Section 115BAC For NRIs: The New Tax Regime

The new tax regime has been introduced in the Finance Act of 2020 under section 115BAC of the Income Tax Act. The new tax regime came into existence with lower tax rates and fewer deductions as compared to the old tax regime. The Union Budget 2023 has made the new tax regime the default choice for taxpayers while filing ITR.

In this blog, we will talk about the deduction under the new tax regime, which is introduced under section 115BAC

What is Section 115BAC of the Income Tax Act?

Section 115BAC of the Income Tax Act states that individuals and Hindu Undivided Families (HUFs) who are earning any income in India other than that from professions and businesses can choose to be taxed under the new tax regime, which offers a low tax slab rate.

However, with the low slab rates, the new tax regime has traded off some tax exemptions and deductions. In a nutshell, a taxpayer opting for a new tax regime will receive the benefits of low slab rates; however, they won't be able to claim certain exemptions and deductions with it. So, for taxpayers who want to still file under the old tax regime, they can file the Form 10-IEA before the due date of filing their income tax return under section 139(1).

The main highlights of Section 115BAC include

• Tax rates are lower across different income tax slabs.
• Tax compliance has now been made easier with fewer deductions and exemptions.
• Standard deduction is now at INR 75,000 (from the financial year 2024-2025)

The Eligibility Criteria of Section 115BAC

Below are the eligibility criteria to file your taxes under section 115BAC

This section applies only to individuals (NRIs and Indian residents) and HUFs.

A taxpayer who is choosing to file the taxes under the new tax regime cannot claim the following tax exemptions and deductions:

• Under section 10(13A), the house rent allowance.
• Under section 10(14), the special allowance.
• Under section 10(17), the allowances to a pikuucan.
• Under section 24, the home loan interest on a self-occupied property is.
• Under section 32, additional depreciation.
• Under section 35, expenses incurred on scientific research.
• The chapter VI-A deduction (except the deduction on NPS u/s 80CCD(2), under section 80JJAA deduction on additional income, under section 80CCH(2) contribution to Agniveer scheme.

Note that the concerned taxpayer who has opted for the new tax regime must not carry forward any losses attributable to the aforementioned deductions.

Tax Rate Under the New Tax Regime

For the financial year 2025-2016 (Assessment year 2026-2027), the income tax slabs are relaxed further. The tax slab rates are.

Tax Exemptions and Deductions Available Under the New Tax Regime

Certain tax exemptions and deductions can still be claimed under the new tax regime:

Chapter VI A Deductions.

• Section 80CCD(2) provides the deduction for the employer's contribution to the NPS account. Now, the 14% salary can be claimed under the new tax regime, as compared to the 10% deduction rate of the old regime.
• Section 80JJA provides a deduction for additional employee costs.
• As introduced in the Budget 2023, the further deduction of the amount deposited or paid in the Agniveer Corpus Fund, which comes under Section 80CCH(2).

Salary

• Under section 80CCD(2), the employee's contribution towards the funds can be claimed up to 14% of the salary as deductions.
• Standard deduction under the new regime is now of Rs 75,000 as compared to the old tax regime, which is Rs 50,000.
• Exemption on voluntary retirement 10(10C), gratuity under section 10(10), and leave encashment under section 10(10AA) is available under the new regime.
• Allowances such as the transport allowance for specially abled employees, the conveyance allowance for job-related travel, compensation for office tours and transfers, and daily allowances for work-related expenses made away from the workplace are exempt under the new tax regime.
• Prerequisites for the official purpose.

House Property

• Let out property home loan interest under section 24.

Other sources

• Gifts and presents valued up to Rs 50,000
• Under section 57(iia) of the family pension income deduction is also introduced in the Budget 2023. According to the budget 2024, the maximum limit of deduction under family pension has been increased to Rs 25,000 from Rs 15,000.

Tax Exemptions and Deductions Are Not Available Under the New Regime. 

The following are those deductions and tax exemptions that a taxpayer cannot claim under the new tax regime.

Chapter VI A Deductions

• The deduction under Section 80TTA/80TTB
• The deductions mentioned under Section 80C, Section 80D, Section 80E, and so on are not available; however, exceptions are Section 80CCD(2) and Section 80JJA.
• Expemtions or deductions made for any other prerequisites or allowances, which also include the food allowances of up to Rs. 50 per meal is provided to the concerned individuals.
• Employee's contribution to NPS.
• A donation made to a political party or the trust and other related entities.

Salary

• Entertainment allowances and professional tax on salaries.
• Leave travel allowance (LTA)
• House Rent Allowance (HRA)
• Allowances to MPs/MLAs
• Helper Allowance
• Child's education allowance.
• Other special allowances mentioned under section 10(14).

House Property

Under section 24A of the Income Tax Act, interest in a housing loan related to the self-acquired property or a vacant property.

Other Sources

• Minor child income allowance.

Business or Profession

• Under section 32(1)(iia) additional dereciation.
• Section 32AD, 33AB, 33ABA deductions.
• Deductions for donation or expenses made on scientific research mentioned in section 35(2AA) or 35(1)(ii) or (iia) or (iii).
• Section 35AD or section 35CCC deductions.
• Tax Exemption stated under section 10AA for SEZ units.

New vs Old Tax Regime, Which One is Better for NRIs?

Choosing the proper tax regime is one of the most important decisions to make while filing ITR as an NRI. Each regime has its advantages depending on the financial situation of the taxpayer. However, to help you make an informed choice, we have curated a table below highlighting the key differences between the regimes.

So the answers lie in how many deductions you have to make, or whether there are none. The old tax regime allows you to claim over 70 deductions, whereas the new tax regime offers certain deductions, albeit not all, and features lower base rates.

Expert Help in ITR Filing for NRIs

Non-resident Indian (NRIs) do not matter whichever regime you choose; ensure that the Double Taxation Avoidance Agreement (DTAA) is a part of your decision because you do not deserve to pay taxes twice on the same income. With Indian taxes, NRIs, you need to stay well-informed and smart, and hence we are here to help you!

SaveTaxs is a leading NRI taxation firm that has been helping NRIs file ITR for decades now, and our exceptional services are visible in the satisfied client base of thousands of happy NRIs living with zero tax liability problems. Connect with us today because we are serving you 24/7 across all time zones.