Overview:
The Finance Act, 2023, introduced significant amendments to Section 115BAC of the Income Tax Act, effective from the Assessment Year (AY) 2024–25. These changes designate the new tax regime as the default regime for certain categories of taxpayers, including individuals, Hindu Undivided Families (HUFs), Associations of Persons (AOPs) (excluding co-operative societies), Bodies of Individuals (BOIs), and Artificial Juridical Persons.
Despite this default status, eligible taxpayers retain the option to opt out of the new regime and instead be taxed under the old tax regime, which follows the tax slabs and deduction structure that existed prior to the introduction of Section 115BAC.
Option to Choose Old Tax Regime:
- For taxpayers with no business income (non-business cases):
The option to select the old tax regime can be exercised each financial year directly while filing the Income Tax Return (ITR) on or before the due date as prescribed under Section 139(1). - For taxpayers having income from business or profession:
In order to opt out of the new tax regime, such assessees must submit Form No. 10-IEA within the due date under Section 139(1).
Additionally, any subsequent withdrawal of this option (i.e., switching back to the new regime) must also be done by filing Form No. 10-IEA.
Key Features of the New Tax Regime:
- The new regime is default for the specified taxpayer categories.
- Taxpayers with income from business or profession are allowed to exercise the option only once, and cannot switch between regimes every year.
- Individuals with income from non-business sources may opt between the new and old regimes annually.
- The new regime offers concessional tax rates, but allows limited deductions and exemptions.
- From AY 2025–26 onwards, a standard deduction of ₹75,000 or the amount of salary, whichever is lower, is allowed under the new regime (compared to ₹50,000 under the old regime).
- Most Chapter VI-A deductions are disallowed under the new regime, with exceptions for:
- Section 80CCD(2): Employer contribution to NPS,
- Section 80CCH: Agniveer Corpus Fund,
- Section 80JJAA: Additional employment deduction.
- Interest on borrowed capital for self-occupied property is not deductible under the new regime.
- The rebate under Section 87A has been increased to ₹60,000 for FY 2025–26 under the new regime (up from ₹25,000).
- Under the old regime, the basic exemption limit is:
- ₹3,00,000 for senior citizens (60–79 years),
- ₹5,00,000 for super senior citizens (80 years and above).
- Under the new regime, for FY 2025–26:
- No income tax is payable up to ₹12 lakh of total income.
- For salaried individuals, the effective tax-free income limit is ₹12.75 lakh, inclusive of the standard deduction.
- House Rent Allowance (HRA) is exempt under Section 10(13A) in the old regime, but not allowed in the new regime.
- Deduction for interest on borrowed capital for self-occupied house property is not permitted under the new regime (as per Section 115BAC).
Conclusion:
While the new tax regime has become the default structure from AY 2024–25 onwards, taxpayers retain the right to make an informed choice between the two regimes based on their income composition, eligible deductions, and tax-saving preferences. It is essential for individuals and business professionals to evaluate the comparative tax liability under both regimes annually and comply with procedural requirements, such as timely submission of Form No. 10-IEA, wherever applicable.
Disclaimer
The content provided above is intended solely for informational and explanatory purposes. It should not be considered financial advice or solicitation material. The information is based on publicly available sources and subject to change. Readers are advised to consult with a qualified financial advisor or tax professional before making any financial or tax-related decisions.
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