Every time the Finance Minister makes the changes in the Income Tax at the time of presentation of annual budget proposals. This year a historical change is announced by the Finance Minister along with the various provisions that keep changing in the Budget, 2020. A new section (Section 115BAC) is added in the Income Tax Act, 1961, and provided two different rates of income tax. These dual tax slabs are provided the first time in the history of the direct taxation in India. According to this section 115BAC, an option is given to an individual to go either with the “New Tax The regime” or continue to be taxed their income by “Old Tax Regime”.  The new tax slab and old tax slabs for the Assessment Year 2021-22 and onward is:

Income Slabs Rates for Individual – Old Tax Regime Vs. New Tax Regime

Annual Income Slab (Rs.) Income Tax Rate under Old Tax Regime Income Tax Rate under New Tax Regime
Up to Rs. 2.5 lakhs Nil Nil
Rs. 2.5 lakhs to Rs. 5 lakhs 5% 5%
Rs. 5 lakhs to Rs. 7.5 lakhs 20% 10%
Rs. 7.5 lakhs to Rs. 10 lakhs 20% 15%
Rs. 10 lakhs to Rs. 12.5 lakhs 30% 20%
Rs. 12.5 lakhs to Rs. 15 lakhs 30% 25%
Rs. 15 lakhs and above 30% 30%

The above tax rates are for the normal income. The rates for the special income will be as it is, there is no change in the old tax regime and a new tax regime. Similarly, the rate of “surcharge” and “Health & Education Cess” will be the same.

If an individual intends to opt for being taxed at lower tax rates under the new tax regime has to forgo few of the exemptions, deductions, and rebates which are allowable under the old tax regime. The following exemptions, deductions and rebates are not available if assessee goes with the new tax regime:

(A) Exemptions, deductions, and rebates which are available to the employees:

1. Exemption u/s 10(5) related to the “Leave Travel Concession”. This exemption is available twice in a couple of four years.

2. Exemption u/s 10(13A) “House Rent Allowance”. This exemption is available who resides in a rented house.

3. “Traveling allowance” to meet the cost of the tour and on transfer and the allowances granted for the period of the journey.

4. “Conveyance allowance” in performance of the duty of the employer.

5. Helper allowance, where the helper is engaged for the help of the employment.

6. Academic, research, and training allowance in educational and research institute.

7. Uniform allowance, to purchase and maintained the uniform.

8. Some special compensatory allowances: Hill area allowance, High altitude allowance, snowbound area allowance, Border area allowance, Tribal area allowance, Difficult area allowance, Disturbed area allowance, Remote area allowance, Field area allowance, Counter-insurgency allowance, Underground allowance.

9. Allowance available to the person works in transport companies, to meet personal expenditures during the performance of duty.

10. Children education allowance.

11. Hostel expenditures allowance for children.

12. Transport allowance available to the persons who are permanently disabled.

13. Standard Deduction u/s 16(ia), the deduction for entertainment allowance u/s 16(ii) and deduction for professional or employment tax u/s 16(iii) of Income Tax Act.

(B) Deduction related to the House Property:

An individual who borrowed the amount to purchase, construct or repair of the self- occupied house property or the house which cannot be used by the assessee because of his/her services, business or profession etc. outside and no benefit was derived from such house and lives in a rented house. In such a situation the annual value of the self-occupied hosed property is treated as nil but the interest payable on the loan is deductible u/s 24(b) of Income Tax Act, to a maximum of Rs. 2,00,000. Hence, there will be negative income from the self-occupied house property and this loss can be set off from the other income of the assessee. If an individual opts for a new tax regime, this deduction cannot be claimed.

(C) Deductions and allowance related to the Business and Profession head:

1. Additional depreciation allowable to the manufacturer and power generation, transmission, or distribution is available u/s 32(1)(iia) of the Income Tax Act on purchases of new plant and machinery.

2. Accelerated depreciation which is allowable to the manufacturer u/s 32AD on purchases of the new plant and machinery in some of the backward areas.

3. Deduction related to the ‘Tea Development Account’ and ‘Coffee Development Account’ u/s 33AB.

4. The deduction is available on carrying on business consisting of prospecting for or extraction or production of petroleum or natural gas in India u/s 33ABA.

5. Scientific research donation to National Laboratory, University, IIT allowable u/s 35(2AA)

6. Deduction available u/s 35AD to specified businesses of the full amount of expenditure incurred towards plant and machinery.

7. A weighted deduction allowable u/s 35CCC for an agricultural project.

(D) Deductions and allowances related to the other Incomes:

1. Deduction allowable for the family pension u/s 57(iia) of Rs.15,000 or one-third of the family pension, whichever is less.

2. Deduction available u/s 10(32) for clubbing of income of minor of Rs. 1500 per child or the amount of income of minor which is included, whichever is less.

(E) Deductions available under chapter VI-A of the Income Tax Act:

1. The major deductible deduction by most of the people is for Life Insurance Premium, Provident Fund, Investment in Mutual fund, Payment of tuition fees of the dependent, repayment of housing loan, etc. available u/s 80C of the Income Tax Act.

2. Deduction u/s 80CCC in respect of contribution to Pension Fund.

3. Deduction u/s 80CCD in respect of contribution to National Pension Scheme except the contribution made by the employer which is allowable u/s 80 CCD(2) to the extent of 10% (14% in the case of Central Government Employees) of salary.

4. Deduction u/s 80D in respect of medical and health premiums.

5. Deduction u/s 80DD in respect of maintenance and medical treatment of physically handicapped or blind dependent.

6. Deduction u/s 80DDB with respect to the medical treatment of specific diseases.

7. Deduction u/s 80E in respect of payment of interest on education loan.

8. Deduction u/s 80EE in respect of payment of interest of housing loan.

9. Deduction u/s 80EEA in respect of payment of interest of housing loan.

10. Deduction u/s 80EEB in respect of payment of interest of loan taken to purchase of the electric vehicle.

11. Deduction u/s 80G in respect of donations.

12. Deduction u/s 80GG in respect of payment of rent of the residential house.

13. Deduction u/s 80GGA in respect of donation for rural development, scientific research, etc.

14. Deduction u/s 80GGc in respect of contribution to Political parties.

15. Deduction u/s 80JJA in respect of profit from collecting and the procession of bio-degradable waste.

16. Deduction u/s 80QQB in respect of royalty received by authors.

17. Deduction u/s 80RRB in respect of royalty income from patents.

18. Deduction u/s 80TTA in respect of saving bank interest from banks, post office, and co-operative societies engaged in banking services.

19. Deduction u/s 80TTB in respect of interest received by senior citizens from the deposits with banks, post office, and co-operative societies engaged in the banking business.

20. Deduction u/s 80U to a person who is disabled or blind.

Other key points for adopting Section 115BAC

  • The assessee has to adopt the alternate tax rates before the due date of submission of Income Tax Return u/s 139(1). If there is a delay in submission of return then the assessee has to tax the income under the old tax regime.
  • Assessee may change the option every year but it should be declared before the due date of submission of income tax return.

Author Details-  Professor (Dr.) C. K. Shah | Dean | Commerce & Management |Apex University, Jaipur.

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