#52 – On New Tax Regime (Sec. 115BAC)

In India, the Income Tax Act provides various ways for taxpayers to manage their tax liabilities. One of the latest additions is Section 115BAC, which introduces a new tax regime designed to simplify the tax structure and potentially lower your burden.

What is Section 115BAC?

Section 115BAC was introduced in the Finance Act of 2020 to provide an optional new tax regime. It offers lower tax rates compared to the traditional tax slabs, but with a catch: you need to forgo certain tax exemptions and deductions available under the old tax regime.

Key Features of Section 115BAC:

1. Lower Tax Rates: The new tax regime features reduced tax rates across various income slabs, making it attractive for many taxpayers.
2. No Exemptions or Deductions: To benefit from these lower rates, you must give up claims for exemptions and deductions like those for HRA (House Rent Allowance), 80C (Investments in savings instruments), and others.
3. Simple Compliance: The regime is designed to be simpler, with fewer calculations and less paperwork.

Tax Rates Under Section 115BAC:

Here’s a breakdown of the tax rates under this new regime:

• Income up to ₹2.5 lakh: No tax
• ₹2.5 lakh to ₹5 lakh: 5%
• ₹5 lakh to ₹7.5 lakh: 10%
• ₹7.5 lakh to ₹10 lakh: 15%
• ₹10 lakh to ₹12.5 lakh: 20%
• ₹12.5 lakh to ₹15 lakh: 25%
• Income above ₹15 lakh: 30%

Example:

Let’s consider a taxpayer, Rajesh, whose annual income is ₹12 lakh. He has the option to choose between the old tax regime with deductions and the new tax regime under Section 115BAC.

Under the Old Tax Regime:

• Income: ₹12 lakh
• Deductions (e.g., ₹1.5 lakh under Section 80C): ₹1.5 lakh
• Taxable Income: ₹12 lakh – ₹1.5 lakh = ₹10.5 lakh

Tax Calculation:

• ₹2.5 lakh at 5% = ₹12,500
• 10% = ₹25,000
• 15% = ₹37,500
• 20% = ₹50,000
• Total Tax = ₹12,500 + ₹25,000 + ₹37,500 + ₹50,000 = ₹125,000

Under The New Tax Regime:

• Income: ₹12 lakh
• Taxable Income: ₹12 lakh (no deductions)

Tax Calculation:

• ₹2.5 lakh at 5% = ₹12,500
• 10% = ₹25,000
• 15% = ₹37,500
• at 20% = ₹50,000
• ₹2.5 lakh at 25% = ₹62,500
• Total Tax = ₹12,500 + ₹25,000 + ₹37,500 + ₹50,000 + ₹62,500 = ₹187,500

Conclusion:

The new regime under Section 115BAC is designed to provide a simpler tax structure with lower rates. However, it requires taxpayers to forgo numerous deductions and exemptions available under the old regime. It’s essential for taxpayers to evaluate their financial situation annually to decide which tax regime benefits them more.

– Ketaki dandekar (Team Arthology)

Read more about Sec. 115BAC – New Tax Regime here – https://cleartax.in/s/section-115bac