New Tax Regime under Section 115BAC- Tax on income of Individuals and Hindu Undivided Family for FY 2020-21
The Finance Act, 2020 has introduced a New Tax Regime (‘NTR’) by inserting a new Section 115BAC -Tax on income of Individuals and Hindu Undivided Family under Income Tax Act, 1961 (‘the Act’) w.e.f. 01.04.2021. Under the said Section an option has been given to Individuals and HUF to pay income tax at lower rates i.e. under NTR. NTR is applicable for income earned for Financial Year (FY) 2020-21 [i.e. Assessment Year (AY) 2021-22]. The New Rate of Tax mentioned in table under Section 115BAC of the Act are as under-
| Sl. No. | Total income | Rate of Tax (for all Individual & HUF) |
| 1 | Up to Rs. 2,50,000 | NIL |
| 2 | From Rs. 2,50,001 to Rs. 5,00,000 | 5% |
| 3 | From Rs. 5,00,001 to Rs. 7,50,000 | 10% |
| 4 | From Rs. 7,50,001 to Rs. 10,00,000 | 15% |
| 5 | From Rs. 10,00,001 to Rs. 12,50,000 | 20% |
| 6 | From Rs. 12,50,001 to Rs. 15,00,000 | 25% |
| 7 | Above Rs. 15,00,000 | 30% |
It is pertinent to note that the income tax payable in respect of total income of a person shall be computed at new tax rate if the conditions in sub-section (2) of Section 115BAC of the Act are satisfied. Sub-section (2) of Section 115BAC of the Act may be read as under-
(2) For the purposes of sub-section (1), the total income of the individual or Hindu undivided family shall be computed,—
(i) without any exemption or deduction under the provisions of clause (5) or clause (13A) or prescribed under clause (14) (other than those as may be prescribed for this purpose) or clause (17) or clause (32), of section 10 or section 10AA or section 16 or clause (b) of section 24 (in respect of the property referred to in sub-section (2) of section 23) or clause (iia) of sub-section (1) of section 32 or section 32AD or section 33AB or section 33ABA or sub-clause (ii) or sub-clause (iia) or sub-clause (iii) of sub-section (1) or sub-section (2AA) of section 35 or section 35AD or section 35CCC or clause (iia) of section 57 or under any of the provisions of Chapter VI-A other than the provisions of sub-section (2) of section 80CCD or section 80JJAA;
(ii) without set off of any loss,—
(a) carried forward or depreciation from any earlier assessment year, if such loss or depreciation is attributable to any of the deductions referred to in clause (i);
(b) under the head “Income from house property” with any other head of income;
(iii) by claiming the depreciation, if any, under any provision of section 32, except clause (iia) of sub-section (1) of the said section, determined in such manner as may be prescribed; and
(iv) without any exemption or deduction for allowances or perquisite, by whatever name called, provided under any other law for the time being in force.
It is pertinent to note that where the person fails to satisfy the conditions contained in sub-section (2) in any previous year, the option shall become invalid in respect of the assessment year relevant to that previous year and other provisions of this Act shall apply, as if the option had not been exercised for the assessment year relevant to that previous year.
List of common Exemptions and deductions “NOT ALLOWED” under NTR-
The person opting for concessional rates in NTR will have to forgo certain exemptions and deductions available in the existing old tax regime. In all there are 70 deductions & exemptions that are not allowed, out of which the most commonly used are listed below:
- Leave Travel Allowance (LTA);
- House Rent Allowance (HRA);
- Conveyance Allowance;
- Daily expenses in the course of employment;
- Relocation Allowance;
- Helper Allowance;
- Children Education Allowance;
- Other Special Allowances [Section 10(14)];
- Standard Deduction on Salary;
- Professional Tax;
- Interest on Housing Loan (Section 24);
- Deduction under Chapter VI-A deduction (80C,80D, 80E and so on) (Except Section 80CCD(2)).
List of deductions “ALLOWED” under NTR-
- Transport allowance for specially abled people;
- Conveyance allowance for expenditure incurred for travelling to work;
- Investment in Notified Pension Scheme under section 80CCD(2);
- Deduction for employment of new employees under section 80JJAA;
- Depreciation u/s 32 of the Income-tax act except additional depreciation;
- Any allowance for travelling for employment or on transfer.
Specified date to choose the option of NTR
It is stated that person is still having an option to pay tax under the existing tax rates, however, if wants to choose NTR then he has to satisfy the conditions mentioned in sub-section (2) of Section 115BAC of the Act i.e. he has to forgo certain permissible exemptions and deductions available under income tax. Moreover, he has to choose the NTR in prescribed manner (i.e. as per Rule 21AG and in Form 10IE) before a particular date prescribed under sub-section (5) of Section 115BAC of the Act. Sub-section (5) of Section 115BAC of the Act may be read as under-
(5) Nothing contained in this section shall apply unless option is exercised in the prescribed manner by the person,—
(i) having income from business or profession, on or before the due date specified under sub-section (1) of section 139 for furnishing the returns of income for any previous year relevant to the assessment year commencing on or after the 1st day of April, 2021, and such option once exercised shall apply to subsequent assessment years;
(ii) having income other than the income referred to in clause (i), alongwith the return of income to be furnished under sub-section (1) of section 139 for a previous year relevant to the assessment year:
Provided that the option under clause (i), once exercised for any previous year can be withdrawn only once for a previous year other than the year in which it was exercised and thereafter, the person shall never be eligible to exercise option under this section, except where such person ceases to have any income from business or profession in which case, option under clause (ii) shall be available.
It is noted that as per Rule 21AG of Income Tax Rules, any individual or HUF who wishes to pay income tax as per NTR can communicate to the income tax department by filing Form 10IE. Also, Form 10IE is required to be filed if the taxpayers want to opt out of NTR. Form 10IE to be furnished before filing the income tax return of the relevant assessment year. For individuals with business income, Form 10IE can be filed before the due date of filing of ITR, i.e. 31st July or another date (in case due date is extended by the government). For individuals having a salary income, Form 10IE can be submitted before or at the time of filing of ITR.
Switch between old and new tax regime.
Individuals having business income: Individuals with business income will not be eligible to choose between the two regimes every year. Once they select NTR, they have only once in a lifetime option for switching back to the old regime. Once they switch back to the old regime, they won’t be able to choose NTR anytime in future. Hence, people with business income probably will have to file Form 10IE twice in a lifetime – once to choose NTR and the second time for switching back to the old regime.
Individuals having income ‘other than business income’: An individual with salaried income and no business income can choose between the new and old tax regimes every year. Hence, the salaried individual will have to file Form 10IE every year for opting NTR.
It is noted that Form 10IE is required to be filed in an electronic form. Taxpayers can file the form through the income tax department portal to opt for the new tax regime for FY 2020-21 and onwards. The form will be filed using either the digital signature or through an electronic verification code (i.e EVC). The income tax department is yet to notify the procedure of filling and verifying the form.
Comparison between New Tax Regime & Old Tax Regime.
| Income Tax Slab | Existing Tax Slab Rates for FY 19-20 and FY 20-21 | New Tax Regime Slab Rates FY 20-21 | ||
| Resident Individual & HUF<60 years of age & NRIs | Resident Individual & HUF>60 to <80 years | Resident Individual & HUF>80 years | Applicable all individuals & HUF | |
| Up to Rs. 2,50,000 | NIL | NIL | NIL | NIL |
| From Rs. 2,50,001 to Rs. 3,00,000 |
2 5% (tax rebate u/s 87A) |
NIL | NIL |
5% (tax rebate u/s 87A) |
| From Rs. 3,00,001 to Rs. 5,00,000 | 5% (tax rebate u/s 87A) | NIL | ||
| From Rs. 5,00,001 to Rs. 7,50,000 | 20% | 20% | 20% | 10% |
| From Rs. 7,50,001 to Rs. 10,00,000 | 20% | 20% | 20% | 15% |
| From Rs. 10,00,001 to Rs. 12,50,000 | 30% | 30% | 30% | 20% |
| From Rs. 12,50,001 to Rs. 15,00,000 | 30% | 30% | 30% | 25% |
| Above Rs. 15,00,000 | 30% | 30% | 30% | 30% |
- Tax rates in the NTR is the same for all categories of Individuals, i.e Individuals & HUF upto 60 years of age, Senior citizens above 60 years upto 80 years, and Super senior citizens above 80 years. Hence no increased basic exemption limit benefit will be available to senior and super senior citizens in the NTR.
- Individuals with net taxable income less than or equal to Rs 5 lakh will be eligible for tax rebate u/s 87A i.e tax liability will be nil of such individual in both – New and old/existing tax regimes.
- Basic exemption limit for NRIs is of Rs 2.5 Lakh irrespective of age.
- Additional Health and Education cess at the rate of 4 % will be added to the income tax liability in all cases. (increased from 3% since FY 18-19)
- Surcharge applicable as per tax rates below in all categories mentioned above:
- 10% of Income tax if total income > Rs.50 lakh
- 15% of Income tax if total income > Rs.1 crore
- 25% of Income tax if total income > Rs.2 crore
- 37% of Income tax if total income > Rs.5 crore
Which Option is best for an assessee?
For which option is best to an Individual or HUF, it is advisable to do a comparative evaluation and analysis under both regimes and then choose the most beneficial one as it may vary from person to person. Let’s take an example of comparing the both regime of an assessee with Rs 10,00,000 income. Mr. Sushil Antal has a salary income of Rs 10 lakh. His total investment u/s 80C is Rs 1,70,000 under ELSS, PF, LIC premium and principal instalment of home loan. Further he pays Medical Insurance for himself and his wife of Rs 28000. If he opts for the old tax regime, then he can claim the above deductions, however if he wishes to go for NTR than these deductions will not be available. He has paid home loan interest of Rs 75,000 in FY 20-21. Let us see the tax outflow in both the regimes
| Particular | Old Tax Regime (Rs.) | New Tax Regime (Rs.) |
| Gross Income | 10,00,000 | 10,00,000 |
| Deductions: | ||
| u/s 80C | 1,50,000 | |
| u/s 80D | 25,000 | |
| u/s 24(b) | 75,000 | |
| Taxable Income | 7,50,000 | 10,00,000 |
| Tax Slab (Old) | ||
| 0 to Rs. 2.5 lakh | – | – |
| 2.5 lakh to 5 lakh @ 5% | 12,500 | |
| 5 lakh to 10 lakh @ 20% | 50,000 | |
| Above 10 lakh @ 30% | – | |
| Tax Slab (New) | ||
| 0 to Rs. 5 lakh | – | – |
| 2.5 lakh to 5 lakh @ 5% | – | 12,500 |
| 5 lakh to 7.5 lakh @ 10% | – | 25,000 |
| 7.5 lakh to 10 lakh @ 15% | 37,500 | |
| 10 lakh to 12.5 lakh @ 20% | – | – |
| 12.5 lakh to 15 lakh @ 25% | – | – |
| Above 15 lakh @ 30% | – | – |
| Income Tax | 62,500 | 75,000 |
| Cess @ 4% | 2,500 | 3,000 |
| Total Tax Liability | 65,000 | 78,000 |
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Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the authors whatsoever and the content is to be used strictly for educative purposes only.
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Sir
as you stated in the article *Individuals having income ‘other than business income’: An individual with salaried income and no business income*
My question is while reading sub clause (5)(ii) where from the salary income ref. came for choose between the new and old tax regimes every year.
if individual only have HP income and other sources income then can he choose between the new and old tax regimes every year ?