Note on Section 115BAC & Income Tax Notification No. 38/2020 dated 26.06.2020

Sec 115BAC – Tax on income of individual and Hindu undivided family is introduced in Finance Act, 2020 which is applicable to financial year commencing from 1.4.2020.

This section gives an option to an individual assesse to get it assessed under this section where special tax rate has been prescribed which is as below –

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

Assessee-employee is required to exercise this option in the prescribed manner along with return of income (ROI) to be furnished u/s 139(1) of the income tax Act. Assessee-employee is required to exercise this option for each assessment year.

The total income of the assessee-employee will be computed without giving effect any exemption or deduction as mentioned in –

(i) 10(5) – Leave travel concession (LTA)

(ii) 10(3A) – House Rent allowance (HRA)

(iii) 10(14)–Special allowance like children education allowance. Conveyance allowance

(iv) Sec 16 – Deduction from salaries like standard deduction of Rs. 50,000/- and profession tax

(v) 24(b)- interest deduction in respect of self occupied property

(vi) Chapter VI-A deduction other than Sec 80CCD(2) ie NPS contribution by employer

(vii) Without set off of any loss under the head ‘Income from house property’ with any other head of income.

(viii) Without any exemption or deduction for allowance or perquisite by whatever name called

However, CBDT has issued Notification No. 38 dated 26.06.2020 where CBDT has allowed deduction as mentioned in Clause (a) to (c ) in Rule 2BB (1) & Sr. 11 in Rule 2BB(2) which is as below

Clause (a) –  any allowance granted to meet the cost of travel on tour or on transfer;

Clause (b) –  any allowance, whether, granted on tour or for the period of journey in connection with transfer, to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty;

Clause (c) any allowance granted to meet the expenditure incurred in conveyance in performance of duties of an office of employment of profit.

Sr.11- Transport allowance granted to an employee who is blind, or orthopedically handicapped to meet his expenditure for the purpose of commuting between the place of his residence and place of his duty. The prescribed allowance is of Rs. 3,200/- p.m.

The Notification specifically provides that meal voucher covered under proviso to Rule 3(7)(iii) is not applicable.

Therefore, the CBDT has notified new rules to enable individuals to claim exemption for allowance to meet the cost of travel, daily allowance on transfer, tour allowance, for travel for official purposes to meet the travel and daily expenses, and conveyance allowance for meeting conveyance expenditure incurred in the course of performing official duties.

Persons with disabilities – blind, deaf and dumb or orthopedically handicapped employee – can also claim ad hoc exemption of transport allowance of Rs. 3,200/- per month while computing salary income. The latest rule prescribes providing transport in such cases as a responsibility of the employer and, hence, the tax exemption.

However, the benefit of  tax exemption   for free meals or non alcoholic beverages or meal voucher upto Rs.50 per meal during office hours will not be available to employees opting for new scheme.

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