Last year through Tax Ordinance rates of Corporate Assessees were lowered by way of providing them an option to choose lower rate by foregoing certain deductions. In Finance Bill, 2020 Honorable Finance Minister has provided an option to Individuals and HUF to opt for lower tax rate by foregoing certain exemptions / deductions. New slab rates under the lower tax option is as below:-

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

However above rates will be available if certain deductions / exemptions are foregone. Below table shows the analysis as to who all should opt for lower rate-

Total Income (As per current regime after deductions / exemptions) When Beneficial
Upto 2,50,000 Tax Payable NIL hence no impact
From 2,50,001 to 5,00,000 Tax Payable NIL hence no impact
From 5,00,001 to 7,50,000 Exemption / Deduction to be foregone is less than Rs. 10,000 to Rs. 1,66,670 depending upon exact Income amount
From 7,50,001 to 10,00,000 Exemption / Deduction to be foregone is less than Rs. 1,66,670 to Rs. 1,87,500 depending upon exact Income amount
From 10,00,001 to 12,50,000 Exemption / Deduction to be foregone is less than Rs. 1,87,500 to Rs. 2,50,000 depending upon exact Income amount
From 12,50,001 to 15,00,000 Exemption / Deduction to be foregone is less than Rs. 2,50,000
Above 15,00,000 Exemption / Deduction to be foregone is less than Rs. 2,50,000

Those having income under PGBP if once opt for said lower rate will continue with the lower rate and have to forego deductions/ exemptions in future assessment years as well. Other Assessee have option to exercise the right to opt for lower rate for each assessment year along with the return of income to be furnished.

Those willing to opt for lower rate have to forego following exemptions / deductions:-

  • HRA Exemption;
  • LFA / LTA Exemption;
  • Allowances u/s 10(14) except Transport allowance for divyang employee, Conveyance allowance for official purpose, DA etc ;
  • Allowance for income of Minor u/s 10(32);
  • Standard Deduction u/s 16;
  • Interest deduction for self-occupied house;
  • Any deduction u/s Chapter VI-A including 80C, 80CCD(1B), 80D, 80G etc;
  • Certain other deductions in respect to PGBP Income

Author’s Comment:– Generally all assessee having Total Income more than Rs. 5,00,000 fully avail deduction u/s 80C of Rs. 1,50,000. Further those having Income more than Rs. 12,50,000 will be availing either HRA Exemption / LFA Exemption and deduction under Chapter VI-A totaling more than Rs. 2,50,000. Thus the lower rate shall benefit very few assessee and appears to be only a formality done by government to showcase that along with Corporate Assessee, Government has provided lower tax rate options to Individuals and HUFs as well. Only those having Income between Rs. 5,00,000 to Rs. 7,00,000 (As per current regime after deductions / exemptions) might be willing to shift to lower tax rate. One good option given by FM is that those not having Income under PGBP head can opt for each assessment year separately at the time of filing of Income Tax Return. Thus one need to analyse the situation while filing Income Tax Return of each year and opt for Slab Rates accordingly.

Author Bio

Qualification: CA in Job / Business
Company: Fortune 500 Company
Location: Mumbai, Maharashtra, IN
Member Since: 06 Oct 2017 | Total Posts: 18
Author is a CA Final Rank holder (AIR 34 – Nov’15) and Diploma Holder in International Taxation (ICAI) currently working in a Fortune 500 company and can be reached at his facebook page – Jatin’s Tax Arena ( https://www.facebook.com/TheTaxArena/?ref=aymt_homepage_panel ) or his Linkedin acco View Full Profile

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