Clarification in respect of option under Section 115BAC of the Income Tax Act, 1961

Income Tax Circular No C1 of 2020 dated 13th April 2020

Finance Minister in her Budget Speech, 2020 had introduced new tax regime with effect from Assessment Year 2021-22, inter alia provides that an Individual or HUF having income other than ‘Income from Business or Profession’ may opt for taxation of income as defined under Section 115BAC of the act, wherein, the assessee needs to forego the following benefits i.e., the benefit of following deductions or exemptions while computing the total Income:

  • Leave Travel concession [Section 10(5)]
  • House Rent Allowance [Section 10(13A)]
  • Official and personal allowances (other than those as may be prescribed) [Section 10(14)]
  • Allowances to MPs/MLAs [Section 10(17)]
  • Allowances for income of minor [Section 10(32)]
  • Deduction for units established in Special Economic Zones (SEZ) [Section 10AA];
  • Standard Deduction [Section 16(ia)]
  • Entertainment Allowance [Section 16((ii)]
  • Professional Tax [Section 16(iii)]
  • Interest on housing loan [Section 24(b)]
  • Additional depreciation in respect of new plant and machinery [Section 32(1)(iia)];
  • Deduction for investment in new plant and machinery in notified backward areas [Section 32AD];
  • Deduction in respect of tea, coffee or rubber business [Section 33AB];
  • Deduction in respect of business consisting of prospecting or extraction or production of petroleum or natural gas in India [Section 33ABA];
  • Deduction for donation made to approved scientific research association, university college or other institutes for doing scientific research which may or may not be related to business [Section 35(1)(ii)];
  • Deduction for payment made to an Indian company for doing scientific research which may or may not be related to business [Section 35(1)(iia)];
  • Deduction for donation made to university, college, or other institution for doing research in social science or statistical research [Section 35(1)(iii)];
  • Deduction for donation made for or expenditure on scientific research [Section 35(2AA)];
  • Deduction in respect of capital expenditure incurred in respect of certain specified businesses, i.e., cold chain facility, warehousing facility, etc. [Section 35AD];
  • Deduction for expenditure on agriculture extension project [Section 35CCC];
  • Deduction for family Pension [Section 57(iia)]
  • Deduction in respect of certain incomes other than specified under Section 80JJAA, 80CCD(2) and deduction under section 80LA for Unit located in IFSC [Part C of Chapter VI-A

An Individual or HUF having income other than “Income from Business or Profession” may opt for taxation of income as defined under Section 115BAC of the act before the due date of filing of return under section 139(1) of the act i.e., 31st July of the relevant assessment year. This would result in hardship to the TDS deductor, being an employer, would not be in a position to know whether, the employee would select the option to pay tax under the new tax regime or old tax regime.

To avoid the genuine hardship caused to the employer, CBDT vide power conferred section 119 of the act has clarified by way of Circular No C1 of 2020 dated 13th April 2020, that an employee not having income from Business or Profession, and intending to opt for the new tax regime may intimate the same to his employer for each of the previous year and the employer would deducted the Tax accordingly. However, if no intimation is provided by the employee, it will be presumed that the employee would be covered under the old tax regime. The option once exercised cannot be changed by the employee during the year.

It is further clarified that the above method of intimating the employer would not be construed of having exercised the option as defined under the section 115BAC(5) i.e., the option to select the old or new tax regime before the due date specified under sub section 1 of Section 139 of the Income Tax Act. In other words, the assessee would have the option to select either of the tax regime separately for each assessment year.

Further, in case of a person who has Profits and Gains from Business or Profession also, the option for taxation under section 115BAC of the act once exercised for a previous year at the time of filing of the return of Income under sub-section (1) of the Section 139 of the act cannot be changed for subsequent previous years except in certain circumstances.

Accordingly, the above clarification would apply to such person with a modification that the intimation to the employer in his case for subsequent previous years must not deviate from the option under section 115BAC of the act once exercised in a previous year.

The new tax slab is as below:

S.No Total Income Rate of Tax
1 Upto 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%

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