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New Tax Regime | Section 115BAC

CA Abhay Sood 
Updated on 30 April 2021

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A new Tax Regime has been introduced from AY 2021-22 (FY 2020-21) for the first time which has created a lot of confusion in the minds of the taxpayers.

An important point to note is that it is only available for Individuals and HUF.

New tax Rates applicable for calculating Tax liability shall be:

New Tax Regime
S.NO. Total Income Rate
1 Up to Rs. 2,50,000 NIL
2 From Rs. 2,50,001 - Rs. 5,00,000 5%
3 From Rs.5,00,001 - Rs. 7,50,000 10%
4 From Rs.7,50,001 - Rs.10,00,000 15%
5 From Rs.10,00,001- Rs.12,50,000 20%
6 From Rs.12,50,001- Rs.15,00,000 25%
7 Above Rs. 15,00,001 30%
     

When can one opt for these new rates of tax?

The Above mentioned Rates shall be available only if below mentioned conditions are satisfied.

The total income of Individual or HUF shall be Computed

(i) without any exemption or deduction under:

  • Clause (5) of Sec 10 - Leave Travel Allowance (LTA )
  • Clause (13A) of Sec 10 - House Rent Allowance ( HRA)
  • Clause (14) of Sec 10 - Special Allowances
  • Clause ( 17 ) of Sec 10 - Income exemptions of MP's
  • Clause ( 32 ) of Sec 10 - Clubbing exemption Rs. 1500 per child
  • Sec 10 AA - Newly established units in SEZ
  • Sec 16 - deductions from salaries ( standard deduction 50k, entertainment allowance, professional tax )
  • Sec 24 (b) - deduction for interest on self occupied house
  • sec 32 (1) (iia)- Additional Dep 20%
  • Sec 32AD- Investment in new P&M in notified Back ward areas in certain states ( 15% of Cost )
  • Sec 33AB - Tea , Coffee , Rubber Development A/c ( Deduction for Depositing amount )
  • Sec 33ABA - Site Restoration Fund
  • Sec 35(1)(ii), 35(1)(iia), 35(1)(iii) Exp on Scientific research
  • Sec 35(2AA) - paid to National Lab / IITs
  • Sec 35AD - Deduction in respect of Exp on specified business
  • Sec 35CCC - Exp on agriculture extension project
  • Sec 57(iia) - Deduction from Other sources (in case family pension 15000 or 1/3rd which ever is less)
  • Provisions of Ch VIA - Deductions (sec 80A- 80C) Except 80JJAA- employment of new employees and 80CCD(2) Employer's contribution to NPS

(ii) without set off of any loss:

  • carried f/d or dep from any earlier AY , if such loss or dep is related to any of the deductions referred to above in (i).
  • under Income from HP with any other head of income.
 

(The loss or dep above shall be deemed to have been given full effect and no further deduction shall be allowed)

(iii) by claiming the depreciation if any under sec 32 (1) (ii) - Normal dep is allowed

(iv) without any exemption or deduction for allowances or perquisites by whatever name called provided under any other law for the time being in force

Where person having unit in IFSC as referred in sub sec (1A) of sec 80LA , which has exercised option in new scheme shall be allowed deduction U/s 80LA

When Can Option be Exercised?

1. Person having Income from Business or profession: Can exercise option on or before due date for filing return under section 139(1) for FY 2020-21 onwards. Such option once exercised shall apply to Subsequent AY's.

This option once exercised for any FY can be withdrawn only once and thereafter person shall never be allowed to opt under this Section Except he ceases to have income from Business or Profession in which case he will fall under category 2 as mentioned below.

2. Persons having income other than Business or Profession: Can exercise along with Return of Income to be furnished Under sec 139(1) for any FY beginning from FY 2020-21.

 

Conclusion

Individual and HUF will have to see which option helps them to save taxes depending upon their respective total incomes. For one old scheme would be beneficial and for another may be the new scheme.

The government though has offered lowered tax rates on one hand but has also taken away certain deductions and allowances on the other hand. So you will have to choose accordingly.


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