New vs Old Scheme of Tax Rates: A brief analysis of section 115BAC

Section 115BAC of Income Tax Act.

1. Clause 53 of the Bill seeks to insert new section 115BAC in the Income-tax Act relating to tax on income of individuals and Hindu undivided family. These amendments will take effect from 1st April, 2020 and will, accordingly, apply in relation to the assessment year 2020-2021 and subsequent assessment years.

115BAC. (1) Notwithstanding anything contained in this Act but subject to the provisions of this Chapter, the income-tax payable in respect of the total income of a person, being an individual or a Hindu undivided family, for any previous year relevant to the assessment year beginning on or after the 1st day of April, 2021, shall, at the option of such person, be computed at the rate of tax given in the following Table, if the conditions contained in sub-section (2) are satisfied

On satisfaction of conditions given in subsection (2), an individual or HUF shall, from financial year 2020-21 onwards, have the option to pay tax in respect of the total income at following rates:

2. The assesse will have to forego certain exemptions and deduction as mentioned in subsection (2) from the total income in order to opt for the new scheme. The income of individual or HUF shall be computed as follows-

i. Without any exemption

• Leave travel concession section 10(5);
• House rent allowance as section 10(13A);
• Deductions under section 10(14) other than certain specified deductions (discussed later);
• Allowances to MPs/MLAs as contained in section 10(17);
• Allowance for income of minor as contained in section 10(32);
• Exemption for SEZ unit contained in section 10AA;

ii. Without any deduction

• Standard deduction, deduction for entertainment allowance and employment/professional tax as contained in section 16;
• Interest on loan taken for purchase/ construction/ renewal/reconstruction of self-occupied property and vacant property u/s 24(b).
• Additional depreciation under section 32(1)(iia);
• Deductions under section 32AD (Investment in new plant or machinery in notified backward areas in certain States.), 33AB(Tea development account, coffee development account and rubber development account.), 33ABA (Site Restoration Fund);
• Various deduction for donation for or expenditure on scientific research contained in section 35(2AA) or 35(1)(ii) or (iia) or (iii);
• Deduction under section 35AD(Deduction in respect of expenditure on specified business.) or section 35CCC(Rural development allowance);
• Deduction from family pension under section 57(iia);
• 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, 80-TTA etc). However, deduction under section 80CCD(2) (employer contribution on account of employee in notified pension scheme) and section 80JJAA (for new employment) can be claimed.
  

iii. Without set off of any loss-

• carried forward or depreciation from any earlier assessment year, if such loss or depreciation is attributable to any of the deductions referred to in “a” above; or
• current year loss under the head House Property cannot be set-off against any other income.

iv. By claiming the depreciation, if any, under section 32, except section 32(1)(iia) {additional depreciation}, determined in such manner as may be prescribed; and

v. Without any exemption or deduction for allowances or perquisite, by whatever name called, provided under any other law for the time being in force.

vi. Even in the new tax regime, the following allowances will be allowed:

1. Transport Allowance granted to a divyang employee to meet the expenditure for the purpose of commuting between place of residence and place of duty

2. Conveyance Allowance granted to meet the expenditure on conveyance in performance of duties of an office;

3. Any Allowance granted to meet the cost of travel on tour or on transfer;

4. Daily Allowance to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty.

5. The loss and depreciation shall be deemed to have been given full effect to and no further deduction for such loss or depreciation shall be allowed for any subsequent year.

Provided that where there is a depreciation allowance in respect of a block of assets which has not been given full effect to prior to the assessment year beginning on the 1st day of April, 2021, corresponding adjustment shall be made to the written down value of such block of assets as on the 1st day of April, 2020 in the prescribed manner, if the option under sub-section (5) is exercised for a previous year relevant to the assessment year beginning on the 1st day of April, 2021.

6. If the individual or HUF has a Unit in the International Financial Services Centre (IFSC) as referred to in sub-section (1A) of section 80LA, the deduction under section 80LA shall be available to such Unit subject to fulfillment of the conditions contained in that section.

7. Taxpayers having business income should opt for the new regime before filing return of income. Once such taxpayer chooses the new regime, he cannot withdraw his choice for that year. The option exercised by individual or HUF (having business income) can be withdrawn only once and thereafter, the said individual or HUF shall never be eligible to exercise option under this section.

Taxpayer who do not have business income can decide on opting for the new tax regime on year on year basis.

Now the question arises before a taxpayer is whether to opt for new scheme of old scheme. Let us understand this through an example.

The choice to opt for new scheme or old scheme will depend on factors like the nature of income , deductions to be availed, etc. The choice will vary on case to case basis and a person will have to see taxability under both the cases before filing his return of income and then choose the one which leads to lower tax.