In the new Section 115 BAC of the Income Tax Act, an individual has the option to select between the actual tax rates and the new concessional tax rates. Their selection is done without the consideration of prescribed exemptions or deductions. Notably, Section 115 BAC was introduced in the Income Tax Act in the Union Budget 2020 which allows HUFs and individuals to pay taxes at a lower rate.
Section 115 BAC of the Income Tax Act
The 115 BAC Income Tax Act provides a person, being an individual or an undivided Hindu family (HUF) having income other than income from a profession or business. Individual taxpayers and HUFs with business income are eligible to choose the latest income tax regime.
The act may exercise the option concerning a previous year to be taxed under Section 115 BAC along with an individual’s return of income to be furnished under Section 139(1) of the Income-tax Act for each year.
The concessional rate provided under this is subject to the condition that the total income needs to be computed without specified exemption or deduction. It set off a loss and additional depreciation.
In addition, if a taxpayer has a business income then the option that exercised would be applicable. Meanwhile, it is applicable for all subsequent financial years while these taxpayers have to intimate to the employer, as applicable. Notably, when an intimation is made it can’t be changed for the subsequent financial year except for some prescribed conditions.
Latest Update
According to the latest update in budget 2023, the new tax regime will be the default tax regime. Meanwhile, the taxpayers can opt for the old regime. The tax rebate was also introduced under the new tax regime on income up to Rs. 7 Lakhs. It clarifies that one doesn’t have to pay tax if their taxable income is less than Rs. 7 Lakhs under the new tax regime.
Additionally, the tax exemption limit of Rs. 2.5 Lakhs also rose to Rs. 3 Lakhs under the new tax regime. The tax slabs recalibrated under the new tax regime as follows:
-Up to Rs. 3 Lakh: Nil
-Rs. 3 Lakh to Rs. 6 Lakh: 5%
-Rs. 6 Lakh to Rs. 9 Lakh: 10%
-Rs. 9 Lakh to Rs. 12 Lakh: 15%
-Rs. 12 Lakh to Rs. 15 Lakh: 20%
-More than Rs. 15 Lakh: 30%
The standard deduction of Rs. 50,000 was extended to the new tax regime. The highest surcharge rate of 37% decreased to 25% which can impact taxpayers earning above Rs. 5 Crore. Resultant, their overall tax rate will drop from 42.74% to 39%.
End Notes!
As per the latest update, it can be said that the present tax regime offers advantages for the detailed income level. If a person chooses to claim fewer deductions for tax savings like investments in NPS or health insurance, the new regime becomes more beneficial compared to individuals who rely on tax-saving investments. This act provides people a choice between old tax rates and new concessional tax rates without taking legal particulars.
However, if your choice is between the new tax regime and the old tax regime, you must first do all the calculations of your exemptions and deductions. Then minus it from your earnings. Then check your taxable income if you let go of such deductions or allowances.
