New tax regime: How to opt-in or opt-out? A.Y. 2021-22

The Finance Act, 2020 came up with a number of amendments and introductions. One of such being the introduction of a new tax regime, which in essence is the biggest development and point of confusion for taxpayers. The Finance Minister announced a new set of tax slab rates for individuals, HUF and co-operative societies.

For the purpose of bringing the new tax regime into action, 2 new sections were inserted by the Ministry:

• Section 115BAC: New Tax Rate for income of individuals and HUF
• Section 115BAD: New Tax Rate for Co-operative Societies

Both the sections have their effect from the Assessment Year (A.Y.) beginning on or after 1^st April, 2021 i.e., from A.Y. 2021-22 onwards.

In this write-up we are going to discuss about Section 115BAC only.

Important points to bear in mind before choosing new tax regime:

• Applicability: The new tax regime is applicable/ available from A.Y. 2021-22 onwards. That is to say, income generated by a taxpayer in the F.Y. 2020-21 can be taxed as per the new tax regime.
• Optional: The new income tax regime is optional.
• The rates of surcharge and cess in the new income tax regime are same as those in the old (existing) regime.
• Not age-biased: The new income tax regime is available to every individual irrespective of his age i.e., even senior and super senior citizens can opt-in for the new tax regime.
• Rebate u/s 87A: Rebate is available to resident individuals having total income of not more than ₹5 lakh in both tax regimes.
• New tax slab:

• Non availability of benefits: If a taxpayer opts-in for new tax regime, the following deductions & other benefits shall not be available to him:

i. Standard deduction to salaried taxpayers;

ii. Leave Travel Allowance (LTA);

iii. House Rent Allowance (HRA);

iv. Children education allowance;

v. Other special allowances [Section10(14)];

vi. Deduction from family pension income;

vii. Interest on housing loan on the self-occupied property or vacant property (Section 24);

viii. Chapter VI-A deductions;

ix. Exemption or deduction for any other perquisites or allowances;

x. Without setting off any loss carried forward or unabsorbed depreciation of earlier year;

xi. No Depreciation u/s 32 [except clause (iia) of sub-section (1)] allowed;

xii. Exemption for SEZ unit u/s 10AA;

xiii. Deductions u/s 32AD, 33AB, 33ABA, 35, 35AD, 35CCC;

xiv. In case of a Self-occupied property, you cannot claim a deduction on interest for a housing loan.

• Allowed deductions: While most of the income tax deductions have been discontinued under the new income tax regime, the following deductions are allowed:

i. Deduction u/s 80CCD(2) (employer’s contribution to your pension account);

ii. Deduction u/s 80JJAA (additional employee cost);

iii. Transport Allowance for Differently Abled Employees (Divyang);

iv. Conveyance Allowance for performance of office duties;

v. Any Allowance for the cost of Travel/ Tour/ Transfer;

vi. Daily Allowance given to employees under certain conditions.

• Section 80LA: In case of a person, having a Unit in the International Financial Services Centre, as referred to in sub-section (1A) of section 80LA, which has exercised option, the conditions contained in Section 115BAC shall be modified to the extent that the deduction under section 80LA shall be available to such Unit subject to fulfilment of the conditions contained in the said section.
• Where there is a depreciation allowance in respect of a block of assets which has not been given full effectto prior to the assessment year beginning on 1^st April, 2021, corresponding adjustment shall be made to the written down value of such block of assets as on 1^st April, 2020 in the prescribed manner, if the option of new tax regime is exercised for a previous year relevant to the assessment year beginning on 1^st April, 2021.

• Frequency of choosing between options:

i. An individual having salaried income and no business income has the option to choose between the old and new tax regimes every year i.e., he/she can switch regimes from year to year. Therefore, such individuals will have to exercise the option of choosing the new tax regime, if they want to, for every financial year from 2020-21 onwards.

ii. Individuals having business incomeare not eligible to choose between the new and old tax regime every year. Once they have opted for the new tax regime, they only have a one-time option of switching back to the old tax regime in their lifetime. Once they switch back, they will not be allowed to opt for new tax regime again except where such person ceases to have any income from business or profession.

• Application for exercise/ withdrawal of option: The individuals and HUF are required to file form 10-IEto opt-in or opt-out the new tax regime.

FORM 10-IE

Application for exercise/ withdrawal of option under clause (i) of sub-section (5) of section 115BAC of the Income-tax Act, 1961

The Ministry of Finance vide its Notification No. 82/2020-Income Tax dtd: 1^st October, 2020 inserted two new rules in the existing Income Tax Rules to prescribe manner to exercise option under Section 115BAC and 115BAD.

• Rule 21AG- Exercise of option under sub-section (5) of section 115BAC.
• Rule 21AH- Exercise of option under sub-section (5) of section 115BAD.

Rule 21AG states that, every individual and HUF which wishes to exercise the option under Section 115BAC (new tax regime) has to file an application in Form 10-IE electronically on the Income

Tax Portal by using either digital signature or electronic verification code (EVC).

Due date of filing:

• Having business income: Before the due date of filing ITR.
• Having salary income: On or before filing ITR, even if ITR is filed after the due date.

Frequency of filing 10-IE:

• Having business income: People with business income may have to fill Form 10-IEtwice, once to use the new tax regime and the second time to switch back to the old regime.
• Having salary income: A salaried individual will have to file this form for every yearfor which he wants to choose the new tax regime.

Non-filing of form 10-IE: If the taxpayers does not file Form 10-IE by the due date, the taxpayer shall be disallowed to use the benefit of the concessional tax rates of the new tax regime. The income tax department will calculate tax based on the old/ existing tax regime.

Divergence from what was chosen earlier: As per the CBDT Circular dtd. 13^th April, 2020, for TDS on salary, once the choice of tax regime is communicated to the employer, then the employee cannot change the choice of tax regime during the financial year. However, at the time of filing income tax return, an individual will have an option to switch to any tax regime of his/her choice, irrespective of what has been communicated to the employer.

Content of form:

• Name of the individual/HUF
• Confirmation – Whether the individual/HUF has any income under the head profit or gains from business or profession
• PAN
• Address
• Date of Birth/Incorporation
• Nature of Business/Profession
• Confirmation – If taxpayer has any unit in International Financial Services Centre (IFSC), as referred to in sub-section (1A) of section 80LA. (if yes, the details have to be provided)
• Details of the previous form 10-IE filed (If applicable)
• Declaration

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Disclaimer: The author is based in Jabalpur and is a Practicing Company Secretary dealing in Corporate, Legal & Taxation services. The information contained in this write up, as provided by the author, is to provide a general guidance to the intended user. The information should not be used as a substitute for specific consultations. Author recommends that professional advice is sought before taking any action on specific issues.

The author can also be reached at [email protected]