Income Tax Act Section 115BAC for NRI – Should You Opt for the New Tax Regime?

The Indian Income Tax landscape has undergone significant changes with the introduction of Section 115BAC. This section offers a simplified tax structure with concessional rates—but it comes with a catch. For Non-Resident Indians (NRIs) earning income in India, understanding how Section 115BAC applies is essential to make informed financial decisions.

This blog explores the implications of Section 115BAC for NRIs, helping you evaluate whether opting for this regime is the right move.

What Is Section 115BAC?

Introduced in the Finance Act 2020, income tax act section 115BAC for NRI, 1961 provides an optional alternative tax regime for individual taxpayers and Hindu Undivided Families (HUFs). This new regime offers reduced tax rates while forgoing most deductions and exemptions.

From FY 2023–24 (AY 2024–25), this regime has become the default tax structure in India. However, taxpayers—including NRIs—still have the choice to opt for the old regime when filing their income tax returns.

Is Section 115BAC Applicable to NRIs?

Yes, NRIs are eligible to opt for Section 115BAC if they have taxable income in India. This income can include:

• Rental income from property in India

• Interest on bank deposits or NRO accounts

• Capital gains from shares or real estate

• Business/professional income arising in India

However, foreign income or global income is not taxed in India for NRIs—only Indian-sourced income is relevant.

Tax Slabs Under Section 115BAC (Applicable to NRIs too)

🔹 A standard deduction of ₹50,000 is also allowed under the new regime.

🔹 Rebate under Section 87A (for income up to ₹7 lakh) is available only to resident individuals, so NRIs cannot claim this rebate.Deductions Not Allowed Under Section 115BAC

NRIs opting for Section 115BAC must forgo most of the popular deductions, such as:

• Section 80C – Investments in PPF, ELSS, life insurance, etc.

• Section 80D – Health insurance premium

• HRA (House Rent Allowance)

• LTA (Leave Travel Allowance)

• Section 24(b) – Interest on home loan

• Section 80E – Education loan interest

• Section 80TTA/80TTB – Savings account interest deduction

However, employer’s contribution to NPS (Section 80CCD(2)) and standard deduction are permitted.

Benefits of Section 115BAC for NRIs

1. Simplified Tax Filing: No need to maintain documents for deductions or exemptions.

2. Lower Tax Rates: Reduced slab rates can be beneficial for those without major investments.

3. Ideal for Passive Income: If your India income is mainly rent, capital gains, or interest, this regime could reduce your tax burden.

Limitations of Section 115BAC for NRIs

1. No 87A Rebate: Unlike resident individuals, NRIs don’t get the ₹7 lakh rebate benefit.

2. No Deductions: If you invest in eligible schemes or pay insurance premiums in India, you won’t benefit from tax savings under 115BAC.

3. No HRA or Home Loan Relief: NRIs with a property in India on loan won’t get interest deduction under this regime.

Should NRIs Opt for Section 115BAC?

That depends on your income type and deductions.

✅ Opt for 115BAC if:

• You have minimal or no deductions

• Your Indian income is passive (e.g., rent, capital gains)

• You prefer simplified compliance

❌ Stick to the old regime if:

• You claim deductions under 80C/80D

• You have a home loan or pay rent and claim HRA

• Your taxable income is just under ₹7 lakh (as you won’t get 87A rebate as an NRI)

Example Scenario

Let’s assume an NRI earns ₹10 lakh in rental income in India.

• Old Regime:

  • Claims ₹1.5 lakh under 80C, ₹25,000 under 80D

  • Taxable income = ₹8.25 lakh

  • Tax ≈ ₹46,800 (approx.)

• Section 115BAC:

  • No deductions

  • Tax = ₹60,000

Conclusion: In this case, the old regime is more beneficial.

How to Opt for Section 115BAC?

• While filing your Income Tax Return (ITR), you can choose the new regime under 115BAC by selecting the relevant option in the form.

• Once chosen, the tax calculation will be done as per the new slabs without deductions.

Conclusion

Income Tax Act Section 115BAC for NRI provides a cleaner, simpler taxation path—but it’s not for everyone. NRIs should compare both regimes carefully before filing. If your income in India is simple and deduction-free, 115BAC may offer savings. But if you invest in tax-saving instruments or claim deductions, the old regime may still work better.

Speak to a qualified tax advisor before making the final call—because when it comes to income tax, the smallest decisions can make a big difference.