New Income tax rate for individuals and HUFs

1. A new section 115BAC is inserted in the Income Tax Act by Finance Bill 2020 which provides that On satisfaction of certain conditions, an individual or HUF shall, from P.Y. 2020-21, A.Y. 2021-22 onwards, have the option to pay tax in respect of the total income at following rates:

Total Income (Rs) Rate
Upto 2,50,000 Nil
From 2,50,001 to 5,00,000 5 per cent
From 5,00,001 to 7,50,000 10 per cent
From 7,50,001 to 10,00,000 15 per cent
From 10,00,001 to 12,50,000 20 per cent
From 12,50,001 to 15,00,000 25 per cent
Above 15,00,000 30 per cent

2. This section is optional for individual and HUF. In other words, an individual or HUF may either opt for existing income tax slab rate applicable to them or go for new income tax slab rates as mentioned above.

3. Existing income tax slab rate for individual and HUF are as follows:-

Total Income (Rs.) Rate
Upto 2,50,000 Nil
From 2,50,000 to 5,00,000 5 per cent
5,00,001 to 10,00,000 20 per cent
Above 10,00,000 30 per cent

4. But for offering total income to new income tax rates, individual and HUF has to fulfill a condition. The condition for concessional rate shall be that the total income of the individual or HUF is computed

i. Without allowing exemption of

1. Leave travel concession u/s 10(5)

2. House rent allowance u/s 10(13A)

3. Some of the allowances u/s 10(14)

4. Allowances to MPs/MLAs u/s 10(17)

5. Allowance for income of minor u/s 10(32)

6. Section 10AA available to SEZ unit

ii. Without allowing deduction of

1. Standard deduction, entertainment allowance and employment/professional tax u/s 16

2. Interest on loan taken for purchase/construction/renewal/reconstruction of self-occupied property and vacant property u/s 24(b)

3. Additional depreciation u/s 32(1)(iia)

4. Investment allowance @15% of actual cost of plant and machinery in respect of manufacturing units set up in notified areas of West Bengal, Bihar, Andhra Pradesh and Telangana

5. Deposit made to Tea Development Account/Coffee Development Account/Rubber Development Account u/s 33AB

6. Deposit made to Site Restoration Fund Account u/s 33ABA

7. Contribution made to approved institution/college/university for scientific research u/s 35(1)(ii)

8. Contribution made to approved institution/college/university for social and statistical research u/s 35(1)(iii)

9. Contribution made to approved Indian Company engaged in research and development for scientific research u/s 35(1)(iia)

10. Contribution to IIT and National Laboratory for scientific research u/s 35(2AA)

11. Capital expenditure in respect of specified business u/s 35AD

12. Expenditure incurred on notified skill development expenditure u/s 35CCC

13. Family pension u/s 57(iia)

iii. Without claiming 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

iv. without set off of any loss –

1. carried forward or depreciation from any earlier assessment year, if such loss or depreciation is attributable to any of the deductions referred above

2. under the head house property with any other head of income (This means loss under the head house property can be set off against income under the head house property but cannot be set off against income under other head in order to avail income tax rates u/s 115BAC)

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. However exemption in respect of following allowances notified under section 10(14) of the Act shall be allowed to the Individual or HUF exercising option under the proposed section 115BAC:

1. Transport Allowance granted to a handicapped employee to meet 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

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January 2021