Taxation in India can often feel like a complex maze. However, Section 115 of the Income Tax Act acts as a guiding framework that simplifies tax liabilities, especially for individuals & non-resident Indians (NRIs). With the evolving structure of taxation & increasing global income dynamics, Section 115 offers relief by setting out special provisions, including reduced tax rates & income conversions for foreign currency.
In this article, we will explore the key clauses under Section 115 & how they benefit taxpayers by offering tailored taxation options.
What is Section 115 of the Income Tax Act?
Section 115 of the Income Tax Act, 1961, contains multiple subsections such as 115A, 115AC, 115B, 115BAC, & others, each serving a specific group or scenario. The overarching goal is to offer concessional tax rates to certain categories of taxpayers.
For example, Section 115BAC is one of the most discussed provisions in recent times. It allows taxpaying individuals to opt for a lower tax slab rate, provided they forgo specific exemptions & deductions. This option was introduced to make tax filing simpler for individuals who may not claim multiple deductions.
On the other hand, provisions like Section 115A apply to non-resident taxpayers & provide specific tax rates on dividends, interest income, royalties, & fees for technical services earned from India.
How Does Section 115 Benefit Taxpayers?
Let’s look at two specific keywords & how Section 115 addresses them:
- Allows Taxpaying Individuals to Opt for a Lower Tax Slab Rate
Section 115BAC enables individual taxpayers & Hindu Undivided Families (HUFs) to switch from the old tax regime (which allows for deductions like HRA, 80C, etc.) to a new regime with reduced tax rates but no exemptions.
For instance:
- Income up to ₹2.5 lakh – No tax
- ₹2.5 lakh to ₹5 lakh – 5%
- ₹5 lakh to ₹7.5 lakh – 10%
- & so on...
This setup simplifies compliance for salaried individuals who don't claim several deductions & prefer a straightforward tax structure."
- Rate of Exchange for Conversion into Rupees of Income Expressed in Foreign Currency
This aspect is crucial for non-residents earning in foreign currency. Under Section 115A & other relevant subsections, the rate of exchange for conversion into rupees of income expressed in foreign currency is specified. This provision ensures uniformity & transparency while calculating taxable income arising from cross-border transactions.
For example, if an NRI earns royalty income from an Indian company in USD, the exchange rate specified under the Income Tax Rules will be used to compute the taxable amount in Indian rupees under Section 115A.
Applicability and Eligibility
- Resident Individuals: Can avail Section 115BAC for a lower tax regime.
- NRIs & Foreign Companies: Section 115A and 115AB prescribe special tax rates for income earned in India.
- Foreign Institutional Investors (FIIs): Covered under Section 115AD, this section provides tax rates for capital gains & other investment income.
- Startups & New Manufacturing Firms: Section 115BAA & 115BAB give an option to pay lower corporate tax rates if certain conditions are met.
The applicability of these subsections varies based on the type of income, residential status, & the type of entity. "
Should You Opt for Section 115 Provisions?
Choosing the right section under 115 depends on your income type & financial goals. For salaried individuals, the choice between the old regime (with deductions) & the new regime (lower rates, no deductions) can significantly affect tax liability.
NRIs should also consider if their income types (like dividends or royalties) fall under Section 115A & plan their tax filing accordingly.
It is advisable to consult a tax expert or use comparison calculators to determine the most beneficial regime or provision for your specific situation.
Recent Amendments and Relevance in FY 2024–25
The Finance Acts over the past few years have made several amendments to various subsections under Section 115 to make them more inclusive & beneficial for global taxpayers.
For instance, in Budget 2023:
- The new tax regime under Section 115BAC was made the default for individual taxpayers.
- Changes were introduced in Section 115BAE, promoting new manufacturing units with reduced tax rates.
Such amendments make it clear that the government is steering towards a simplified & concessional tax environment for both domestic & global taxpayers.
Conclusion
Section 115 of the Income Tax Act is a powerful provision that balances simplicity & efficiency in tax computation. Whether you're a salaried employee, an NRI earning in foreign currency, or a startup looking for tax relief, Section 115 offers tailored benefits.
With its clear directives on lower tax slab options & exchange rate conversions for foreign income, this section holds substantial importance in India’s modern taxation framework.
So, the next time you’re filing your return or planning your tax strategy, take a moment to evaluate if Section 115 is the key to reducing your tax burden.
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