New Scheme of Taxation U/S 115BAC of Income Tax Act, 1961

INTRODUCTION

A new scheme of taxation has been introduced by the Finance Act ,2020 by insertion of   a new Section 115BAC. The basic feature of this new tax regime is lower tax rates as compared to existing slab rates but on the other hand the assessee has  to forego around 70 exemptions and deductions presently available .

APPLICABILITY OF THE SCHEME

This scheme is applicable w.e.f. Assessment Year 2021-22. It is applicable to

• Individuals
• HUFs
• Both Resident as well as Non-Residents

The  scheme is ,however, optional and the assessee can continue with the existing system of taxation. The switchover from one scheme to the another is allowed subject to certain conditions as discussed later.

TAX RATES U/S 115BAC AND COMPARISION WITH EXISTING RATES

The tax rates under the New Tax Regime as per the section 115BAC are as under:-

TOTAL INCOME	INCOME TAX
Upto Rs. 2,50,000	NIL
From Rs. 2,50,000-Rs. 5,00,000	5%
From Rs. 5,00,001- Rs. 7,50,000	10%
From Rs. 7,50,001- Rs. 10,00,000	15%
From Rs. 10,00,001- Rs. 12,50,000	20%
From Rs. 12,50,001- Rs. 15,00,000	25%
Above Rs. 15,00,001	30%

As we see in the above table we have lots of income slabs and reduced Income tax rates. Let us see a comparison between the new tax slabs and old tax slabs:

Old Tax Slabs		New Tax Slabs
Rs. 2,50,000-5,00,000	5%	Rs. 2,50,000-5,00,000	5%
Rs. 5,00,001-10,00,000	20%	Rs. 5,00,001-7,50,000	10%
Rs. 10,00,001 & above	30%	Rs. 7,50,001-10,00,000	15%
		Rs. 10,00,001-12,50,000	20%
		Rs. 12,50,001-15,00,000	25%
		Rs. 15,00,001 & above	30%

It is to be noted here that the slab rate of Rs. 3,00,000/ Rs. 3,50,000 enjoyed by Senior Citizens/Super Senior Citizens  in Old slabs will not be available to them if they opt for this new tax regime. However, Rebate U/S 87A , Surcharge, Education Cess , Special Rates of Chapter XII will be same in the new tax regime as it is  the existing system.

EXEMPTIONS AND DEDUCTIONS TO FOREGO U/S 115BAC

1. Under the Head of Salary

If assessee opts for Sec 115BAC, the total income shall be computed without any exemption or deduction under the provisions of:-

• Sec 10(5) [ Leave Travel Concession]
• Sec 10(13A) [House Rent Allowance]
• Sec 10(14) [special allowances except following prescribed items:
• Transport allowance granted to Divyang Employees
• Conveyance Allowance
• Any allowance to meet the cost of travel or on transfer
• Allowance to meet the ordinarily daily charges incurred by employee
• Sec 10(17) [Allowances to MPs or MLAs]
• Sec 16 [Standard deduction , entertainment allowance & professional tax]

2. Under the head House Property

If assessee opts for Sec 115BAC, the total income of the Individual or HUF shall be computed without any exemption or deduction under the provisions of:-

• Sec 24(b) [Interest on borrowing in respect of Self occupied property]
• Loss from House Property can be set off against Income from House Property. However, it cannot be set-off against any other head of income.
• While computing, Income from House Property , deduction of 30 % and Municipal taxes paid are allowed. However, deduction is not allowed for interest on capital borrowed.

3. Under the Head Profits and Gains from Business and Profession

If assessee opts for Sec 115BAC, the total income of the Individual or HUF shall be computed without any exemption or deduction under the provisions of:-

• Sec 32(1)(iia) [Additional depreciation]
• Sec 32AD [Investment in new plant or machinery in notified backward areas]
• Sec 33AB [Tea, Coffee, Rubber development account]
• Sec 35(1)(ii)/(iia)/(iii) or Section 35(2AA) [Certain payments to research association, university, college, national laboratory, etc.]
• Sec 35AD [Investment linked deduction]
• Sec 35CCC[Expenditure on agricultural extension project]
• Sec 57(iia) [Deduction from family pension]
• Any brought forward loss of A.Y. 2020-21 and earlier Assessment Years which is because of 32AD, 33AB, 35(1)(ii)/(iia)/(iii), 35(2AA), 35AD, 35CCC shall not be allowed to be carried forward and set-off. The same will lapse.Also same with Unabsorbed Depreciation on account of Additional Depreciation.
• Current year house property loss cannot be set- off against any other head of income.
• Sec 10AA [Exemption for SEZ units]
• Sec 10(32) [Exemption for minor’s income upto Rs. 1500/-]

4. Chapter VI A deductions

If assessee opts for Sec 115BAC, the total income of the Individual or HUF shall be computed without any deduction under the provisions of:-

• Sec 80CCD(2) [Employer’s contribution to Pension Fund]
• Sec 80JJAA [Deduction for additional employee cost]
• Sec 80LA [in case of unit located IFSC which fulfils the conditions specified therein]

OPTING IN AND OPTING OUT OF SEC 115BAC

Different conditions are prescribed for opting in or opting out of the scheme depending upon whether the assessee has income from business or profession or otherwise.

• In case of Individual/HUF not having income from business/profession

The assessee can opt for the section every year on or before the due date of filing of return. The important thing to bear in mind here is that if the return is a belated one, then the assessee cannot opt for this scheme. So, the assesses wanting to opt for this scheme should keep this in mind and opt for it before the due date of filing return even if the return would be a belated one.

• In case Individual/HUF having income from business/profession

The assessee has to opt for the section on or before the due date of filing of return. However,  If  the assessee opts for this section, then he/she is bound by the section for lifetime. However, an assessee can opt out of the section but if he opts out, then he cannot opt this section for lifetime thereafter.

FORM 10-IE TO EXERCISE THE OPTION

Form 10-IE is to submitted for exercising this option. Salaried assesses do not have to fill this form. They just need to exercise this option while filing the return by  ticking the appropriate box in the return form  itself. But the assessees having business/profession income need to ill up this form.  They have to submit this every year on or before the due date of filing of return. One has to keep in mind that it is not applicable in belated returns and revised returns. Non filing of 10-IE for  income from business/profession and non exercising of this option by the salaried assessees will not entitle the assessee to avail the benefit of section 115BAC. Form 10IE is given herein below:

DUE DATE OF FILING OF FORM 10-IE

• Assessee having Income from profits and gains of business or profession

They have to file the form 10-IE before the due date of filing of return. If return is filed belated   and 10-IE is not filed before the due date, new scheme will not be available.

• Assessee having salaried income

They  have to exercise this option at the time of filing of ITR(even if ITR is filed after due date).In this case , due date of ITR is not important but exercising of option at the time of filing of ITR is important even if belated return is filed.

Option once excercised by filing Form 10IE cannot be withdrawn subsequently for the same assessment year. Declaration under Clause 5 of Form 10IE is very clear on this point which is reproduced below:

“I understand that the option under clause (i) of sub-section (5) of section 115BAC, once exercised in a previous year, cannot be withdrawn for the same previous year and can subsequently be withdrawn only once for any other previous rendering me/ Individual/ HUF* ineligible for exercising option under section 115BAC in terms of proviso to sub-section (5) thereof.”

CBDT CLARIFICATIONS

Some issues have come up due to the operation of Section 115BAC particularly with regard to deduction of tax by the employerS. Central Board of Taxes(CBDT) has issued following clarifications which are important in understanding the provisions of Section 115BAC and related issues:

Impact on TDS deduction by Employer

• What Slab Rate Employer Need to deduct TDS on Employees from April 2020 onward for FY 2020-21?

Employer has to take declaration from Employee. An employee, having income other than the income under the head “profits and gains of business or professions” and intending to opt for the concessional rate under section 115BAC of the act, may intimate the deductor, being his employer, of such intention for each previous year and upon such intimation, the deductor shall compute his total income and make TDS thereon in accordance with the provision of section 115BAC of the act.

• What if no Intimation is received from Employee?

If such intimation is not made by the employee, the employer shall make TDS without considering the provision of section 115BAC of the Act.

• Can Employee Change Declaration to change method?

No, once declaration is given Employee cannot change, It is also clarified that the intimation so made to the deductor shall be only for the purposes of TDS during the previous year and cannot be modified during that year.

• Can Employee Change Method at the time of filing Returns?
• Yes an option is given to employee to chose any method at the time of filing returns of income for FY 2020-21
• The intimation would not amount to exercising option in terms of sub section (5) of section 115BAC of the act and the person shall be required to do so along with the return to be furnished under sub-section (1) of section 139 of the Act for the previous  year. Thus, option at the time of filing of return of income under sub-section (1) of section 139 of the act could be different from the intimation made by such employee to the employer for that previous year.
• What if no Declaration is given by Employee?

Employer has to deduct TDS considering in Old Slab Rates.

IS THIS NEW INCOME TAX SLAB BENEFICIAL FOR THE TAXPAYER?

• Under current tax system the tax rates are high but there are a lot of ways to reduce tax liability. There are over 70 exemptions and deduction options available to taxpayers through which they can bring down their taxable income and hence pay less.
• The new tax regime have more slabs and lower taxes but not many ways to reduces taxes i.e. through claiming deductions and exemptions as the taxpayer has to forgo the benefits of over 70  deductions and exemptions.
• If taxpayers want to opt for the new tax regime, they should evaluate both the regimes and they may choose one which is more beneficial to them in terms of reduced tax. It may look cumbersome and time consuming both for the tax professionals and tax payers . But nowadays mostly returns are filed through softwares which automatically calculate the taxes under both the regimes. Further, The income tax department has also made a tax comparison utility, which is available on their web portal where an individual taxpayer can use to evaluate which option is better for him/her. The link to the same is as under: https://www.incometaxindiaefiling.gov.in/Tax_Calculator/

HAPPY RETURN FILING!