes depends on your individual financial situation. Here is a simplified approach to decide:

Choose the New Regime If:

• You have minimal investments and expenses eligible for deductions under the old regime
• Your taxable income falls in the lower tax brackets
• You prefer simplicity in tax calculations over maximising deductions
• You are a salaried individual with fewer tax-saving investments

Choose the Old Regime If:

• You have significant investments eligible for deductions under Section 80C
• You pay housing loan interest or rent
• You have substantial medical insurance premiums
• Your taxable income falls in higher tax brackets, where deductions would provide more benefit

Also Read : Confused between Income Tax and TDS? Know the Differences!

Conclusion

Section 115BAC of the Income Tax Act offers a great chance to lower your tax burden, potentially through concessional rates, albeit at the cost of various deductions. Your decision should be in line with your financial goals and circumstances. Hero FinCorp offers tailored financial solutions that can complement your financial strategy, helping you navigate through complex money-related decisions while optimising your tax liabilities.

Frequently Asked Questions

What are the deductions allowed under section 115BAC?

Under section 115BAC, most deductions are not allowed. However, some deductions remain available, including the standard deduction of ₹75,000, employer's contribution to NPS under Section 80CCD(2), and deductions for new employees under Section 80JJAA.

What is the basic exemption limit under the new tax regime?

As per Budget 2025-26, the basic exemption limit define by the new tax regime is now at ₹4 lakh compared to the previous ₹3 lakh. With the Section 87A rebate, effectively, incomes up to ₹12.75 lakh can be tax-free.

Can I switch from the new tax regime to the old regime?

Salaried persons have the option to select between the old and new tax regimes each financial year when filing their ITR. However, individuals with business income face restrictions after opting for the new regime.

Is professional tax deductible under the new tax regime?

No, professional tax is not deductible under the new tax regime introduced by section 115BAC of the Income Tax.

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