To provide individuals with flexibility in tax planning, the Finance Act 2020 introduced a new provision called Section 115BAC under the Income Tax Act. This provision gives taxpayers the choice between the old and the new concessional tax regime. Understanding how Section 115BAC affects your taxes will empower you to make informed decisions about your tax planning strategies while staying compliant with laws and maximising your potential savings.
Let’s take a look at what Section 115BAC entails and how it affects taxpayers.
Section 115BAC of the Income Tax Act
- Optional Tax Regime: Under Section 115BAC, individuals can choose between sticking to the existing tax regime, which includes all exemptions and deductions, or opting for a new concessional tax regime.
- Tax Rates: The introduction of this concessional tax regime brings lower tax rates compared to those in the existing system. By selecting this option, individuals can potentially reduce their tax liabilities and enjoy a higher take-home pay.
- Exclusions: Certain exemptions and deductions (such as HRA, education loan interest, etc.) related to investments, allowances, and expenditures are not available under the concessional tax regime. However, deductions for specified donations and contributions towards funds and health insurance premiums remain applicable.
It's important to note that premiums in health insurance policy can still be deducted under Section 80D of the Income Tax Act, regardless of which tax regime you choose. Taxpayers can claim deductions for premiums paid towards health insurance policies for themselves, their spouses, children and parents within specified limits.