According to the Finance Act of 2020, the Central government has implemented a new taxation structure by adding a new Section 115 BAC. The implementation of reduced tax rates compared to current slab rates is the main component of this recently implemented tax scheme. However, it requires the elimination of about 70 exemptions and deductions that are currently accessible to taxpayers. The new tax system, notably, is voluntary.

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Individuals and Hindu undivided families (HUFs) whether citizens or non-residents, will have two taxation options starting with the assessment year 2021–2022. This is because the Union government recently introduced Section 115BAC. Assessors should be aware of the applicable slab rates even though this new section may be useful for determining taxes. You can use the following guide to understand the innovative tax law:

What is BAC under Section 115?

The Union Budget 2020 introduced a new and streamlined personal income tax system, Section 115BAC, in order to significantly relieve taxpayers and streamline the Income Tax Law. Rates are drastically reduced for assesses who forego specific deductions and exemptions under the new taxation system. The assessment year for the new tax system will be 2021–2021, and it will begin to apply to income received on or after April 1, 2020.

Rates of the Section 115 BAC tax slab

The Section 115 BAC tax rates for each slab are listed below:

Section 115 BAC: Allowable deduction

Despite the fact that many exemptions & deductions are not allowed by Section 115 BAC, others are still available to taxpayers. These consist of:

• The employer’s pension account contribution is deductible under Section 80 CCD (2).
• Employee daily allowance
• Transportation reimbursement for workers with disabilities
• Section 80JJAA deduction: Added employee expenses
• Conveyance reimbursements for office work
• Allowances for the price of travel, tours, and transfers

Should you choose a new tax structure?

Before deciding on the new Section 115 BAC tax regime, bear in mind the following key points:

• The new system provides reduced tax slab rates.
• You will have to give up a lot of deductions and exemptions.
• The new system is not required.
• No one having business income in a given fiscal year is permitted to opt for the new tax system.
• The new system’s cess & surcharge rates are identical to those in the previous one.
• In the new system, paying income taxes might not be an option for a specific financial year.

If the HUF/individual fails to comply with any requirement set forth in Section 115 BAC, the year

Simply put, reduced investments in tax-saving alternatives and instruments may be helpful for people who are in the higher income bands. However, the current system may still be the best option, particularly if they make significant investments in tax-saving strategies. The optimum decision in this situation cannot be determined by a strict formula. Before making a decision, you should determine your overall tax obligations under the new & old regimes.

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