Decoding of article 115bac of the income tax law

Individuals wishing to file an income tax return (ITR) can pay tax under the new structure with lower rates but without many deductions or under the old with higher rates but with applicable exemptions. The new taxation regime was introduced in 2020 by the insertion of a new section 115BAC.

The fundamental feature of this new regime is lower tax rates compared to existing slab rates, but waiving approximately 70 exemptions and deductions.

Under Section 115BAC, seven income brackets are available:

Annual income up to Rs 2.5 lakh is tax exempt under the new slab. People earning between Rs 2.5 lakh and Rs 5 lakh have to pay 5% tax. Income between Rs 5 and 7.5 lakh is taxed at 10%, while between Rs 7.5 and 10 lakh is taxed at 15%.

Those who earn between Rs 10 and Rs 12.5 lakh have to pay tax at the rate of 20%, while those who earn between Rs 12.5 and Rs 15 lakh have to pay tax at the rate of 25%. Income above Rs 15 lakh is taxed at 30%.

Here is a comparison between the two diets:

New tax slab rates Old tax brackets
Income from Rs 2.5 lakh to Rs 5 lakh 5% Income from Rs 2.5 lakh to Rs 5 lakh 5%
Income from Rs 5 lakh to Rs 7.5 lakh ten% Income from Rs 5 lakh to Rs 10 lakh 20%
Income from Rs 7.5 lakh to Rs 10 lakh 15% Income above Rs 10 lakh 30%
Income from Rs 10 lakh to Rs 12.5 lakh 20%
Income from Rs 12.5 lakh to Rs 15 lakh 25%
Income above Rs 15 lakh 30%

How to choose the appropriate one between the two regimes?

Taxpayers should assess the actual situations and benefits of the old and new tax structure before choosing the one that suits them best. According to experts, people with more deductions and exemptions under the Income Tax Act should choose the old regime. Others without exemptions can go with the new slab.

Here are some of the non-claimable exemptions and deductions under the new tax regime:

  • Standard deduction under section 80TTA/80TTB
  • Travel Leave Allowance (LTA)
  • Housing allowance (HRA)
  • Child-raising allowance
  • Other special allowances
  • Interest on housing loan on self-occupied property

  • Deduction from Chapter VI-A (Section 80C, 80D, 80E and so on, except Section 80CCD(2) and Section 80JJAA)
  • Exemption or deduction for any other benefit or indemnity
  • Family pension income deduction
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