Section 115BAC regime
Also written New tax regime · Section 115BAC(1A) · Default tax regime · Concessional tax regime
The tax regime that applies by default under Section 115BAC(1A) unless the taxpayer opts out under Section 115BAC(6) — and which caps the surcharge at 25% instead of 37%.
In plain language
India has two personal tax regimes. The important thing about Section 115BAC is which one you get if you do nothing.
The rates under Section 115BAC(1A) apply unless an option is exercised under Section 115BAC(6) to opt out. So it is the default. Silence keeps you in it.
One feature is worth money at the top end. Under this regime the surcharge is capped at 25%, instead of 37%.
Switching back is where the rules get tight, and they differ by the kind of income:
- a taxpayer with business or professional income can opt back into the regime only once;
- a taxpayer with no business or professional income can exercise the option every year.
It is not only for individuals. It also covers an association of persons other than a cooperative society, a body of individuals whether incorporated or not, and an artificial juridical person.
How it works
The default rule. The workbook's note, repeated under each income stream it taxes, is that the rates provided under Section 115BAC(1A) shall be applicable unless an option is exercised under Section 115BAC(6) to opt out of the regime.
Opting back in. Once a taxpayer has opted out, the option of opting back into the regime under Section 115BAC(1A) can be exercised only once by a taxpayer earning income from business or profession. A person not having income from business or profession can exercise this option every year.
The surcharge cap. Under this regime the rate of surcharge is capped at 25%, instead of 37%.
Who it covers. Besides individuals, the section applies to an association of persons — other than a cooperative society — a body of individuals, whether incorporated or not, and an artificial juridical person.
Where it bites in this paper. The note appears against the Others row of the workbook's tax tables for each income stream a portfolio investor earns — dividend income (section 10.2.2) and interest income on debt securities (section 10.2.3) among them. In each table the residents' rows are:
| Earned by | Rate |
|---|---|
| Resident companies | 30% |
| Firms and LLPs | 30% |
| Others — where the 115BAC note applies | As per applicable slab rates, maximum being 30% |
The workbook adds that for domestic companies with turnover or gross receipts not exceeding INR 400 crores in Financial Year 2022-23 (Assessment Year 2023-24) the rate is 25%, and that domestic companies opting for Section 115BAA or 115BAB are taxed at 22% and 15% respectively, subject to the conditions in those sections.
The workbook gives no slab table for this regime. It states only that slab rates apply with a maximum of 30%, and notes expressly that at present, the highest slab rate has been captured. So the individual slab boundaries and the rates within them are not examinable from this paper — do not supply them from elsewhere.
A worked example
Illustrative figures using only the rates the workbook gives. Four taxpayers each receive Rs 60,00,000 of dividend from Indian companies in the same year.
| Taxpayer | Category | Rate the workbook gives | Tax before surcharge and cess |
|---|---|---|---|
| Sundar Trading Pvt Ltd (turnover Rs 900 crore) | Resident company | 30% | Rs 18,00,000 |
| Mehta & Associates LLP | LLP | 30% | Rs 18,00,000 |
| Vaidya Industries Pvt Ltd (turnover Rs 310 crore) | Resident company under the turnover note | 25% | Rs 15,00,000 |
| Mrs Prabhu, individual | Others — Section 115BAC(1A) applies unless she opts out | Slab rates, maximum 30% | up to Rs 18,00,000 |
Now the surcharge cap, which is where the regime earns its keep. Take a very high income where a 37% surcharge would otherwise apply, and assume basic tax of Rs 90,00,000:
- surcharge at 37% = Rs 33,30,000
- surcharge at the 25% cap under Section 115BAC = Rs 22,50,000
- saving: Rs 10,80,000, on the surcharge alone
And the switching rule. Mrs Prabhu has no business or professional income, so she may compare the two regimes and choose afresh every single year. Her brother, who runs a proprietary firm, opts out in one year and later wants back in — he may do that once, and after that his choice is fixed.
For a portfolio manager, that asymmetry matters when advising on when to realise gains or receive a large dividend, because a salaried client's regime is a yearly decision and a business client's is very nearly permanent.
Why NISM asks about it
Chapter 10 (Taxation) attaches the Section 115BAC note to the tax tables for each income stream — section 10.2.2 for dividend income and 10.2.3 for interest income on debt securities carry it in identical wording.
Expect a question on which regime applies in the absence of an election (Section 115BAC(1A), by default), on how many times a taxpayer with business income may opt back in (once), on how often a taxpayer without business income may choose (every year), and on the surcharge cap (25%, against 37%). Its application to an AOP, BOI or artificial juridical person, and the exclusion of cooperative societies, is the detail candidates skip.
Common exam traps
- It is the default, not an election. The rates apply unless the taxpayer opts out under Section 115BAC(6). Treating it as something to opt into gets the mechanics backwards.
- The once-only limit is on opting back in, and only for business or professional income. A person without such income chooses every year.
- 25% is the surcharge cap, not a tax rate. The tax rate under the regime is the applicable slab, with a maximum of 30%.
- Section 115BAA and 115BAB are different sections for companies — 22% and 15% respectively. Do not mix them with 115BAC, which is for individuals, AOPs, BOIs and artificial juridical persons.
- A cooperative society is excluded from the AOP extension.
- The workbook gives no slab table. It says only that the highest slab rate has been captured, at a maximum of 30%. Answering with slab boundaries from another source is answering from outside the syllabus.
- The INR 400 crore turnover test and the 25% company rate belong to the company rows, not to the 115BAC note that sits beneath them.
Where this is taught
Free preparation for NISM Series XXI-BRelated terms
- Five heads of incomeEvery rupee of taxable income in India falls under one of five heads — salary, house property, business or profession, capital gains, or other sources — and total income is their sum.
- Gross Total Income (Section 80B(5))The total income computed under the Act before any Chapter VI-A deduction — arrived at by adding the five heads of income, clubbing any income the law attributes to the assessee, and setting off losses.
- Residential statusThe classification — resident (ordinarily or not ordinarily), deemed resident or non-resident — that decides which income is taxable in India. Citizenship alone is not the test.
- Indian incomeThe Income-tax Act's shorthand for total income excluding income from foreign sources — the figure tested against Rs 15 lakh in the deemed resident and 120-day residence rules.
- Section 80M deductionA deduction that stops the same dividend being taxed twice in a corporate chain: an Indian company that receives dividend from another Indian company and passes it on in time can deduct what it received.