Income Tax Section 115BAC, Eligibility and Deductions

Understanding Income Tax Section 115BAC

A new Section 115 BAC of the Income Tax Act has been added by the Finance Act of 2020, giving individuals the opportunity to choose between the old regular tax rates and new concessional tax rates without taking into account the legal requirements for exemptions or deductions.

Section 115BAC

A person, whether an individual or an undivided Hindu family (HUF), who has income other than income from a profession or business, may exercise the option regarding a prior year to be taxed under Section 115 BAC along with his or her return of income to be furnished under Section 139(1) of the Income-tax Act for each year, according to the new Section 115BAC of the Income-tax Act, 1961.

The requirement that the total income is computed without any specific exemption or deduction set off of a loss and additional depreciation applies to the concessional rate offered under Section 115BAC of the Income Tax Act.

Tax Slabs and Rates

The following table can list the new slab rates according to 115BAC of the Income Tax Act:

Income Range (Rs.)

Tax Rate

Up to 2.5 lakh

Nil

2.5 to 5 lakh

5%

5 to 7.5 lakh

10%

7.5 to 10 lakh

15%

10 to 12.5 lakh

20%

12.5 to 15 lakh

25%

Above 15 lakh

30%

 

Eligibility

HUFs and individuals could exercise the choice of paying income tax according to the new income tax slab rates given their total income for the exact financial year satisfy the conditions that are mentioned below:

  •  The declared income should not cover any of the business income.
  •  The calculation of it is done without any deductions or exemptions given under the following:
  •  Chapter VI-A except those under section 80CCD/ 80JJAA
  • Section 24b, Clause (5)/(13A)/(14)/(17)/(32) of Section 10/10AA/16
  • Section 32(1)/ 32AD/ 33AB/ 33ABA and Section 35/ 35AD/ 35CCC
  • Clause (iia) of Section 57
  • The calculation is done without taking into account losses from past AYs caused by the aforementioned deductions or from real estate owned by the homeowner.
  • It is determined without making any exemptions or deductions for any perks or allowances. Without claiming any depreciation under clause (iia) of Section 32, the calculation is completed.

Exemptions and Deductions

Under the new income tax system, most tax deductions are no longer available. The ones listed below, however, are permitted by section 115BAC of the Income Tax Act.

  •  Section 80JJAA deductions (additional employee cost).
  •  Employees are given a daily allowance under specific situations.
  • Transport reimbursement for workers with disabilities.
  • Employer contributions to a pension account are deductible under section 80CCD(2).
  • Any reimbursement for the price of the trip, transportation, or tour.
  • Conveyance reimbursement for office work performed.

Deductions not Applicable Under Section 115BAC

Individuals and Hindu Undivided Families (HUFs) who have income that are from sources other than profession or business, can choose to be taxed under Section 115 BAC. 

In case individuals and HUFs choose to file their taxes under Section 115BAC, they will not be allowed to make the following deductions: 

  •  Chapter VI-A deductions such as those outlined in Section 80C, 80D and 80E among others with Section 80CCD(2) and Section 80JJAA being the exceptions
  •  Children education allowance (or CEA)
  • Deductions applicable to a family pension income
  • Helper allowance
  • House rent allowance (or HRA)
  • Interest accrued on a housing loan as specified under Section 24
  • Leave travel allowance (or LTA)
  • Minor child income allowance
  • Other special allowances outlined under Section 10 (14)
  • Standard deductions, professional taxes and entertainment allowances aren’t claimable

It is also important to remember that deductions made under business income will not be as considered as per the new regime outlined in Section 115 BAC of the Income Tax Act. In accordance with this rule, here are some types of incomes that will not be permitted under Section 115 BAC: 

  •  Additional depreciation as mentioned under Section 32
  • Investment allowance as made clear under Section 32AD
  • Sector-specific business deductions made clear in Sections 33ABA and 33AB
  • Expenditure incurred owing to scientific research as mentioned in Section 35
  • Capital expenditure defined in Section 35AD
  • Exemptions made clear under Section 10AA for SEZ units

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