prpri Caution before choosing NTR under Section 115BAC of Income Tax Act, 1961 Caution before choosing NTR under Section 115BAC of Income Tax Act, 1961

The Finance Act, 2020 came up with a number of amendments and introductions in the Income Tax Act, 1961 (‘Act’). One of such being the introduction, a New Tax Regime (‘NTR’) has been brought in under the Act. For the purpose of bringing the NTR into action, 2 new sections were inserted by the Government-Section 115BAC-Tax on income of Individuals and Hindu Undivided Family and Section 115BAD- Tax on income of Cooperative Societies. Both the above sections have their effect from the Assessment Year (‘AY’) beginning on or after 1st April 2021, i.e. AY 2021-22 onwards.

It is mentioned herein that Section 115BAC -Tax on income of Individuals and Hindu Undivided Family gives an option 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. 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%

Caution before choosing NTR under Section 115BAC:-

It is submitted that individual and HUF have to choose an option for NTR. Therefore, they have to be very careful to choose the option of NTR for the following reasons-

Sr. No. Particular Remark
1 Applicability NTR is applicable/ available from AY 2021-22 onwards.
2 To whom it is available? NTR is available for Individual and HUF only.
3 Whether it is optional? NTR is optional – continue with existing tax rates or choose NTR
4 Whether any age limit? NTR is available to every individual irrespective of his age.
5 What is position of rebate under Section 87A Rebate is available to resident individuals having total income of not more than Rs. 5 lakh in both tax regime.
6 Benefits not available under NTR. Under NTR, the following deduction & other benefits shall not be available –

  • 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)).
  • Without setting off any loss carried forward or unabsorbed depreciation of earlier year.
  • No depreciation u/s 32 [except clause (iia) of sub-section (1) allowed]
  • Exemption from SEZ unit u/s 10AA
  • Deduction u/s 32AD, 33AB, 33ABA, 35, 35AD, 35CCC.
7 Allowed deduction 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.
8 Application for exercise/ withdrawal of option: The Individual and HUF are required to file Form 10IE to opt in or opt out the NTR.
9 Due date of filing of Form 10IE Having Business Income: before the due date of filing of ITR.

Having Salary Income: on or before filing ITR, even if ITR is filed after due date.

10 Frequency of filing of Form 10IE Having Business Income: person with business income may have to file Form 10IE twice, once to use the NTR and the second time to switch back to the Old regime.

Having Salary Income: A salaried individual will have to file this form for every year for which he wants to choose the NTR.

11 Non-filing of Form 10IE If a taxpayer fails to file Form 10IE by the due date, then he shall be disallowed to use the benefit of concessional tax rate of NTR. The income tax department will calculate tax based on the old tax regime.
12 NTR and TDS As per CBDT Circular dated 13th April, 2020 for TDS on salary, once the choice of tax regime is communicated to the employer, then the employee cannot change the choice of tax regime during the financial year. However, at the time of filing ITR, an individual will have an option to switch to any tax regime of his/her choice, irrespective of what has been communicated to the employer.

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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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