New Tax Regime vs. Old Tax Regime | Section 115BAC of The Income Tax Act, 1961

Ashok Pitroda | Last updated: 12 June 2021

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Quick Summary

The Indian Income Tax Act, 1961, introduced Section 115BAC in Budget 2020, offering individuals and HUFs an optional new tax regime with lower tax rates. This new regime comes with zero deductions and exemptions that are available under the old tax regime, such as HRA, LTA, and standard deductions. Taxpayers can choose their preferred regime annually, but those with business income have specific conditions for switching back.

The Budget 2020 introduces a new regime under section 115BAC giving an option to individuals and HUFs to pay income tax at lower rates. From FY 2020-21, the assessee can choose to pay income tax under an optional new tax regime. The new tax regime is available for individuals and HUFs with lower tax rates and zero deductions and exemptions available under various provisions of the Income-tax Act, 1961.

New vs Old Tax Regime: Section 115BAC Explained

Exemptions and Deductions available under the Old Tax Regime and New Tax Regime

Particulars	Old Tax Regime	New Tax Regime
Leave travel concession [Section 10(5)]	Yes	No
House rent allowance [Section 10(13A)]	Yes	No
Prescribed allowances or benefits [Section 10(14)] read with rule 2BB	Yes	No
Daily allowance to a Member of Parliament [Section 10(17)]	Yes	No
Special provisions in respect of newly established Units in Special Economic Zones [Section 10(AA)]	Yes	No
Deductions from salaries such as Standard Deduction, Entertainment Allowance, and Professional Tax [Section 16]	Yes	No
Deductions from income from house property [Section 24(b)]	Yes	No
Deductions to be made in computing total income [Chapter VI-A] except Section 80CCD (2) and 80 JJAA	Yes	No
Any Other Expenditure [Section 57 (iii)]	Yes	No
Deduction in respect of investment in new plant and machinery in the specified businesses [Section 32(1)(iia)]	Yes	No
Deduction in respect of investment in new plant or machinery in notified backward areas in certain States [Section 32AD]	Yes	No
Deduction in respect of Tea development account, coffee development account, and rubber development account [Section 33AB]	Yes	No
Deduction in respect of Site Restoration Fund [Section 33ABA]	Yes	No
Deduction in respect of expenditure on scientific research [Section 35]	Yes	No
Deduction in respect of expenditure on specified business [35AD]	Yes	No
Deduction in respect of expenditure on agricultural extension project [Section 35CCC]	Yes	No
Set-off and carry forward of loss or unabsorbed depreciation from any earlier assessment year	Yes	No
Any other exemption or deduction for allowances or perquisite, by whatever name called, provided under any other law for the time being in force.	Yes	No
Rebate u/s 87A	Yes	Yes
Benefits of Lower Tax Rates	No	Yes

The taxpayers having income from salaries, income from house property, capital gains or income from other sources may select tax regime year on year basis. However, if taxpayers have profits and gains of business or profession and they opt for new tax regime, they can switch back to old tax regime but only once in a lifetime and they will not be able to opt for new tax regime again except they cease to have any income from business or profession.

Comparison between the Old Tax Regime and New Tax Regime

Tax Slabs	Old Tax Regime	New Tax Regime
Up to 2,50,000	0%	0%
From 2,50,001 to 5,00,000	5%	5%
From 5,00,001 to 7,50,000	20%	10%
From 7,50,001 to 10,00,000	20%	15%
From 10,00,001 to 12,50,000	30%	20%
From 12,50,001 to 15,00,000	30%	25%
Above 15,00,000	30%	30%

The Percentage of Surcharge and Health and Education Cess in the New Tax Regime remains the same as the Old Tax Regime.

FAQ :

Section 115BAC, introduced in Budget 2020, provides an optional new tax regime for individuals and HUFs, allowing them to pay income tax at lower rates.

The new tax regime offers lower tax rates but eliminates most deductions and exemptions (like HRA, LTA, standard deduction) available under the old tax regime.

Yes, taxpayers with income from salaries, house property, capital gains, or other sources can select their preferred tax regime on a year-on-year basis.

If you have business income and opt for the new tax regime, you can switch back to the old tax regime only once in your lifetime, and you cannot opt for the new regime again unless you cease to have business income.

Yes, the tax slabs are different. The new tax regime generally has lower tax rates across most income brackets compared to the old tax regime, especially for incomes between ₹5,00,001 and ₹12,50,000.