Tuesday, July 9, 2024

Guide to Choosing Between the Old and New Tax Regimes Under Section 115BAC


India's tax system has introduced a new tax regime under Section 115BAC of the Income Tax Act, 1961. This regime aims to simplify the tax structure by offering lower tax rates but removes various deductions and exemptions available in the old regime. Here’s a detailed guide to help you understand what deductions and exemptions are not available in the new regime, the conditions for opting or switching regimes, and how to make an informed decision.

New Tax Regime: Tax Rates

Total IncomeRate of Tax
Up to ₹3,00,000Nil
₹3,00,001 to ₹6,00,0005%
₹6,00,001 to ₹9,00,00010%
₹9,00,001 to ₹12,00,00015%
₹12,00,001 to ₹15,00,00020%
Above ₹15,00,00030%

Deductions and Exemptions Not Available in the New Tax Regime

The new tax regime removes many deductions and exemptions available in the old regime. Here's a comprehensive table of what you cannot claim under the new tax regime:

Sr. NoSectionClause(s)Deduction/Exemption Not Allowed
1Section 10Clause 5Travel Concession or Travel Assistance from employer for self & family
Clause 13AHouse Rent Allowance (HRA)
Clause 14Special allowances/benefits other than perquisites
Clause 17Daily Allowance received by a Member of Parliament
Clause 32₹1500 each minor child income referred in section 64(1A)
2Section 10AAIncome from newly established units in Special Economic Zone (SEZ)
3Section 16Clause (ii)Entertainment Allowance
Clause (iii)Employment Tax
Clause (i)₹50,000 standard deduction (Note: From AY 24-25, standard deduction is allowed in new regime)
4Section 24Clause bInterest on borrowed capital for self-occupied property
5Section 32(1)Clause (iia)Additional Depreciation @ 20%
6Section 32ADDepreciation on investment in new plant & machinery in notified backward area @ 15%
7Section 33ABTea, Coffee, Rubber business: Deposit amount or 40% of profit as deduction
8Section 33ABASite Restoration Fund: Deposit amount or 20% of profit as deduction
9Section 35(1)Clause (ii)Expenditure on scientific research
Clause (iia)
Clause (iii)
10Section 35(2AA)In-house research expenditure for biotechnology companies
11Section 35ADCapital expenditure for specified business before commencement
12Section 35CCCExpenditure on agricultural extension projects
13Chapter VI-AAll deductions except Section 80CCD(2), 80CCH(2), 80JJAA
14Section 115BAC(2)Clause (ii)No set off of any loss carried forward or depreciation from earlier years
Clause (iv)No exemption/deduction for allowances or perquisites under any other law

Analytical Comparison Between Old and New Tax Regimes

Tax Rates vs. Deductions

  1. Old Regime:

    • Higher Tax Rates: Tax rates start at 5% for income above ₹2.5 lakh and can go up to 30% for income above ₹10 lakh.
    • Available Deductions: Includes standard deductions, Section 80C investments, HRA, home loan interest, etc.
    • Effective Tax Saving: Beneficial for taxpayers who have significant deductions and exemptions.
  2. New Regime:

    • Lower Tax Rates: Tax rates are lower compared to the old regime, starting at 5% for income above ₹3 lakh and maxing out at 30% for income above ₹15 lakh.
    • No Deductions/Exemptions: Removes all major deductions and exemptions, simplifying tax calculations.
    • Simplicity: Easier for those who do not wish to invest in tax-saving instruments or have minimal deductions.

Practical Example

Consider an individual with an annual income of ₹12,00,000.

Old Regime Calculation:
  • Gross Income: ₹12,00,000
  • Standard Deduction: ₹50,000
  • Section 80C Deduction: ₹1,50,000 (Investment in PPF, EPF, etc.)
  • Taxable Income: ₹10,00,000

Tax Calculation:

  • Up to ₹2,50,000: Nil
  • ₹2,50,001 to ₹5,00,000: 5% of ₹2,50,000 = ₹12,500
  • ₹5,00,001 to ₹10,00,000: 20% of ₹5,00,000 = ₹1,00,000

Total Tax:

  • ₹12,500 + ₹1,00,000 = ₹1,12,500
New Regime Calculation:
  • Gross Income: ₹12,00,000
  • No deductions/exemptions

Tax Calculation:

  • Up to ₹3,00,000: Nil
  • ₹3,00,001 to ₹6,00,000: 5% of ₹3,00,000 = ₹15,000
  • ₹6,00,001 to ₹9,00,000: 10% of ₹3,00,000 = ₹30,000
  • ₹9,00,001 to ₹12,00,000: 15% of ₹3,00,000 = ₹45,000

Total Tax:

  • ₹15,000 + ₹30,000 + ₹45,000 = ₹90,000

Decision-Making Factors

  1. Income Level:

    • Higher-income individuals may find the new regime beneficial due to lower rates despite losing out on deductions.
    • Lower-income individuals or those with substantial deductions may find the old regime more advantageous.
  2. Investment Preferences:

    • If you regularly invest in tax-saving instruments (e.g., PPF, ELSS), the old regime might offer better tax savings.
    • If you prefer simplicity and minimal investment, the new regime may be easier and more beneficial.
  3. Long-Term Financial Planning:

    • Consider long-term goals such as retirement savings, home loans, and education expenses, which might be better supported by the old regime’s deductions.

Conditions for Opting or Switching Between Regimes

  1. New Tax Regime (Section 115BAC):

    • Applicable to individuals, Hindu Undivided Families (HUFs), association of persons (other than co-operative societies), bodies of individuals, whether incorporated or not, or artificial juridical persons.
    • Opt-in: The option to choose the new regime must be exercised before the due date of filing the income tax return.
    • Opt-out: You can switch back to the old regime in the next financial year, but frequent switching is not allowed for individuals with business income.
  2. Old Tax Regime:

    • Continues with existing slabs and allows all deductions and exemptions.

Penalties for Wrong Claims

  1. Underreporting Income:

    • Penalty is 50% of the tax payable on underreported income.
  2. Misreporting Income:

    • Penalty is 200% of the tax payable on misreported income.
  3. Incorrect Claims:

    • Filing incorrect claims, whether intentional or not, can result in additional interest, penalties, and scrutiny from tax authorities.


Choosing between the old and new tax regimes requires careful analysis of your financial situation. The new regime offers lower tax rates but removes many deductions and exemptions. By understanding the deductions and exemptions not available under the new regime, and considering your own financial goals, you can make an informed decision. Remember to always report your income accurately to avoid penalties and legal issues.