Income Tax Act Section 115BAC for NRIs: Tax Simplification or Missed Savings?

The Indian tax system has undergone notable changes in recent years, one of the most significant being the introduction of Section 115BAC. Designed to simplify the tax structure, this section provides an optional new tax regime with reduced rates, but fewer deductions. While it has proven useful for many resident taxpayers, Non-Resident Indians (NRIs) often wonder if this route is beneficial for them.

In this blog, we explore how Section 115BAC impacts NRIs and whether it’s the right tax path for them.

What is Section 115BAC?

The income tax act section 115BAC for NRI, introduced by the Finance Act 2020 and revised in Budget 2023, allows individual taxpayers and HUFs to pay income tax at concessional slab rates, provided they forgo most exemptions and deductions.

From FY 2023–24 onwards, this new regime is the default tax system, meaning unless an individual chooses otherwise, they will be taxed under Section 115BAC.

Is Section 115BAC Applicable to NRIs?

Yes. Section 115BAC applies to:

• Non-Resident Individuals (NRIs)

• Resident Individuals

• Hindu Undivided Families (HUFs)

It does not apply to:

• Companies

• Partnership firms

• LLPs

• AOPs or BOIs

So if you’re an NRI earning income in India, such as rent, interest, or capital gains, you are eligible to opt for Section 115BAC.

Tax Slabs Under Section 115BAC (AY 2024–25)

Income Range (INR)	Tax Rate
Up to ₹3,00,000	0%
₹3,00,001 – ₹6,00,000	5%
₹6,00,001 – ₹9,00,000	10%
₹9,00,001 – ₹12,00,000	15%
₹12,00,001 – ₹15,00,000	20%
Above ₹15,00,000	30%

A rebate under Section 87A is available for income up to ₹7,00,000, bringing effective tax liability to zero under the new regime.

What NRIs Lose Under Section 115BAC

To enjoy the lower tax rates, NRIs must surrender most deductions under the Income Tax Act, including:

• Section 80C (e.g., life insurance, ELSS, PPF)

• Section 80D (health insurance)

• HRA and LTA

• Interest on housing loan (Section 24)

• Education loan interest

• Chapter VI-A deductions

This makes it important for NRIs to assess if their financial profile benefits from deductions under the old regime.

What is Still Allowed?

Despite its limitations, Section 115BAC offers a few permitted benefits:

• Standard Deduction of ₹50,000

• Employer’s NPS contribution (Section 80CCD(2))

• Rebate under Section 87A for income up to ₹7,00,000

When Should NRIs Choose Section 115BAC?

This regime could be beneficial for NRIs who:

• Have no major deductions or exemptions to claim

• Earn passive income such as interest or rent from Indian sources

• Prefer simpler filing without collecting documents for exemptions

• Are in lower income brackets and can benefit from the rebate

On the other hand, if you:

• Own property in India with a home loan

• Contribute to insurance or PPF for savings

• Pay for family health insurance

...then the old regime may offer higher tax savings.

Example Comparison

Let’s say an NRI earns ₹10 lakh in India through rent and bank interest:

• New Regime (Section 115BAC): Basic tax = ₹60,000 approx (assuming no deductions)

• Old Regime: After claiming ₹1.5 lakh under 80C and ₹50,000 under 80D, taxable income = ₹8 lakh. Tax = ₹46,800 approx.

In this case, the old regime results in tax savings, thanks to deductions.

Opting In or Out

• Salaried NRIs can switch between regimes every year when filing their ITR.

• NRIs with business/professional income must submit Form 10-IE to opt for the new regime, and can only switch once unless business is discontinued.

Final Thoughts

Section 115BAC is a valuable option for NRIs who want a hassle-free, deduction-free tax regime with lower rates. However, those with tax-saving investments or eligible deductions may still benefit more from the traditional system. It’s important to compare both regimes annually and calculate the net tax liability before filing returns.

As NRI tax scenarios vary, consulting a professional who specializes in NRI taxation can help maximize your tax efficiency.