When is the New Personal Tax Regime under Section 115BAC Beneficial? An In-depth Break-Even Point Analysis

Friends, with the blessings of the Almighty, we will soon battle out and overcome this unfortunate COVID-19 outbreak and the current essential lock-down period will also pass shortly.

1. The new FY 2020-21 corresponding to the AY 2021-22, has already started w.e.f 1.4.2020. So, it is very essential on our part to be equipped and ready with an informed, wise and timely decision concerning the opting or not of the new personal tax regime u/s 115BAC of the Income Tax Act, 1961.

A lot has already been written about the new personal tax regime u/s 115BAC of the Income Tax Act, 1961, but the silver-lining of this article is its “Break-Even Point Analysis”, between the New Personal Tax Regime of Reduced Tax Rates with No Deductions and the Old Personal Tax Regime with Higher Tax Rates with Deductions, in terms of Specified Deductions, at all levels of incomes of Individuals & HUFs, which has been very comprehensively discussed in para nos. 1.5 onwards of this piece of writing.

However, before that, some basic and fundamental insights concerning this new section 115BAC are also being deliberated upon as under:

1.1 Incorporation of New Personal Taxation Regime of Reduced Tax Rates with No Deductions in Case of Individuals & HUFs (applicable w.e.f. AY 2021-22).

In line with the new regime of reduced corporate tax rates, introduced by the Taxation Laws (Amendment) Act 2019, the Finance Act 2020, has inserted a new section 115BAC, providing for a new personal taxation regime in the cases of individuals and HUFs (hereinafter referred to as ‘assessees’), wherein the ‘assessees’ have been given the option to either continue with the existing personal tax rates with availment of full specified deductions, or to opt for the new regime of reduced personal tax rates with restrictions on approximately 70% of the specified deductions, currently available to them under different chapters and sections.

1.2 New Personal Tax Slabs

The newly inserted reduced personal tax rates in the case of individuals & HUFs u/s 115BAC, in the Finance Act 2020, applicable w.e.f. AY 2021-22, are as under:

Total Income (Rs) New Regime Tax Rate (%) Old Regime Tax Rate (%)
Up to 2,50,000 Nil Nil
From 2,50,001 to 5,00,000 5 5
From 5,00,001 to 7,50,000 10 20
From 7,50,001 to 10,00,000 15 20
From 10,00,001 to 12,50,000 20 30
From 12,50,001 to 15,00,000 25 30
Above 15,00,000 30 30

Surcharge and cess shall be continued to be levied at the existing rates.

1.3 ‘Specified Deductions’ Not Allowed under New Personal Tax Regime of Reduced Taxes:

In order to avail the benefit of reduced tax rates u/s 115BAC, an individual/HUF assessee has to forgo the ‘specified deductions’ available to him under various chapters and sections of the Income Tax Act.

So, there is a big catch to this prima-facie ‘assessee-beneficial’ regime, and that is the restriction/denial of the most common and recurring deductions like deductions u/s 80C, 80CCD, 80D, HRA, LTA, Standard Deduction, interest on self-occupied/let out property, to name a few.

To be more specific, an individual or HUF opting for the new taxation regime under the newly inserted section 115BAC of the Act shall not be entitled to the following exemptions/ deductions (hereinafter referred to as the “specified deductions”):

  • Leave travel concession as contained in clause (5) of section 10;
  • House rent allowance as contained in clause (13A) of section 10;
  • Some of the allowance as contained in clause (14) of section 10;
  • Allowances to MPs/MLAs as contained in clause (17) of section 10;
  • Allowance for income of minor as contained in clause (32) of section 10;
  • Exemption for SEZ unit contained in section 10AA;
  • Standard deduction, deduction for entertainment allowance and employment/professional tax as contained in section 16;
  • Interest under section 24 in respect of self-occupied or vacant property referred to in sub-section (2) of section 23. (Loss under the head income from house property for rented house shall not be allowed to be set off under any other head and would be allowed to be carried forward as per extant law);
  • Additional deprecation under clause (iia) of sub-section (1) of section 32;
  • Deductions under section 32AD, 33AB, 33ABA;
  • Various deduction for donation for or expenditure on scientific research contained in sub-clause (ii) or sub-clause (iia) or sub-clause (iii) of sub-section (1) or sub-section (2AA) of section 35;
  • Deduction under section 35AD or section 35CCC;
  • Deduction from family pension under clause (iia) of section 57;
  • Any deduction under chapter VIA (like section 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, etc). However, deduction under sub-section (2) of section 80CCD (employer contribution on account of employee in notified pension scheme) and section 80JJAA (for new employment) can be claimed.

For ready reference and benefit of the worthy readers, the maximum permissible amounts of the above mentioned “specified deductions”, which are available to an individual/HUF assessee, under various sections, and which are required to be forgone, in order to avail the benefit of reduced taxation u/s  115BAC, have been tabulated as under:

S. No. Deduction Remarks Available to
1 Leave Travel Concession u/s 10(5) The value of any travel concession or assistance received or due. Salaried Individual
2 House Rent Allowance u/s 10(13A) Least of: Salaried Individual
a. Actual HRA received;
b. 50% of [basic salary + DA] for those living in metro cities (40% for non-metros); or
c. Actual rent paid less 10% of basic salary + DA
3 Other Allowances u/s 10(14) Actual amount of such Allowance received Salaried Individual
4 Allowances to MPs/MLAs u/s 10(17) Actual amount of such Allowance received Salaried Individual
5 Allowance for income of minor u/s 10(32) Rs.1,500/- per child Individual
6 Standard Deduction u/s 16 Rs.50,000/- Salaried Individual
7 Interest u/s 24 in respect of self-occupied or vacant property Rs.200000/- Individual/

HUF

8 Additional Depreciation u/s 32(1)(iia) Allowed to eligible assessee: 20% of the actual cost of Plant and Machinery (35% in case of Notified Backward Areas) Individual/

HUF

9 Deduction from family pension u/s 57(iia) Least of: One-third of such income or Rs.15,000/- Individual
10 Any deduction under chapter VI-A (deduction u/s 80CCD(2) and 80JJAA are allowable in both the Regimes):-
a. 80C, 80CCC, 80CCD(1): For investments in specified schemes Rs.1,50,000/- Individual/

HUF

b. 80CCD(1B): Deduction for the deposit under NPS Rs.50,000/- Individual
c. 80D: Amount invested in Health Insurance Rs.25000/- for self, spouse and dependent children; Individual/

HUF

Rs.25,000/- for parents (Rs.50,000/- if parents are Senior citizen/ Very Senior Citizen);
Rs.5,000/- for preventive health check-up of self, spouse, dependent children, father and mother; and
Rs.50,000/- for Medical Expenditures on the health of a super senior citizen if Medi-claim insurance is not paid on the health of such person.
d. Section 80DD: Expenditure incurred for the medical treatment of a dependent Rs.75,000 (Rs.1,25,000 in case of severe disability) Individual/

HUF

e. Section 80DDB: Expenditure incurred for medical treatment of specified diseases Up to Rs.40,000/- and Rs.1,00,000/- for Senior/ Very Senior Citizen  Individual
f. Section 80E: Interest paid on Educational Loan The amount of interest paid during initial year and 7 immediately succeeding assessment years Individual
g. Section 80G: Deduction for donations to certain funds, charitable institutions, etc. Deduction up to 100%/50% of the aggregate amount of donation Individual/

HUF

h. Section 80GG: Rent paid for residential accommo-dation Least of the following: Individuals not receiving HRA
a) Rent paid in excess of 10% of total income;
b) 25% of the Total Income; or
c) Rs.5,000/- per month.
i. Section 80QQB: Royalty income of books Least of the following: Individual
a) In case of Lump sum payment – maximum of Rs.3,00,000/-
b) In other cases – amount of such income subject to maximum of 15% of value of books sold during the previous year.
j. Section 80RRB: Royalty of patents Rs.3,00,000/- Individual
k. Section 80TTA: Interest on Savings Bank accounts Rs.10,000/- Individual/

HUF

l. Section 80 TTB: Interest on deposits with Post Offices, Banks, Co-operative banks Rs.50,000/- Senior and Super Senior Resident  Individuals
m. Section 80U: Persons with Disability Rs.75,000/- (Rs.1,25,000/- in case of severe disability) Individual
11 Exemption for SEZ unit u/s 10AA Deduction to eligible persons as per the provisions of said section. Individual/

HUF

12 Deductions u/s 32AD, 33AB, 33ABA Deduction to eligible persons as per the provisions of said section. Individual/

HUF

13 Deduction for donation or expenditure on scientific research u/s 35(1)(ii)/(iia)/(iii) or sec 35(2AA) Deduction to eligible persons as per the provisions of said section. Individual/

HUF

14 Deduction u/s 35AD or section 35CCC Deduction to eligible persons as per the provisions of said section. Individual/

HUF

It has also been proposed to amend rule 3 of the Rules subsequently, so as to remove exemption in respect of free food and beverage through vouchers provided to the employee, being the person exercising option under the proposed section, by the employer.

1.4 The undermentioned Allowances u/s 10(14) of the Income Tax Act, will continue to remain allowable even under the New Regime of Personal Taxation.

  • Transport Allowance granted to a divyang employee to meet expenditure for the purpose of commuting between place of residence and place of duty
  • Conveyance Allowance granted to meet the expenditure on conveyance in performance of duties of an office;
  • Any Allowance granted to meet the cost of travel on tour or on transfer;
  • Daily Allowance to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty.

This amendment will take effect from 1st April, 2021 and will, accordingly, apply in relation to the AY 2021-22 and subsequent assessment years.

The primary reason for introduction of this new personal taxation regime u/s 115BAC, as intended, has been to be simplification of tax laws, however, ironically, during the transition phase, it is resulting in more complicated scenarios, wherein, the individual and HUF assessees are faced with the difficult and intriguing question and choice of opting for one of the two personal taxation regimes, in order to optimise their taxes.

Therefore, with a view to simplify this complication, a comprehensive ‘BREAK-EVEN POINT ANALYSIS’, has been done in ensuing paragraphs, so as to guide and assist the worthy readers, in making good and informative choice and decision of opting for their most optimum tax regimes.

1.5 Break- Even Point Analysis between New & Old Personal Tax Regime

The Break-Even Point i.e. the point where both the new regime of reduced tax rates with no ‘specified deductions’ and the old regime of increased tax rates with ‘specified deductions’, for all the Income Levels/ Ranges, have been tabulated in Master Table I and have been computed in Tables 1, 2, 3 4 & 5, below, for ready reference and benefit of the worthy readers.

Break-Even Point in Terms of ‘Specified Deductions’

Usually an individual/HUF assessee has a fair bit of idea about his income range or level. So, at a particular income level, he is faced with the choice of deciding either to avail the ‘specified deductions’ by making investments etc under various sections like 80C, 80CCC, 80CCD in Chapter VIA, to name a few, under the old tax regime or to forgo the specified deductions, to avail the benefit of reduced tax rates u/s 115BAC under the new regime.

For ready reference and the benefit of the worthy readers, the break-even point in terms of ‘specified deductions’, at different levels of ‘income’ have been tabulated in Master Table I, based on detailed computations in Tables 1, 2, 3, 4 & 5, below.

As a thumb rule, the Individuals/HUFs (assessees), having the undermentioned annual incomes will benefit from the new personal tax regime of reduced tax rates u/s 115BAC, only if they are availing ‘specified deductions’ either less than or equal to the ‘specified deductions’ at the ‘highlighted break-even point’ in the below Tables.

However, if the assesses are availing more ‘specified deductions’, than those at the break-even point, then they will benefit more in the old regime, of increased tax rates, in terms of their nett. tax outflows.

1.5.1 MASTER TABLE I

Income (INR) Break Even Point For ‘Specified Deductions’ (INR) When is New Tax Regime

Beneficial?

When is Old Tax Regime Beneficial?
Up to 500000 0 At Par At Par
550000 25000 If Deductions are less than or equal to Rs 25000. If Deductions are more than Rs 25000
600000 50000 If Deductions are less than or equal to Rs 50000. If Deductions are more than Rs 50000.
650000 75000 If Deductions are less than or equal to Rs 75000. If Deductions are more than Rs 75000.
700000 100000 If Deductions are less than or equal to Rs 100000. If Deductions are more than Rs 100000.
750000 125000 If Deductions are less than or equal to Rs 125000. If Deductions are more than Rs 125000.
800000 137500 If Deductions are less than or equal to Rs 137500. If Deductions are more than Rs 137500.
850000 150000 If Deductions are less than or equal to Rs 150000. If Deductions are more than Rs 150000.
900000 162500 If Deductions are less than or equal to Rs 162500. If Deductions are more than Rs 162500.
950000 175000 If Deductions are less than or equal to Rs 175000. If Deductions are more than Rs 175000.
1000000 187500 If Deductions are less than or equal to Rs 187500. If Deductions are more than Rs 187500.
Income (INR) Break Even Point For ‘Specified Deductions’ (INR) When is New Tax Regime Beneficial? When is Old Tax Regime Beneficial?
1050000 187500 If Deductions are less than or equal to Rs 187500. If Deductions are more than Rs 187500.
1100000 187500 If Deductions are less than or equal to Rs 187500. If Deductions are more than Rs 187500.
1150000 187500 If Deductions are less than or equal to Rs 187500. If Deductions are more than Rs 187500.
1200000 191670 If Deductions are less than or equal to Rs 191670. If Deductions are more than Rs 191670.
1250000 208330 If Deductions are less than or equal to Rs 208330. If Deductions are more than Rs 208330.
1300000 216665 If Deductions are less than or equal to Rs 216665. If Deductions are more than Rs 216665.
1350000 225000 If Deductions are less than or equal to Rs 225000. If Deductions are more than Rs 225000.
1400000 233330 If Deductions are less than or equal to Rs 233330. If Deductions are more than Rs 233330.
1450000 241670 If Deductions are less than or equal to Rs 241670. If Deductions are more than Rs 241670.
1500000 & Above 250000 If Deductions are less than or equal to Rs 250000. If Deductions are more than Rs 250000.

 1.5.1a TABLE 1: Annual Income Range of Rs. 5 lakhs to Rs 7.5 lakhs

A Comparative Analysis between the New and Old Personal Tax Regime, for the Income Range of Rs. 5 lakhs to Rs 7.5 lakhs, has been tabulated below.

Income

(INR)

Tax Liability under New Regime (INR) Amount of Deductions (INR)

At Break Even Point

0 25000 50000 75000 100000 125000
Tax Liability under the Old Regime (INR)
Uptill

500000

0 0 0 0 0 0 0
550000 18200 23400 18200 0 0 0 0
600000 23400 33800 28600 23400 18200 0 0
650000 28600 44200 39000 33800 28600 23400 18200
700000 33800 54600 49400 44200 39000 33800 28600
750000 39000 65000 59800 54600 49400 44200 39000

As can be seen from above table, that an individual or HUF having an annual income of up to Rs. 5 lakhs, will be at par in both the regimes.

An individual/HUF having an annual income of Rs. 5.5 lakhs will benefit from the new regime of reduced personal tax rates only if he is availing the “specified deductions” of less than or equal to Rs. 25,000/-, in a financial year.

However, if the amount of the “specified deductions” available to him is in excess of Rs. 25,000/-, then the assessee will benefit more by continuing with the old personal tax regime, as his tax outflows will be less as compared to the new regime.

So, an individual/HUF assessee, having an annual income of Rs. 5.5 lakhs, will ‘break-even’ or will be ‘at par’ between the new and old personal tax regime, if he is availing ‘specified deductions’ of Rs. 25,000/- in a financial year.

Uptill this break-even point in terms of ‘specified deductions’, he will benefit more in new tax regime and beyond this break-even point, he will benefit more in old tax regime.

Similarly, an individual/HUF assessee, having an annual income of Rs. 6/6.5/7/7.5 lakhs respectively,

will benefit from the new regime of reduced personal tax rates only if he is availing the “specified deductions” of less than or equal to Rs. 0.5/0.75/1/1.25 lakhs respectively/-.

So, the break-even points in terms of ‘specified deductions’, for an individual/HUF assessee having an annual income of Rs. 6/6.5/7/7.5 lakhs respectively, are Rs. 0.5/0.75/1/1.25 lakhs respectively/-, in a financial year.

Similarly, the break-even points in terms of ‘specified deductions’, for an individual/HUF assessee having annual income ranging from Rs. 8 lakhs to 15 lakhs and above, have been computed and tabulated in Tables 2, 3, 4 & 5, as under:

1.5.1b TABLE 2: Annual Income Range of Rs. 8 lakhs to Rs 10 lakhs

Income

(INR)

Tax Liability under New Regime

(INR)

Amount of Deductions (INR)

At Break Even Point

137500 150000 162500 175000 187500
Tax Liability under the Old Regime (INR)
800000 46800 46800 44200 41600 39000 36400
850000 54600 57200 54600 52000 49400 46800
900000 62400 67600 65000 62400 59800 57200
950000 70200 78000 75400 72800 70200 67600
1000000 78000 88400 85800 83200 80600 78000

 1.5.1c TABLE 3: Annual Income Range of Rs. 10 lakhs to Rs 12.5 lakhs

Income (INR) Tax Liability under New Regime -Without any deductions

(INR)

Amount of Deductions (INR)

At Break Point

187500 191670 208332 216665
Tax Liability under the Old Regime (INR)
1000000 78000 78000 77133 73667 71934
1050000 88400 88400 87533 84067 82334
1100000 98800 98800 97933 94467 92734
1150000 109200 109200 108333 104867 103134
1200000 119600 120900 119600 115267 113534
1250000 130000 136500 135199 130000 127401

 1.5.1d TABLE 4: Annual Income Range of Rs. 13 lakhs to Rs 15 lakhs

Income

(INR)

Tax Liability under New Regime

(INR)

Amount of Deductions (INR)

At Break Even Point

216665 225000 233330 241670 250000
Tax Liability under the Old Regime

(INR)

1300000 143000 143000 140400 137801 135199 132600
1350000 156000 158600 156000 153401 150799 148200
1400000 169000 174200 171600 169000 166399 163800
1450000 182000 189800 187200 184601 182000 179400
1500000 195000 205400 202800 200201 197599 195000

1.5.1e TABLE 5: Annual Income Range of Rs. 16 lakhs & Above

Income

(INR)

Tax Liability under New Regime

(INR)

Amount of Deductions (INR)

At Break Even Point

250000 300000 350000
Tax Liability under the Old Regime

(INR)

1600000 226200 226200 210600 195000
1700000 257400 257400 241800 226200
1800000 288600 288600 273000 257400
1900000 319800 319800 304200 288600
2000000 351000 351000 335400 319800

 1.6 Time, Form & Manner of Exercise of Option for Availing the Benefit of Reduced Tax Rates u/s 115BAC

(i) the concessional rate shall not apply unless option is exercised by the individual or HUF in the form and manner as may be prescribed-

1. where such individual or HUF has no business income, along with the return of income to be furnished under sub-section (1) of section 139 of the Act; and

2. in any other case, on or before the due date specified under sub-section (1) of section 139 of the Act for furnishing the return of income for any previous year relevant to the assessment year commencing on or after 1st April, 2021 and such option once exercised shall apply to subsequent assessment years.

1.7 Period of Exercising Option:

(i) An individual/HUF assessee, having no business or professional income, can exercise his option of choosing between the two tax regimes, every year, based on his entitlement of ‘specified deductions’.

So, an individual/HUF assessee, having income under the heads ‘Salary’, ‘House Property’, ‘Capital Gains’ and ‘Income from Other Sources’, can opt for the new tax regime in one financial year, and can go back to the old tax regime in subsequent financial year, depending upon the circumstances and entitlement of ‘specified deductions’.

(ii) An individual/HUF assessee, having business or professional income, can opt for the new tax regime of reduced taxes with no deductions, u/s 115BAC, only once and the option once exercised, for a previous year shall be valid for that previous year and all subsequent years.

(iii) The option of the new tax regime u/s 115BAC shall become invalid for a previous year or previous years, as the case may be, if the Individual or HUF fails to satisfy the conditions and other provisions as stipulated in section 115BAC of the Income Tax Act.

(iv) the option can be withdrawn only once where it was exercised by the individual or HUF having business income for a previous year other than the year in which it was exercised and thereafter, the individual or HUF shall never be eligible to exercise option under this section, except where such individual or HUF ceases to have any business income.

1.8 Concluding Remarks

In the preceding paragraphs, an honest and sincere attempt has been made to work out and analyse all the possible permutations and combinations of income levels of an individual and HUF assessee and the specified deductions, available to him, and a break-even point, between the old regime and the new regime of personal tax, in all the income levels, in terms of the availability of specified deductions, has been worked out.

Thus, these detailed computations will surely serve as a ready referencer for all the individual/HUF assessees and the tax professionals, to make informed and most appropriate choices of their tax structures in order to optimise their taxes.

Before parting, just wish to convey my loving Readers,

“Stay Healthy, Safe & Productive in this Lock-down period and keep reading and loving my write-ups and Books.”

Author Bio

Qualification: CA in Practice
Company: TaxAaram India Pvt Ltd & S M Mohanka & Assocaites
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Member Since: 28 Jan 2018 | Total Posts: 49
Hi there!! I am Mayank Mohanka, FCA, Founder Director in TaxAaram India Pvt Ltd & Senior Partner in M/s S M Mohanka & Associates. Philosophy of Life: There is one thing which is more powerful than your Nav Grahas & that is Your Will Power.. I can be reached at mayankmohanka@gmail.com View Full Profile

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4 Comments

  1. GOPINATH GOPUDAMPALLI says:

    Thank you Sir, Very useful and illustrative article. Until i read your article. I was in a perception that, new regime tax rates are not beneficial at all. With the help of your article, i can explain and share these benefits to all my colleagues and friends,which help us a lot.

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