Section 115BAC of the Income Tax Act brought significant changes to the tax regime, effective from the Assessment Year 2021-22 onwards. Initially applicable to Individuals and HUFs, it now extends to AOPs, BOIs, and other entities, aiming to streamline tax processes and reduce disputes. However, these changes come with both advantages and drawbacks.
TAX REGIME – OLD Vs NEW – Sec 115BAC
1. Sec 115BAC – effective from AY 2021-22 (1st April 2020) by Fin. Act 2020.
2. Applicable for Individual and HUF initially – now made applicable to AOP, BOI, (other than Co-op), Artificial/judicial person from AY 2024-25 (1st April 2023) by Fin Act 2023.
3. Restricted deductions/exemptions under New Scheme for reducing disputes – due to eligibility or conditions, etc
4. No benefits of Sec 10(5) on LTA, 10(13A) on HRA, 10(14) on Helper/Uniform, etc, 10(17) on MP/MLA Allowances, 10(32) on minor’s income while clubbing (up to Rs. 1,500/-) and Sec 10AA on income of units in SEZ.
5. No deduction on Ent Tax u/s 16(ii) and Prof Tax u/s 16(iii).
6. No deduction on Housing Loan interest u/s 24(b).
7. No additional depreciation allowance u/s 32(1) (iia).
8. No benefit of Sec 32AD (Invt in new P&M in notified backward area), 33AB (Tea/Coffee/Rubber Developmeny A/c), 33ABA(Site Restoration Fund), 35(Exp on Scientific Research), 35AD(Exp on specified business) and 35CCC(Exp on Agri Extn Project).
9. No Chapter VIA deductions except 80CCD(2) on NPS, 80CCH(2) on Agnipath Scheme Contribution and 80JJAA on cost of Employment of new employees.
10. No Set Off of loss/Depreciation carried forward as attributed to the above.
11. No Set off of loss under HP against any other head of income.
12. Rebate u/s 87A – Max is Rs. 12,500/- (total income up to Rs. 5 lakhs) under old regime while it is Rs.25,000/- (total income up to Rs. 7 lakhs) with marginal relief.
13. From the AY 2024-25 onwards, the new scheme of tax is applicable by default unless opted for old scheme by the Assessee – For persons without business/professional income, can exercise the option in the Return Form itself while filing before the due date u/s 139(1) and for persons having business/professional income, can exercise by filing Form 10IEA before the due date u/s 139(1) and once exercised, he can withdraw (by changing to new scheme) only once. If return is filed belatedly, only new scheme is appliable and old one cannot be opted for.
14. Apart from changes in slabs and tax rates in between old and new scheme, the highest surcharge is only 25 % under new regime while it is 37 % under old regime when income (other than dividend and LTCG) exceeds Rs. 5 Cr.
15. Even the employer deducted tax on Salary under anyone (either old or new), the employee can change at the time of filing of his return if filed on or before due date.
Conclusion:
Understanding the implications of Section 115BAC is crucial for taxpayers to make informed decisions regarding their tax planning and financial management. While the new regime simplifies tax calculations and reduces disputes, it also eliminates certain deductions and exemptions, impacting overall tax liability. Taxpayers should assess their individual circumstances and consult with tax professionals to determine the most advantageous approach for their financial goals.
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