India's Income Tax system has seen multiple reforms aimed at simplifying the process for taxpayers. One such major change came with the introduction of Section 115BAC of the Income Tax Act, which brought in a new tax regime with lower tax rates but without most exemptions and deductions. This section is applicable from the financial year 2020–21 and was updated in subsequent Union Budgets to make it more attractive.

This blog explores the meaning, features, benefits, and comparison of Section 115BAC with the old tax regime.

What is Section 115BAC?

The section 115BAC of the Income Tax Act was introduced to provide an optional tax regime for individual taxpayers and Hindu Undivided Families (HUFs). Under this section, taxpayers can choose to pay tax at reduced rates, provided they forgo most deductions and exemptions available under the old regime.

From Financial Year 2023–24 (Assessment Year 2024–25), this regime has been made the default tax structure, meaning it automatically applies unless a taxpayer opts out.

Tax Slabs Under Section 115BAC (As per Budget 2023)

Rebate under Section 87A has been increased for this regime. Now, if your income is up to ₹7,00,000, your tax liability becomes zero.

Key Features of Section 115BAC

1. Optional Regime: Taxpayers can choose between the old and new regime based on what benefits them more.

2. No Major Deductions: To enjoy lower tax rates, you have to give up popular deductions like:

   • Section 80C (investments in LIC, PPF, ELSS, etc.)

   • Section 80D (medical insurance)

   • HRA and LTA

   • Interest on housing loan under Section 24(b)

3. Standard Deduction Allowed: From FY 2023–24, a standard deduction of ₹50,000 is allowed in the new regime.

4. Employer NPS Contribution: Deduction under Section 80CCD(2) is still allowed.

5. Switching Options: Salaried individuals can switch between regimes every year, while those with business income can switch only once.

Who Can Opt for Section 115BAC?

The following can opt for the new regime:

• Resident Individuals

• Non-Resident Indians (NRIs)

• Hindu Undivided Families (HUFs)

It is not applicable to:

• Companies

• Partnership Firms

• LLPs

Benefits of Section 115BAC

• Lower Tax Rates: Especially beneficial for individuals who don’t have many tax-saving investments.

• Simplified Tax Filing: Fewer documents needed since most exemptions aren’t claimed.

• Increased Rebate: The rebate threshold has been increased to ₹7,00,000, reducing the tax burden for middle-class taxpayers.

Limitations of Section 115BAC

• No Deductions: You cannot claim deductions under 80C, 80D, 80E, etc., which are commonly used to save tax.

• Not Ideal for Everyone: People who invest regularly in tax-saving schemes or pay home loan EMIs may benefit more from the old regime.

Old vs New Tax Regime – A Simple Comparison

Let’s assume two individuals have an annual income of ₹10,00,000.

• Person A (New Regime – Section 115BAC)
  No deductions → Tax = ₹60,000 approx

• Person B (Old Regime)
  Deduction of ₹1.5 lakh under 80C and ₹25,000 under 80D → Taxable income = ₹8.25 lakh
  Tax = ₹46,800 approx

Result: The old regime is better for someone with eligible deductions.

When Should You Opt for Section 115BAC?

Opt for the new regime if:

• You don’t have many deductions to claim

• You want a hassle-free filing process

• Your income is within ₹7 lakh (for full rebate)

Stick to the old regime if:

• You pay life/health insurance premiums

• You have a home loan

• You invest in tax-saving options

Final Thoughts

Section 115BAC of the Income Tax Act offers flexibility to taxpayers by allowing them to choose between a simplified tax regime and the traditional one. While the new regime can be useful for people who prefer not to invest just to save taxes, the old regime continues to benefit those who actively use deductions.

Evaluate your income and deductions before choosing the regime each financial year. A wrong choice could lead to higher taxes unnecessarily.