115bac of income tax act

115bac of income tax act

Section 115BAC of the Income Tax Act, 1961 is a provision introduced by the Finance Act, 2020, which provides an optional tax regime for individual taxpayers and Hindu Undivided Families (HUFs). This section allows taxpayers to choose between the existing tax regime (with deductions and exemptions) and a new tax regime (with lower tax rates but fewer deductions and exemptions).

Here are some key points about Section 115BAC:

  1. Optional Tax Regime: Taxpayers have the option to choose between the existing tax regime and the new tax regime introduced under Section 115BAC.
  2. Lower Tax Rates: The new tax regime under Section 115BAC offers lower tax rates compared to the existing tax slab rates. However, taxpayers opting for the new regime cannot claim certain deductions and exemptions available under the existing regime.
  3. Eligibility: Individual taxpayers and HUFs are eligible to opt for the tax regime under Section 115BAC.
  4. No Deductions/Exemptions: Taxpayers opting for the new tax regime cannot claim deductions under various sections of the Income Tax Act such as Section 80C (investment in specified instruments), Section 80D (health insurance premium), Section 80G (donations), etc. Additionally, exemptions such as House Rent Allowance (HRA) and Leave Travel Allowance (LTA) are not available under the new regime.
  5. Income Slabs and Tax Rates: The tax rates applicable under Section 115BAC vary depending on the taxpayer's age and income slab. The tax rates are generally lower compared to the existing tax slab rates.
  6. Tax Planning: Taxpayers need to carefully evaluate their financial situation, including income sources, deductions, and exemptions, before opting for the tax regime under Section 115BAC. Depending on individual circumstances, one regime may be more beneficial than the other.

It's important for taxpayers to assess their tax liability under both regimes and choose the one that best suits their financial goals and circumstances. Additionally, consulting a tax advisor or financial planner can provide personalized guidance in making this decision.