Optional Income Tax Regime For Individuals (sec 115bac)

The government has introduced a new optional tax regime for individuals and HUF effectively from FY 2020-2021. This regime aims at providing simpler compliance with fewer deductions and lower tax rates to the taxpayers.

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Deductions/exemptions/benefits Not Available Under The New Tax Regime

The new tax regime does not allow up to 70 deductions and exemptions. Some of the major deductions and exemptions you cannot claim under the new tax system are:

  • Standard deduction from salary, professional tax and entertainment allowance on salaries
  • Deduction under Section 80TTA/80TTB
  • Leave Travel Allowance (LTA)
  • House Rent Allowance (HRA)
  • Minor child income allowance
  • Helper allowance
  • Children education allowance
  • Other special allowances [Section 10(14)]
  • Interest on housing loan on the self-occupied property or vacant property (Section 24)
  • Chapter VI-A deduction (Section 80C, 80D, 80E, 80TTA/80TTB and so on, except Section 80CCD (2)-NPS deduction and Section 80JJAA-New employees salary deduction)
  • Exemption or deduction for any other perquisites or allowances
  • Deduction from family pension income
  • Benefit of setting off and carry forward of house property losses

Business deductions/benefits not available under new tax regime

  • Additional depreciation under section 32
  • Investment allowance under section 32AD
  • Sector-specific business deductions under section 33AB and 33ABA
  • Expenditure on scientific research under section 35
  • Capital expenditure under section 35AD
  • Exemption under section 10AA for SEZ units
  • In the case of a business income, an individual or HUF cannot claim set-off of the brought forward business loss or unabsorbed depreciation.

Deductions & Exemptions allowed under new tax regime

  • Transport allowances in case of a specially-abled person.
  • Conveyance allowance/Any compensation received to meet the cost of travel on tour or transfer for salaried individual.
  • Daily allowance.
  • Chapter VIA Deduction for employer’s contribution to NPS account (Section 80CCD (2)).
  • Chapter VIA Deduction for additional new employee cost (Section 80JJA).

Tax Rates Under New Tax Regime

The following are the lower tax rates applicable under the new tax system:

New Slab Rates
Income slabTax rate
Income upto Rs 2.5 lakhNil
Income from Rs 2.5 lakh to Rs 5 lakh5%
Income from Rs 5 lakh to Rs 7.5 lakh10%
Income from Rs 7.5 lakh to Rs 10 lakh15%
Income from Rs 10 lakh to Rs 12.5 lakh20%
Income from Rs 12.5 lakh to Rs 15 lakh25%
Income above Rs 15 lakh30%

Tax Rates Under New Tax Regime W.e.f Fy 2023-24

The income tax rates for FY 2023-24 have been revised as follows through Finance bill 2023-

New Slab Rates
Income slabTax rate
Income upto Rs 3 lakhNil
Income from Rs 3 lakh to Rs 6 lakh5%
Income from Rs 6 lakh to Rs 9 lakh10%
Income from Rs 9 lakh to Rs 12 lakh15%
Income from Rs 12 lakh to Rs 15 lakh20%
Income above Rs 15 lakh30%

Rebate under new tax regime w.e.f FY 2023-24

Rebate for persons opting new tax regime has been revised for FY 2023-24 through Finance bill 2023, which results in no tax for person whose income is upto Rs. 7 lakhs.

Which tax regime to choose?

For choosing the tax regime, the person shall compute tax liability under both tax regimes and compare. The new tax regime generally saves taxes for taxpayers who are not eligible/don’t claim any/lesser deductions or exemptions.

Procedure to opt for the new tax regime

The taxpayer can opt for the new tax regime by furnishing the declaration in Form 10IE before filing the income tax return of the relevant assessment year. For individuals/HUF with business income Form 10IE shall be submitted before the due date of filing ITR.

Opting out of new tax regime

Person having business income can opt out of the new tax system only once and once he has withdrawn, he will not be eligible to exercise the option again.

For person having other income he can opt out and opt in for any year.