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Section 115BAC- Should you go for the new tax regime?

Shivangi Agrawal 
on 11 August 2020

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From FY 2020-21, you can choose to pay income tax under an optional new tax regime. The new tax regime is available for individuals and HUFs. “Lower tax rates but no deductions/exemptions” is the key feature. Provisions of the new tax regime are covered under section 115BAC. Let us discuss more about it in this article.

What is primarily covered in this article?

  1. What is the NPTR (New Personal Tax Regime) of taxation for FY 2020-21 and what are the tax rates under the new regime?
  2. What are the deductions and Exemptions not eligible under the new regime and recent CBDT Notification dated 26 June 2020?
  3. How can I choose between the new tax regime and existing provisions?

What is the NPTR (New Personal Tax Regime) of taxation for FY 2020-21 and what are the tax rates under the new regime?

The Budget 2020 introduces a new regime under section 115BAC giving an option to individuals and HUF taxpayers to pay income tax at lower rates. The new system is applicable for income earned from 1 April 2020 (FY 2020-21), which relates to AY 2021-22.

Section 115BAC- Should you go for the new tax regime

The tax rates under the new tax regime and the existing tax regime are:

New slab rates

Existing slab rates

Income from Rs 2.5 lakh to Rs 5 lakh

5%

Income from Rs 2.5 lakh to Rs 5 lakh

5%

Income from Rs 5 lakh to Rs 7.5 lakh

10%

Income from Rs 5 lakh to Rs 10 lakh

20%

Income from Rs 7.5 lakh to Rs 10 lakh

15%

Income above Rs 10 lakh

30%

Income from Rs 10 lakh to Rs 12.5 lakh

20%

Income from Rs 12.5 lakh to Rs 15 lakh

25%

Income above Rs 15 lakh

30%

What are the deductions and Exemptions not eligible under the new regime?

You cannot claim the following deductions/exemptions/set off under the new tax system:

  1. The standard deduction, professional tax and entertainment allowance on salaries;
  2. Leave Travel Allowance (LTA)
  3. House Rent Allowance (HRA)
  4. Minor child income allowance
  5. Helper allowance
  6. Children education allowance
  7. Other special allowances [Section10(14)]
  8. Interest on housing loan on the self-occupied property or vacant property (Section 24)
  9. Business deductions, business expenditures on specified businesses under the Income-tax Act.
  10. Tax saving investments under Chapter VI-A deduction (80C,80D, 80E and so on)
  11. Without exemption or deduction for any other perquisites or allowances
  12. Deduction from family pension income
  13. Set off of any loss or depreciation carried forward from earlier years in relation to the specified businesses.
  14. Set off of loss under Income from House property with any other Income.

What can be claimed?

  1. Transport allowance for specially-abled people.
  2. Conveyance allowance to meet the conveyance expenditure incurred as part of the employment.
  3. Deduction for Notified Pension Scheme under section 80CCD(2)
  4. Deduction for the employment of new employees under section 80JJAA
  5. Depreciation under section 32 of the Income-tax act except for additional depreciation.

Vide notification no. 38 dated 26 June 2020, CBDT has allowed certain exemption by inserting sub-rule 3 to rule 2BB.

This notification grants exemption to the following allowances:

  1. any allowance granted to meet the cost of travel on tour or on transfer;
  2. any allowance, whether, granted on tour or for the period of journey in connection with transfer, to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty;
  3. any allowance granted to meet the expenditure incurred on conveyance in the performance of duties of an office or employment of profit provided that free conveyance is not provided by the employer;
  4. Transport allowance granted to an employee, who is blind [or deaf and dumb] or orthopedically handicapped with disability of lower extremities, to meet his expenditure for the purpose of commuting between the place of his residence and the place of his duty to the tune of Rs. 3200 per month.

How can I choose between the new tax regime and existing provisions?

An employee can choose the new tax regime at the beginning of FY 2020-21 and intimate their employer. If the Income consists of any income except from business or profession then, the employee can withdraw the option for any year other than the year for which it was exercised, which means you can opt-in and opt-out for every year.

 

If you have opted for a new tax regime at the start of the year, then it cannot be changed anytime during the financial year for the purpose of TDS, however, the option can be changed at the time of filing of Income-tax return.

If the Income consists of Business or profession and you opted for the new tax regime then, the option to withdraw is available only once, after which you can never be eligible to exercise the option again except when you cease to have income from Business or profession.

Note:

Kindly note:

  1. The best option will depend on many aspects. Whether you have an existing housing loan whose benefit you would not want to leave, you have business deductions available, you have medical and other tax deductions available with you which can be beneficial.
  2. What may be a tax benefit for others, may not be for you as an individual. It is advisable to consult professionals before taking any stand.
  3. These provisions are available to Non-residents.
 

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