FAQs on new scheme of Income Tax introduced in Budget 2020

Mohit | Last updated: 01 February 2021

Save Share

Quick Summary

This article provides answers to frequently asked questions about the new Income Tax scheme introduced in Budget 2020, applicable from Assessment Year 2021-22. It details the reduced tax rates available under certain conditions and outlines which deductions and exemptions are disallowed. The FAQs also explain how individuals and HUFs can opt in or out of the scheme, with different rules for those with and without business income.

Q. When will the new scheme be applicable?
A. The new Scheme will be applicable from Asst Year 2021-22 (i.e. Financial Year 2020-21).

New Income Tax Scheme 2020: FAQs Answered

Q. What is the new Scheme?
A. Under the new Scheme, Tax Rate will be reduced subject to certain conditions

Q. What are Tax Slabs under new Scheme?
A. The Tax Rates under new Scheme will be as follows:

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

Q. Who can opt for new Scheme?
A. The New Scheme is available to Individual or HUF only

Q. What are the conditions for opting in the Scheme?
A. Conditions under the Scheme are as follows:

1. Deductions/ Exemptions shall not be allowed in computing Taxable Income
2. Setoff of Carried forward loss or depreciation shall not be allowed if it is attributable to such Deductions/ Exemptions
3. Additional Depreciation shall not be allowed
4. Deduction of Interest paid on Self Occupied Property shall also not be allowed.
5. No Deduction/Exemption for any Allowance or Perquisite shall be allowed.
6. Standard Deduction on Salary shall also not be allowed.

Q. What type of Deductions/ Exemptions shall not be allowed?
A. Following Deductions/ Exemptions shall not be allowed:

1. Leave Travel Concession
2. House Rent Allowance
3. Standard Deduction/ Entertainment Allowance/ Professional Tax
4. Deduction from family pension
5. Deductions u/s 80C, 80CCC, 80E, 80D, 80DD, 80G, etc.

Q. How can the option to opt for the new scheme be exercised? Whether the option has to be exercised every year? Can one opt out of the Scheme and pay Tax at regular rates?
A. The Taxpayers under scheme have been divided in two ways - Persons having Business Income and Persons not having any Business Income.

In case of Individual/HUF not having any Business Income:

1. Option has to be exercised every year.
2. The option can be exercised while filing Return of Income .
3. A person can freely opt in scheme and opt out of the scheme. The tax Rates will be applicable as per the Option exercised at the time of filing of Return every year.
4. Income Tax Return has to be filed by Due Date. If ITR is late, then Tax payable at Normal rate.

In case of Individual/HUF having Business Income:

1. Option has to be exercised once and it will be valid for that year and subsequent years.
2. Option has to be exercised before the Due Date of filing Return for the Assessment Year in the form and manner to be prescribed.
3. If a person wants to opt out of the scheme in any subsequent assessment year, he can do so but only once. The person can never opt in the Scheme again.
4. However if in any year he is not having any Business Income, then he can opt in the Scheme in that year as in case of Individuals without Business Income, who have to exercise option every year.

Q. What if after opting in the persons fails to satisfy the conditions?
A. The option shall become invalid for a previous year if the Individual/HUF fails to satisfy conditions and other provisions of the Act shall apply.

Q. Will a person opting for the scheme have to pay AMT also?
A. The provisions AMT shall not apply to such individual or HUF having Business Income if the option is exercised. The provisions related to carry forward and set off of AMT Credit shall also not apply to such person.

Q. What are the Deductions/ Exemptions that can be claimed under the Scheme?
A. Following Deductions/ Exemptions can be claimed

1. Deduction under sub-section (2) of section 80CCD (employer contribution on account of employee in notified pension scheme)
2. Deduction u/s 80JJAA (for new employment)
3. Transport Allowance granted to Divyang Employee for commute between place of residence and duty
4. Conveyance Allowance for expenditure in performance of duties of office.
5. Allowance granted to meet cost of travel on tour /transfer.
6. Daily Allowance to meet charges incurred by employee on account of absence from normal place of duty.
7. Share of Profit as Partner of Firm
8. Death cum Retirement Gratuity (Govt employees no limit, Other Rs.20 lakhs)
9. Leave Encashment on retirement ( Govt employees no limit, Other Rs.3 lakhs)
10. Commutation of Pension
11. Standard Deduction of 30% of Rental Income, under House Property head

The author can also be reached at camohitgaba@gmail.com

Also explore our Certification Courses -

Online Advanced GST Training and Certification Course by CA Bimal Jain - Click here for details
GST Practitioner Course Certified by MSME Govt of India - Click here for details
20 hrs Live GST Practical Training class on GST portal - Click here for details

FAQ :

The new Income Tax scheme is applicable from Assessment Year 2021-22, which corresponds to the Financial Year 2020-21.

The new scheme offers reduced tax rates. For income up to Rs 2,50,000, the rate is Nil. It then progresses from 5% for income between Rs 2,50,001 to Rs 5,00,000, up to 30% for income above Rs 15,00,000.

The new scheme is available to Individuals and Hindu Undivided Families (HUFs) only.

To opt for the new scheme, taxpayers generally cannot claim most deductions and exemptions, including those under Section 80C, House Rent Allowance, and Standard Deduction on salary. Set-off of carried forward losses attributable to these disallowed deductions is also not permitted.

Individuals or HUFs without business income must exercise their option to join the new scheme each year while filing their Income Tax Return by the due date. They can freely opt in and out annually.

If an Individual or HUF fails to satisfy the conditions of the new scheme after opting in, their option for that previous year becomes invalid, and other provisions of the Income Tax Act will apply.