What is Section 115bac: New Regime vs Old Regime, Tax Rules & Benefits

Section 115BAC of the Income Tax Act introduces an optional new tax regime that allows individuals to pay tax at lower rates by giving up certain exemptions and deductions. It offers a simpler way to calculate tax liability for both residents and Non-Resident Indians (NRIs) earning income in India. Understanding what is Section 115BAC helps taxpayers make smarter financial choices, plan investments efficiently, and manage income repatriation with better tax savings. [2]

New Tax Regime vs Old Tax Regime Under Section 115BAC - Quick Info

The primary choice for taxpayers is between the traditional (old) tax regime, which allows for numerous deductions, and the 115BAC new tax regime, which offers lower rates in exchange for forgoing most of those deductions. Here is a quick comparison to highlight the fundamental differences between the two.[1]

What is Section 115BAC?

Section 115BAC is a provision within Income Tax Act, 1961, that formally introduced the new, concessional tax regime for individuals and Hindu Undivided Families (HUFs). Its key feature is a trade-off: taxpayers can opt to pay tax at lower slab rates, provided they agree to give up most of the commonly claimed exemptions and deductions available under the old regime. [1][2]

Eligibility Criteria for NRIs Under Section 115BAC

The applicability of Section 115BAC to NRIs is nuanced and primarily depends on their residential status for a given financial year. [1][3]

• Status Change is Key: The new tax regime under Section 115BAC is available only to individuals who qualify as 'Resident' in India for tax purposes. A typical NRI is taxed at special rates on their Indian income and cannot opt for this regime.
• Relevance for Returning NRIs: When an NRI returns to India and their stay exceeds 182 days in a financial year, their status changes to 'Resident'. At this point, they become eligible to choose between the old and new tax regimes for filing their income tax. A clear understanding of the rules regarding income tax for NRI is essential during this transition.
• HUFs with NRI Members: If a Hindu Undivided Family (HUF) has NRI members, the Karta (head of the family) makes the decision to opt for Section 115BAC. This choice will apply to the entire income of the HUF and will impact the tax liability of all its members.

Tax Slabs under Section 115BAC

The main attraction of the 115BAC new tax regime is its lower, more frequent tax slabs. For NRIs who become residents, their global income could be taxed as per these rates if they choose this regime. The 115bac slab rates for the Financial Year 2024-25 (Assessment Year 2025-26) are as follows.[1][3]

Features of Section 115BAC for NRIs

For NRIs who are planning to return to India, understanding the core features of this section is vital for future tax planning. [1]

• Default Tax Regime: As of FY 2023-24, the new tax regime under Section 115BAC is the default option. This means if you do not explicitly choose the old regime when filing your taxes, your income will automatically be taxed as per the new slab rates.
• Lower Tax Rates: The regime offers reduced tax rates across multiple income brackets compared to the old regime, which can lead to lower tax liability for those who do not claim many deductions.
• Forfeiture of Deductions: This is the most significant condition. By opting for Section 115BAC, you give up the right to claim over 70 common deductions and exemptions, including those for investments, insurance, and allowances.
• Standard Deduction is Allowed: A key benefit is that salaried individuals and pensioners who opt for the new regime can still claim the standard deduction of ₹50,000 from their income.
• Simplified Tax Filing: For individuals with a straightforward income structure and minimal tax-saving investments, this regime simplifies the process of calculating and filing income tax.

Exemptions/Deductions Under Section 115BAC for NRIs

The central premise of what is 115bac revolves around the deductions that are allowed and disallowed. It is crucial to know which benefits you will be giving up. [1][3]

Key Deductions You CANNOT Claim

By choosing the new tax regime, you will forgo most of the popular tax-saving avenues, including:

• Section 80C: Investments in PPF, ELSS, Life Insurance Premiums, principal repayment of home loans, etc. (up to ₹1.5 Lakhs).
• Section 80D: Premiums paid for health insurance for yourself, your family, and your parents.
• House Rent Allowance (HRA): The exemption available on rent paid for your accommodation.
• Leave Travel Allowance (LTA): The tax exemption on travel expenses during leave.
• Interest on Housing Loan: Deduction on interest paid on a home loan for a self-occupied property under Section 24(b).
• Other Chapter VI-A Deductions: This includes deductions for education loan interest (80E), donations (80G), and interest on savings accounts (80TTA).

Key Deductions You CAN Still Claim

A few specific deductions are still permitted under the new regime:

• Employer's Contribution to NPS: Deduction for an employer's contribution to an employee's National Pension System (NPS) account under Section 80CCD. [2]
• Standard Deduction: A flat deduction of ₹50,000 for salaried individuals and pensioners.
• Interest on Home Loan (for rented property): Deduction on interest paid for a home loan on a property that has been rented out.

How NRIs Can Opt for Section 115BAC

For an NRI, the process of opting for this regime becomes relevant upon becoming a resident of India for tax purposes. [1]

• Assess Your Financial Profile: Before making a choice, analyze your income sources, investment habits, and potential deductions. Use an income tax calculator to compare your tax liability under both the old and new regimes to see which is more beneficial.
• Inform Your Employer: If you become a salaried employee in India, you must inform your employer at the beginning of the financial year about your choice of tax regime. This allows them to deduct TDS from your salary accordingly.
• Make the Final Choice During ITR Filing: For salaried individuals, the choice communicated to the employer is provisional. You can make the final switch between regimes when you file your Income Tax Return (ITR) for that year.
• Special Condition for Business Income: If you have income from a business or profession, the choice is more binding. You must file Form 10-IEA to opt out of the new regime. Once you switch back to the new regime, you cannot go back to the old one in subsequent years.

How NoBroker Can Help with NRI Services?

While understanding what is Section 115BAC is a matter of tax planning, NRIs often face broader financial challenges, especially with managing assets in India. NoBroker offers a suite of dedicated services to help NRIs manage their real estate investments seamlessly. From property management and rental assistance to facilitating property sales, we handle everything. Our legal experts can also assist with complex compliance issues like understanding TDS on sale of property by NRI and the preparation of essential documents like Form 15CA and 15CB.