New Tax Regime under Section 115BAC for FY 2023-24

New Tax Regime under Section 115BAC for FY 2023-24

Introduction:

The Indian government has introduced a new tax regime under Section 115BAC of the Income Tax Act, 1961, aimed at providing lower tax rates and simplified rules. This new system, introduced in the Union Budget 2020-21, intends to streamline the income tax process and enhance user-friendliness.

Applicability for FY 2023-24:

The New Tax Regime is applicable to individuals, HUF, Association of Persons (AOP), Body of Individuals (BOI), and Artificial Juridical persons. For the Assessment Year 2024-25, it serves as the default tax regime. However, taxpayers can opt-out by exercising the option under Section 115BAC(6).

Income Tax Rates (FY 2023-24):

The tax rates under the New Tax Regime for different income ranges are as follows:

Up to Rs 3,00,000: Nil

Rs 3,00,001 – Rs 6,00,000: 5%

Rs 6,00,001 – Rs 9,00,000: 10%

Rs 9,00,001 – Rs 12,00,000: 15%

Rs 12,00,001 – Rs 15,00,000: 20%

Above Rs 15,00,000: 30%

A maximum rebate of Rs. 25,000 under section 87A is allowed for residents with a total income up to Rs. 7,00,000, opting for the new tax scheme. If the total income exceeds Rs. 7,00,000, a rebate with marginal relief can be claimed.

Exclusion of AMT Provisions:

If an assessee has opted for the new tax regime, the provisions of Alternative Minimum Tax (AMT) shall not be applicable, providing relief to taxpayers under this system.

Exemptions/Deductions Not Available Under New Tax Regime (Section 115BAC)

1. Salary Income:

Under the New Tax Regime, taxpayers opting for lower rates must compute total income without claiming certain exemptions or deductions related to salary income. Notable exclusions include:

a) Leave Travel Concession [Section 10(5)]

b) House Rent Allowance [Section 10(13A)]

c) Official and personal allowances (except as prescribed) [Section 10(14)]

d) Allowances to MPs/MLAs [Section 10(17)]

h) Entertainment Allowance [Section 16((ii)]

i) Professional Tax [Section 16(iii)]

Salaried taxpayers, however, can avail the standard deduction of Rs. 50,000 [Section 16(ia)] under the new tax regime from FY 2023-24 (AY 2024-25).

2. Home Loan:

Deductions/exemptions related to home loans are not available under the New Tax Regime, including:

Deduction for Interest on Home Loan u/s 24b for self-occupied or vacant property.

Loss from house property cannot be set off against other heads of income.

3. Business and Profession Income:

For taxpayers filing returns under the head 'Profits and Gains from Business and Profession' (Section 115BAC), the following deductions/exemptions are not available:

i. Additional depreciation for new plant and machinery [Section 32(1)(iia)].

ii. Deduction for investment in new plant and machinery in notified backward areas [Section 32AD].

iii. Deduction for tea, coffee, or rubber business [Section 33AB].

iv. Deduction for businesses involving prospecting, extraction, or production of petroleum or natural gas in India [Section 33ABA].

v. Deduction for donation to approved scientific research associations, universities, or other institutes [Section 35(1)(ii)].

vi. Deduction for payment to Indian companies for scientific research [Section 35(1)(iia)].

vii. Deduction for donation to universities, colleges, or institutions for research in social science or statistical research [Section 35(1)(iii)].

viii. Deduction for donation or expenditure on scientific research [Section 35(2AA)].

ix. Deduction for capital expenditure in specified businesses like cold chain or warehousing facilities [Section 35AD].

x. Deduction for expenditure on agriculture extension projects [Section 35CCC].

xi. Deduction for units established in Special Economic Zones (SEZ) [Section 10AA].

4. Other Income – Deductions:

Under Section 115BAC, the taxpayer's total income is computed without any deduction under the provisions of:

Allowances for the income of a minor [Section 10(32)].

Note: Deduction for family pension [Section 57(iia)] is allowed from FY 2023-24 (AY 2024-25).

5. Chapter VI A Deductions:

Chapter VI-A of the Income Tax Act, housing various deductions, is limited under the new tax regime. Only specific deductions are allowed, including:

Section 80CCD(2): Deduction for the employer’s contribution to the National Pension System (NPS) account of the employee.

Section 80JJAA: Deduction in respect of new employees recruited.

Section 80CCH: All contributions to the Agniveer Corpus Fund from FY 2023-24 (AY 2024-25).

Deduction under Section 80LA for a unit located in an International Financial Services Centre (IFSC) [Part C of Chapter VI-A].

All other deductions under Chapter VIA are not allowed under the new tax regime.

Choice of Regime:

The new tax regime is the default option for taxpayers from the financial year 2023-24. However, taxpayers have the flexibility to continue with the old tax regime by submitting Form 10IEA. Key points regarding the choice of regime include:

Salaried taxpayers (without business income) can directly opt for the old tax regime in the Income Tax Return (ITR) filed on or before the due date under Section 139(1) for the respective assessment year.

Eligible taxpayers with income from business and profession choosing the old tax regime need to furnish Form-10-IEA on or before the due date under Section 139(1) for filing the return of income.

Withdrawal or opting out of the old tax regime is facilitated by filing Form No. 10-IEA.

Tax Calculators:

Taxpayers can utilize online tax calculators and tools to assess which regime is more beneficial based on their income and deductions.