Alternative Tax Regime for Individuals/HUFs under Section 115BAC

Dear Friends, we know that income of Individuals/HUFs are taxable as per progressive tax slabs. The maximum rate of tax payable is @30%, when income of Individual/HUF exceeds Rs. 10.00 Lakhs in relevant previous year.

The Central Government has inserted Section 115BAC with effect from AY 2021-22 to provide Optional Tax Regime to Individuals /HUFs.

RATE OF INCOME TAX UNDER ALTERNATIVE TAX REGIME[SECTION115BAC];

Note: in this regime the exemption limit for all categories of individuals such as Individual, Senior Citizen & Super Senior Citizen are the same i.e., Rs. 2,50,000.

REBATE U/S. 87A; Rebate is available, if taxable income of an Resident Individual does not exceed Rs. 5,00,000, then rebate to the extent of Rs. 12,500 in payment of tax is available same as old regime of taxation.

TAX ON OTHER INCOMES; If an individual/HUF has income from other sources also and which are taxable at the rate specified under Chapter XII of the Income Tax Act, 1961. Then sum income are taxable with such rate specified and balance income will be taxable at the rate specified in Section 115BAC.

SURCHARGE & EDUCATION CESS;

 The Surcharge applicable in existing tax regime is also applicable to Alternative Tax Regime also.

The rates of surcharge are given below;

 Note:

i) if total income of an individual/HUF contains income from Capital Gains and tax will be calculated U/s 111 A or 112A, then Surcharge on total taxable income does not exceed @15%.

ii) The Income Tax + Surcharge as calculated above will be increased by Health and Education Cess @4%.

iii) The Maximum Marginal Tax rate under Alternate Tax Regime will be @44.744% i.e. [ 30+30*37%+ {30+30*37%} *4%]. 

IMPORTANT CONDITIONS & RESTRICTIONS;

An Individual/HUF has to satisfy below mentioned conditions to avail benefits of lower tax under Alternate Tax Regime of Section 115BAC. This scheme is available only to Individual/ HUF from AY 2021-22 onwards.

Individual may be salaried /retired employee having salary income or self-employed personal (having business income) or any other individual (having any income from any source).

BELOW MENTIONED INCENTIVES AVAILABLE IN OLD TAX REGIME ARE NOT AVAILABLE IN ALTERNATE TAX REGIME:

Total Income of an Individual/HUF will be calculated without resorting below mentioned incentives

– Leave Travel Concession (LTA) [Section 10(5)];

– House Rent Allowance (HRA) [Section 10(13A)];

– All Special Allowances except

i) Travelling Allowance

ii) Transfer Allowance

iii) Conveyance Allowance for official purposes; and

iv) Transport Allowance to an employee who is blind or deaf or dumb or orthopaedically handicapped [Rs. 3200/-pm u/s. 10(14)].

– Allowance to MPs/MLAs [Section 19(17)]

– Minor Child income rebate Rs. 1500/-pm [ section 10(32)]

– Special Economic Zone [ Section 10AA]

– Exemption of perks [ Free Food and non-alcoholic beverage (i.e., Rs. 50.00 /meal)

– Standard deduction U/s. 16(ia) of Rs. 50,000/-

– Entertainment Allowance U/s.16(ii)

– Professional Tax Paid U/s. 16(iii)

– Interest on Housing Loan [ Available Rs. 2,00,000/ max on two self-occupied properties] Section 24(b)

– Additional depreciation U/s. 32(1)(iia)

– Investment Allowance in case of backward areas U/s. 32AD

– Tea/Coffee Development Fund Allowances U/s. 33AB

– Site Restoration Fund Allowance U/s. 33ABA

– Deduction for Scientific Research Section 35(1)(ii)/(iia)/(iii) & 35(2AA)

– Capital Expenditure pertaining to specified businesses U/s. 35AD

– Agriculture Extension Project U/s. 35CCC

– Standard deduction in case of family pension U/s. 57(iia)

– Deduction U/s. 80C to 80U [ employers’ contribution towards NPS U/s. 80CCD (2), deduction U/s. 80JJAA and Deduction U/s. 80LA(1A) are allowed] 

Note:

i) The interest on PPF (as well as final payment at the time of maturity) will remain exempted U/s. 10(1) even if person opt for Alternate Tax Regime U/s. 115BAC.

ii) Interest from Sukanya Samridhi Account (as well as withdrawal or final payment from such account) will be remain exempted U/s. 10(11A). 

BELOW MENTIONED EXEMPTIONS ARE AVAILABLE UNDER ALTERNATE TAX REGIME ALSO;

– Exemption pertaining to payment of Gratuity U/s. 10(10)

– Exemption pertaining to Commutation of pension U/s. 10(10A)

– Exemption pertaining to Leave Encashment U/s. 10(10AA)

– Exemption pertaining to Retrenchment Compensation Scheme U/s. 10(10B)

– Exemption pertaining to payment scheme of voluntary retirement /separation U/s. 10(10C)

– Exemption pertaining to tax paid by the employer on non-monitory perks U/s. 10(10CC)

– Exemption pertaining to payment received under life insurance policy U/s. 10(10D)

– Exemption pertaining to interest and withdrawal from RPF U/s. 10(12)

– Exemption pertaining to payment including withdrawal from NPS U/s. 10(12A)/(12B)

– Exemption pertaining to payment from Super Annuation Fund U/s. 10(13)

STATUS OF LOSSES OF PREVIOUS YEARS;

The Total Income of an Individual/HUF will be calculated without giving effect of any loss brought forward from previous years (if such loss /additional depreciation pertains to any deductions as mentioned above)

STATUS OF DEPRECIATION

The brought forward loss/depreciation, shall be deemed to have been given full effect to and no further deduction for such loss /depreciation shall be allowed for any subsequent year.

DEPRECIATION FOR CURRENT PERIOD;

Total Income of an Individual/HUF is calculated after claiming depreciation (other than additional depreciation) is such manner as may be prescribed.

ALTERNATE MINIMUM TAX; Provisions of Section 115JC are not applicable, when an Individual/HUF opts for Alternate Tax Regime and his accumulated AMT Credit will also be lapsed and assessee cannot carry forward the same for set off.

OPTIONS AVAILABLE FOR INDIVIDUALS /HUFs U/s. 115BAC

Let’s consider;

1. An assessee does not have business/ profession income- in this case option must be exercised each year at the time of filing of return of income by the assessee. He has to intimate his employer each year his option availing Alternate Tax Regime.

Example:  Mr. X does not have income from business /profession during FY 2020-21 i.e., AY 2021-22, he exercises the option for the alternative tax regime for AY 2021-22. In this case the option is valid only for AY 2021-22. For AY 2022-23, he may or may not opt alternate tax regime and he is allowed to opt old tax regime, if he thinks it will be beneficial for him or otherwise, he has to intimate that he is opting for alternate tax regime again for AY 2022-23 to his employer or before submission of his tax return.

2. An assessee has business/profession income – they can exercise option of alternate tax regime for any previous year relevant to AY 2021-22. Once the individual/HUF has exercised the option of lower tax regime under Section 115BAC for any previous year, it remains valid for subsequent years (the assessee is not required to upload a fresh option in the next year of subsequent years). However, the option cannot be withdrawn (except when he ceases to have business/profession).

 Note:  if an individual/HUF (after opting for the alternate tax regime), fails to satisfy above conditions in a subsequent year, the option becomes invalid in respect of the year in which default is committed and subsequent years. Consequently, in such case, it will be assumed that the assessee has not exercised the option of lower tax regime under Section 115BAC in the year in which default is committed and subsequent years.

CBDT CLARIFICATION:  vide Circular No. C1/2020 dated 13^th April,2020 clarified that an employee (not having income from business/profession) can opt for the lower tax regime U/s. 115BAC by intimating the same to the employer (i.e., TDS Deductor) of such intention for each previous year.

Upon such intimation the employer (TDS Deductor) shall compute the amount to tax to be deducted from payment to Individual/HUF, U/s. 192 according to provisions of Section 115BAC.

NOTE:

i) The above intimation by an employee to his employer is only for TDS deduction and cannot be modify during the year;

ii) Such intimation to the employer does not amount to exercise of option by the concerned employee. The concerned employee is required to exercise the option under Section 115BAC (5) at the time of submission of his return of income. An employee may opt old regime at the time of filing of his return for previous year for which he has intimated to his employer to deduct TDS according to the provisions of Section 115BAC.   

iii) In case if an employee dose not intimate his employer regarding his option to choose alternate (low) tax regime or old tax regime, then employer while deducting TDS from his income ignore provisions of Section 115BAC and deduct TDS on the basis of Old Tax Regime.

CONCLUSION; The government has given options to Individuals/HUFs to choose better tax regime benefits for them. The Alternate (Lower) Tax Regime is beneficial to those assesses belong to higher income groups. In ATR many exemptions /deductions available under Sections 10, 80C to 80U are not available, but income will be taxed at lower rate. In our view the Old tax regime in which we are claiming various exemptions/deductions available in various provisions of Income tax Act,1961 are beneficial for Lower Income Group Assessees. The Alternate Tax Regime are beneficial for those assessees, for whom exemptions/deductions do not matter. We have to choose our option after assessing and calculating all benefits available in old tax regime and comparing it with alternate tax regime. So be aware of provisions of various rebates/exemptions/deductions available to you in Income Tax Act,1961 and pay your genuine taxes and concentrate on tax planning not on evasion of tax. A proper tax planning well in advance will save huge chunk of your outgoing taxes and this cultivate in you saving skills and knowledge towards various avenues available in the market.

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DISCLAIMER:  The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, author assume no responsibility, therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws and take appropriate advice of consultants. The user of the information agrees that the information is not professional advice and is subject to change without notice. Author assume no responsibility for the consequences of the use of such information.