As financial year 2020-21 is going to end, there is confusion in every taxpayer’s mind, what option of tax calculation he / she have to choose?

What has created this confusion? Answer is Finance Act 2020. Through Finance Act 2020, the Government has given an option to Individual and HUF taxpayers to pay tax using existing tax regime or they can alternatively choose new rates defined in section 115BAC of the Income Tax Act.

New tax rates as per section 115BAC are given below:

Sl. No. Total income Rate of tax
(1) (2) (3)
1. Upto Rs. 2,50,000 Nil
2. From Rs. 2,50,001 to Rs. 5,00,000 5 per cent
3. From Rs. 5,00,001 to Rs. 7,50,000 10 per cent
4. From Rs. 7,50,001 to Rs. 10,00,000 15 per cent
5. From Rs. 10,00,001 to Rs. 12,50,000 20 per cent
6. From Rs. 12,50,001 to Rs. 15,00,000 25 per cent
7. Above Rs. 15,00,000 30 per cent

Tax rates as per old regime are given below:

Sl. No. Total income Rate of tax
(1) (2) (3)
1. Upto Rs. 2,50,000 Nil
2. From Rs. 2,50,001 to Rs. 5,00,000 5 per cent
3. From Rs. 5,00,001 to Rs. 10,00,000 20 per cent
4. Above Rs. 10,00,000 30 per cent

Following additional conditions are to be satisfied by taxpayer who does NOT HAVE business income and opts for New Tax Regime:

1. He shall not claim following deductions/exemptions from his income:

a. Leave travel concession u/s 10(5).

b. House rent allowance u/s 10(13A).

c. Allowances paid for expenses related to performance of duties u/s 10(14).

d. Allowances received by the members of Parliament and State Legislature etc u/s 10(17).

e. Deduction u/s 10(32) for each minor child upto Rs. 1,500 in case of clubbing of income of minor child with his income.

f. Deductions from salary u/s 16 for Standard Deductions of Rs. 50,000, entertainment allowance and tax on employment.

g. Interest paid on home loan for calculation of taxable income u/s 24(b) for the property which is self occupied.

h. Loss from any other house property.

i. Deduction of 1/3 of family pension or Rs 15000 whichever is less from his family pension u/s 57(iia).

j. Deduction under any of the provisions of Chapter VI-A. But still he can claim deduction for employer’s contribution made under NPS scheme u/s 80CCD(2) subject to the limit of 14% of salary in case of Central Government employee and 10% in case of other employee.

k. Any exemption/ deduction/ allowances or perquisites provided under any law other than the Income Tax Act.

2. He has to file his income tax return before due date and in his ITR he has to choose the option.

3. He can change this option in following years without any limitation on number of selections, if he does not have business income and want to do so.

4. If any assessee fails to satisfy above conditions, this option will get invalidated and the income tax will be calculated as per the old provisions of the Income Tax Act for that assessment year.

If the assessee HAS income from BUSINESS AND PROFESSION, following additional conditions are also to be satisfied to select these new tax rates:

1. He will not claim following deductions/ exemptions from his income:

a. Deductions available for newly established Units in Special Economic Zones u/s 10AA.

b. Additional depreciation on new plant and machinery @20% u/s 32(1)(iia).

c. Additional depreciation @15% on Investment in new plant or machinery in notified backward areas in certain States u/s 32AD.

d. Deduction u/s 33AB available to tea, coffee and rubber producers.

e. Deduction u/s 33ABA available to business consisting of the prospecting for, or extraction or production of, petroleum or natural gas or both.

f. Deduction u/s 35 available for payment of fund to outsider scientific research agency.

g. Deduction u/s 35AD in respect of capital expenditure incurred on specified business.

h. Deduction u/s 35CCC for expenditure on agricultural extension project.

i. Deduction u/s 8JJAA in respect of employment of new employees.

j. Loss made during earlier years.

k. Unabsorbed depreciation in respect of above sub points.

2. Normal depreciation on fixed assets will be claimed by the assessee.

3. Deduction for unabsorbed depreciation and unabsorbed losses related in above points will not be provided in any subsequent year.

4. Unabsorbed depreciation on fixed assets will be adjusted with the value of fixed assets on 01.04.2020 (Value of fixed assets will be increased accordingly).

5. Deduction under chapter VI-A for u/s 80LA in respect of certain incomes of Offshore Banking Units and International Financial Services Centre will be available.

6. If the person having business income exercise this option, and fails to comply with above conditions, this option will become invalid for that assessment year and also for subsequent assessment year also.

7. If the person having business income, once exercise this option, this options shall be automatically applied to subsequent assessment years.

8. If the person having business income want to withdraw the option exercised, he can do so but only once for a subsequent previous year but thereafter he shall never be eligible to exercise option under this section till he has only business income. If in subsequent year, he does not have business income, he can again exercise this option.

Note: The above article is for information purpose only. The author shall not responsible for any act done on the basis of information given above.

Author Bio

Qualification: CA in Practice
Company: P L Tandon & Co.
Location: Kanpur, Kashipur, Uttar Pradesh, India
Member Since: 10 Sep 2019 | Total Posts: 4
The author is a Chartered Accountant qualified in 2011 and having experience of working with listed as well as unlisted entities. Have participated in investor awareness program of the SEBI. Also participated in Swachh Vidyalaya Abhiyan of the Ministry of Power. View Full Profile

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February 2024