FAQs on new scheme of Income Tax rates introduced in Union Budget 2020-21 / Finance Bill 2020.
Q1. When will the new scheme of Income Tax rates be applicable?
Ans. The new Scheme will be applicable from Asst Year 2021-22 (i.e. Financial Year 2020-21).
Q2. What is the new Scheme of Income Tax rates?
Ans. Under the new Scheme, Tax Rate will be reduced subject to certain conditions
Q3. What are Tax Slabs under new Scheme of Income Tax rates?
Ans. The Tax Rates under new Scheme will be as follows:
|Total Income (Rs)||Rate|
|From 2,50,001 to 5,00,000||5 per cent.|
|From 5,00,001 to 7,50,000||10 per cent.|
|From 7,50,001 to 10,00,000||15 per cent.|
|From 10,00,001 to 12,50,000||20 per cent.|
|From 12,50,001 to 15,00,000||25 per cent.|
|Above 15,00,000||30 per cent.|
Q4. Who can opt for new Scheme of Income Tax rates?
Ans. The New Scheme is available to Individual or HUF only
Q5. What are the conditions for opting in the Scheme of Income Tax rates?
Ans. Conditions under the Scheme are as follows:
1. Deductions/ Exemptions shall not be allowed in computing Taxable Income
2. Setoff of Carried forward loss or depreciation shall not be allowed if it is attributable to such Deductions/ Exemptions
3. Additional Depreciation shall not be allowed
4. Deduction of Interest paid on Self Occupied Property shall also not be allowed.
5. No Deduction/Exemption for any Allowance or Perquisite shall be allowed.
6. Standard Deduction on Salary shall also not be allowed.
Q6. What type of Deductions/ Exemptions shall not be allowed?
Ans. Following Deductions/ Exemptions shall not be allowed:
1. Leave Travel Concession
2. House Rent Allowance
3. Standard Deduction/ Entertainment Allowance/ Professional Tax
4. Deduction from family pension
5. Deductions u/s 80C, 80CCC, 80E, 80D, 80DD, 80G, etc.
Q7. How can the option to opt for the new scheme be exercised? Whether the option has to be exercised every year? Can one opt out of the Scheme and pay Tax at regular rates?
Ans. The Taxpayers under scheme have been divided in two ways – Persons having Business Income and Persons not having any Business Income.
In case of Individual/HUF not having any Business Income:
1. Option has to be exercised every year.
2. The option can be exercised while filing Return of Income .
3. A person can freely opt in scheme and opt out of the scheme. The tax Rates will be applicable as per the Option exercised at the time of filing of Return every year.
In case of Individual/HUF having Business Income:
1. Option has to be exercised once and it will be valid for that year and subsequent years.
2. Option has to be exercised before the Due Date of filing Return for the Assessment Year in the form and manner to be prescribed.
3. If a person wants to opt out of the scheme in any subsequent assessment year, he can do so but only once. The person can never opt in the Scheme again.
4. However if in any year he is not having any Business Income, then he can opt in the Scheme in that year as in case of Individuals without Business Income, who have to exercise option every year.
Q8. What if after opting in the persons fails to satisfy the conditions?
Ans. The option shall become invalid for a previous year if the Individual/HUF fails to satisfy conditions and other provisions of the Act shall apply.
Q9. Will a person opting for the scheme have to pay AMT also?
Ans. The provisions AMT shall not apply to such individual or HUF having Business Income if the option is exercised. The provisions related to carry forward and set off of AMT Credit shall also not apply to such person.
Q10. What are the Deductions/ Exemptions that can be claimed under the Scheme?
Ans. Following Deductions/ Exemptions can be claimed
1. Deduction under sub-section (2) of section 80CCD (employer contribution on account of employee in notified pension scheme)
2. Deduction u/s 80JJAA (for new employment)
3. Transport Allowance granted to Divyang Employee for commute between place of residence and duty
4. Conveyance Allowance for expenditure in performance of duties of office.
5. Allowance granted to meet cost of travel on tour /transfer.
6. Daily Allowance to meet charges incurred by employee on account of absence from normal place of duty.
(Author: CA. Mohit Gaba, N.K.GABA & Co. Chartered Accountants. The author can be reached at firstname.lastname@example.org, M: +919872473334)