NEW TAX REGIME OF INCOME TAX UNDER SECTION 115BAC

The Finance Act, 2020 has introduced a New Tax Regime by inserting a new Section 115BAC -Tax on Income of Individuals and Hindu Undivided Family under the Income Tax Act, 1961 w.e.f. Assessment Year (AY) 2021-22 i.e. for the Income earned for Financial Year (FY) 2020-21. Under this Section, there is a provision for Individuals and HUF to pay tax at lower rates.

New Rate of Tax mentioned under Section 115BAC of the Act is as under:

Total Income                                                             Rate of Tax

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%

The New Tax Regime is optional. You may or may not opt for the New Tax Regime. In case of not opting for the New Tax Regime, the Old Tax Regime shall be applicable. Even Senior Citizens and Super Senior Citizens can opt for the New Tax Regime. In both the tax regimes, the rebate under section 87A is available to the resident individuals having a total income of equal to or less than ₹ 5 lakhs per annum.
The person opting for concessional tax rates in the New Tax Regime will have to forego certain Exemptions and Deductions are available in the existing Old Tax Regime. In all there are 70 Deductions & Exemptions that are not allowed in the New Tax Regime, out of which the most commonly used are mentioned below:

1. Leave Travel Allowance (LTA)
2. House Rent Allowance (HRA)
3. Conveyance Allowance
4. Daily expenses in the course of employment
5. Relocation Allowance
6. Helper Allowance
7. Children Education Allowance
8. Other Special Allowances [Section 10(14)]
9. Standard Deduction on Salary under Section 16(ia)
10. Professional Tax
11. Interest on Housing Loan under Section 24(b)
12. The loss of ₹ 2 lakh from the house property cannot be set off from your salary income.
13. Deduction under Chapter VI-A (80C,80D, 80E etc) (Except Section 80CCD(2))
14. Deduction or Exemption for any other allowances for other perquisites etc

List of Deductions & Exemptions that are allowed in the New Tax Regime:

1. Transport Allowance for specially-abled people
2. Conveyance Allowance for expenditure incurred for traveling to work
3. Investment in Notified Pension Scheme under Section 80CCD(2)
4. Deduction for employment of new employees under Section 80JJAA
5. Depreciation under Section 32 except additional depreciation
6. Any allowance for traveling for employment or on transfer

Choosing between the options of tax regimes

As per the circular issued by CBDT dated April 13, 2020, once the chosen tax regime has been communicated to the employer by the salaried taxpayer, thereafter, employees cannot change the tax regime during that Financial Year. Nevertheless, at the time of filing the Income Tax Return, an individual shall have an option to switch to another tax regime, irrespective of the fact of what has been communicated to the employer.

For Salaried Person – An Individual that has salaried income but no business income has the option to make a choice between the Old Tax Regime and New Tax Regime every year.
For Business Income Person – If a businessman has once opted for the New Tax Regime, they are left with the last option to switch back to the Old Tax Regime.

Application for the opting-in / withdrawal from the New Tax Regime

The Individuals or Hindu Undivided Families have to file Form 10-IE to opt-in or withdraw from the New Tax Regime.

Due Date of Filing Form 10-IE

For Salaried Person – Before filing the Income Tax Return even if Income Tax Return is filed
after the due date.
For Business Income Person – Before the due date of filing the Income Tax Return i.e. 31st July or another date (in the case the due date is extended by the Government)

The person earning Salary Income shall have to file Form 10-IE for every year during which he/she wants to select the New Tax Regime or opt out of it.
A person earning Business Income has to file Form 10-IE twice – First at the time of switching to the New Tax Regime and Second when switching back to the Old Tax Regime.

Non Filing of the Form 10-IE

In case of non-filing of the Form 10-IE by the aforesaid due date, then the taxpayer shall not be allowed to avail the tax benefit of concessional tax rates that are available in the New Tax The regime and the tax rates of the Old Tax Regime will be applicable then.

It is noted that Form 10-IE is required to be filed in an electronic form. Taxpayers can file the form through the Income Tax Department portal to opt for the New Tax Regime for AY 2021-22 and onwards. The form will be filed using either the digital signature or through an electronic verification code (EVC).

You can contact  Jain Anurag & Associates – best income tax consultant for any further consultancy.