Before start reading, we would like to clear the fact that this write up is only meant for salaried class employees and not meant for individuals having business Income. As there are some differences in the scheme for the salaried and non-salaried class of persons.

Little Background

The date of submission of investment proof is coming closer for the FY 2020-21, you have to submit your eligible investment proofs to your office’s accounts division, so that you can save your money in the form of non-deduction of TDS.

However, making investment is also not an easy job, a lot of mind puzzling options are there in the market which render us so confused that sometime in the limitation of time we invest in such an irrelevant option which, no doubt, saves our tax but did not provide adequate return or we can say not provide satisfaction. Some people who already holds all the necessary policies/Investments, has to buy again uselessly just in the wake of saving taxes. They Forget the rationale behind the making investment that investment must be one which can fulfil your requirement and future goals and the sole objective of buying investment should not be saving tax. In order to minimise the burden of buying unnecessary policies/investments, Budget 2020 introduced a new scheme for Individuals in which a person who do not wish to avail the benefit of 80C investments can go for Alternate Tax Regime that is different from the regular scheme that it has different slab for taxation in comparison to regular slab. Let’s know this alternate Tax Regime in Detail:

Alternate Tax Regime u/s 115BAC from the Perspective of Salaried Class Employees (Effective from FY 2020-21).

1. Introduction:

Budget 2020 introduced section 115BAC. This section talks about alternate tax regime. In this regime if any person who did not claim the benefit of investment and forego some deduction can avail this scheme. Slab for the Tax Rates is given below in the table.

Tax Rates as per New Regime

Sl. No. Total income Rate of tax As per New Regime
(1) (2) (3)
1. Up to 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 Existing Regime

Sl. No. Total income Rate of tax as per New Regime
(1) (2) (3)
1. Up to 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:

2. Some Important Points:

i. Basic Exemption Limit is Rs. 2,50,000/- in each and every case. I.e., no different exemption limit is there in case of Senior citizen or Super Senior citizen. (There is exemption Limit of Rs. 3 Lac for the Senior Citizen and Rs. 5 Lac Exemption for the Super Senior Citizens under the old regime)

ii. Rebate u/s 87A is also applicable in the alternate tax regime in line with existing scheme. i.e., up to the Rs. 12,500/- tax rebate u/s 87A is allowed if income is up to Rs. 5 Lac.

3. Deductions to forego:

Following Deduction shall not be allowed to the person adopting the new regime:

  1. Leave Travel Concession Benefit (LTC) u/s 10(5)
  2. House Rent Allowance Benefit (HRA) u/s 10(13A)
  3. Standard Deduction, Entertainment Allowance, Professional Tax on Salaries u/s 16
  4. Other Special Allowance u/s 10(14)
  5. Interest on Housing Loan u/s 24(b)
  6. Allowance to MPs u/s 10(17)
  7. Allowance on Account of Clubbing of Minor Child’s Income u/s 10(32)
  8. Deduction from Family Pension u/s 57(iia)
  9. Deductions under Chapter VI-A (80C, 80D, 80E Etc.) except employer contribution to NPS u/s 80CCD(2)

So, if you don’t have genuine deductions then you can go for new regime without invest your money in unwanted options, simply pay tax at new slab, it will also save your tax in comparison to existing tax slab.

4. Comparison between new Tax slab and Existing Tax Slab:

Suppose a Salaried Class person with no Investments and no housing loan, then his/her tax liability will be as under:

Total Taxable Income Existing Slab New Slab Savings
Rs. 5 Lac Nil Nil Nil
Rs. 7.50 Lac 57350 40970 16380
Rs. 10 Lac 111980 81940 30040
Rs. 15 Lac 270400 204840 65560
Rs. 25 Lac 598150 532600 65550

So, in the above table we understand that a person with No Deductions and No Housing Loan shall be benefitted by adopting new slab. However, it should also be note that maximum saving will be Rs. 65,550/- as income after Rs. 15 lacs get taxed at the same rate.

Now let’s take a case where a salaried class person having 80C Deductions of Rs. 1,50,000/- Lac, 80D Deduction of Rs. 25000/- and of course standard deduction of Rs. 50,000 is also there.

Gross Income Deductions Net Taxable Income Tax under Existing Slab Tax Under New Slab Saving / (Loss)
5 Lac 2.25 Lac 2.75 Lac Nil Nil Nil
7.50 Lac 2.25 Lac 5.25 Lac 19110 40970 (21860) Loss
10 Lac 2.25 Lac 7.75 Lac 73740 81940 (8200) Loss
15 Lac 2.25 Lac 12.75 Lac 213040 204840 8200 Saving
25 Lac 2.25 Lac 22.75 Lac 540800 532600 8200 Saving

So, in the above table you see the difference of tax. Tax will get changed every time with the change in income level, however at some levels it will give loss in adopting the new regime while at some levels it will give saving in adopting the new regime.

Now let’s take a last scenario where a salaried class person having Section 80C Deduction of Rs. 1.50 Lac, Section 80D Deduction of Rs. 25000 and also having home loan interest rebate which is allowed up to Rs. 2 Lac in case of Self occupied house. Of course, Rs. 50000 standard deduction is also there. Hence, he will be eligible for a total deduction of Rs. 425000 if he or she adopts exiting tax slab, however, such person shall not get a single rupee deduction if he or she adopts new tax regime.  Now compute the tax in different Income Levels.

Gross Income Deductions Net Taxable Income Tax under Existing Slab Tax Under New Slab Saving/(Loss)
5 Lac 4.25 Lac 0.75 Lac Nil Nil Nil
7.50 Lac 4.25 Lac 3.25 Lac Nil 40970 (40970) Loss
10 Lac 4.25 Lac 5.75 Lac 30040 81940 (51900) Loss
15 Lac 4.25 Lac 10.75 Lac 147490 204840 (57350) Loss
25 Lac 4.25 Lac 20.75 Lac 475240 532600 (57360) Loss

So, in the above table you observed that if the person has the deductions then tax expense will be high in the new regime in comparison to old regime.

5. How to adopt the New Regime:

As per the rules, person can choose the option at the time of filing the return. He has to tick the option whether he want to calculate the Tax under the old regime or under new regime, and this option can vary every year that means assessee can change the option every year if he is not having Business Income.

6. Intimation to Employer for TDS

As per circular No. C1/2020 dated 13th April 2020 employee has to intimate the employer that which option he is going to choose so that employer can deduct the TDS accordingly. However, such intimation is not deemed as adopting any option for the Filing of return i.e., suppose employee give the employer intimation of adoption of new regime and he agreed for TDS deduction as per the slab of new regime and later on the at the time of filing of ITR, employee change his mind to remain under existing scheme, then he can do so at the time of Filing ITR. In other words, final adoption of the regime will take place at the time of filing ITR.

7. Concluding Remarks

This new scheme will be prima facia more beneficial for that salaried person who do not have so much investment deductions like un-married young employees, they have to pay tax at the higher side without any deduction available, now after the launch of this new scheme they will be benefitted. However, every person must calculate the tax under the both regime and then compare the tax so that no any confusion left un-cleared. Though there are some tricks through which one can more quickly find out the best option but it is strongly advisable to compare the both result by proper calculations. One more favourable thing is that employee at their option can choose every year the best option for them. So, in Nut shell it is an overall a good step taken by the Govt.

Author Bio

Qualification: CA in Practice
Company: N G R & Associates
Location: FARIDABAD, Haryana, IN
Member Since: 10 May 2020 | Total Posts: 9
Nishant Singla is Fellow Member of Institute of Chartered Accountants of India (ICAI) M. No. 536056 . He has completed his Chartered Accountant Course in the Year 2014; he has also completed Certificate Course of Valuation of Shares conducted by ICAI in the year 2015 View Full Profile

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March 2021