Decoding the New Tax Regime of Section 115BAC introduced in Union Budget 2020

The Finance Minister Smt. Nirmala Sitharaman has presented her 2nd Budget on 1st February, 2020.A new optional personal tax scheme has been proposed vide a newly inserted section i.e., 115BAC for the Individuals and HUF.

From the assessment year 2021-22 (FY 2020-21), individual and HUF tax payers have an option to opt for taxation under the section 115BAC of the Act provided they decide to forego the specified deductions and exemptions.

The option to pay tax at lower rates shall be available only if the total income of assessee is computed without claiming following exemptions or deductions:

  1. a) Leave Travel concession [Section 10(5)]
  2. b) House Rent Allowance [Section 10(13A)]
  3. c) Official and personal allowances (other than those as may be prescribed) [Section 10(14)]
  4. d) Allowances to MPs/MLAs [Section 10(17)]
  5. e) Allowances for income of minor [Section 10(32)]
  6. f) Deduction for units established in Special Economic Zones (SEZ) [Section 10AA];
  7. g) Standard Deduction [Section 16(ia)]
  8. h) Entertainment Allowance [Section 16((ii)]
  9. i) Professional Tax [Section 16(iii)]
  10. j) Interest on housing loan [Section 24(b)]
  11. k) Additional depreciation in respect of new plant and machinery [Section 32(1)(iia)];
  12. l) Deduction for investment in new plant and machinery in notified backward areas [Section 32AD];
  13. m) Deduction in respect of tea, coffee or rubber business [Section 33AB];
  14. n) Deduction in respect of business consisting of prospecting or extraction or production of petroleum or natural gas in India [Section 33ABA];
  15. o) Deduction for donation made to approved scientific research association, university college or other institutes for doing scientific research which may or may not be related to business [Section 35(1)(ii)];
  16. p) Deduction for payment made to an Indian company for doing scientific research which may or may not be related to business [Section 35(1)(iia)];
  17. q) Deduction for donation made to university, college, or other institution for doing research in social science or statistical research [Section 35(1)(iii)];
  18. r) Deduction for donation made for or expenditure on scientific research [Section 35(2AA)];
  19. s) Deduction in respect of capital expenditure incurred in respect of certain specified businesses, i.e., cold chain facility, warehousing facility, etc. [Section 35AD];
  20. t) Deduction for expenditure on agriculture extension project [Section 35CCC];
  21. u) Deduction for family Pension [Section 57(iia)]
  22. v) Deduction in respect of certain incomes other than specified under Section 80JJAA, 80CCD(2) and deduction under section 80LA for Unit located in IFSC [Part C of Chapter VI-A].

 

Watch our Video on Detailed Analysis of Section 115 BAC and its effects on Individuals and HUF:

Additionally, in case the assessee has business income, this option shall be exercised on or before the due date for furnishing the returns of income. Once the assessee has exercised the option for any previous year, it cannot be subsequently withdrawn for the same or any other previous year. The option once exercised for any previous year can be withdrawn only once in subsequent previous year (other than the year in which it was exercised) and thereafter, he shall never be eligible to exercise this option again except where such person ceases to have any business income.

However, if assessee does not have business income, the option must be exercised along with the return of income for every previous year. If an assessee, after opting for Section 115BAC, claims any of prescribed deduction or allowance in any previous year, then the option to pay tax at concessional rate shall become invalid for that year.

The Finance Minister in her speech highlighted that the new regime will help the tax payers in reducing their tax burden. Following is our analysis on the new regime in comparison to the existing tax scheme as introduced in the Bill: –

Nature of deduction available in the current tax regime Breakeven point When it is beneficial to opt for the new regime of Section 115BAC?
     
No deduction is allowable Always
Deduction allowable under Section 80C 8,50,000 Income in excess of Breakeven
Deduction allowable under:

– Sections 80C

– Section 80D

12,25,000 Income in excess of Breakeven
Deduction allowable under:

– Sections 80C

– Section 80D

– Section 16 (Standard Deduction)

15,00,000 Never
Deduction allowable under:

– Sections 80C

– Section 80D

– Section 16 (Standard Deduction)

– Section 24 (Interest on housing loan)

Never

Disclaimer: This information is updated till 13 February 2020.

Income Tax Slab Rate for AY 2021-22

1.Income Tax Slab Rate for AY 2021-22 for Individuals opting for old tax regime:

  • 1. Individual (resident or non-resident), who is of the age of less than 60 years on the last day of the relevant previous year:
Net income range Income-Tax rate
Up to Rs. 2,50,000 Nil
Rs. 2,50,000- Rs. 5,00,000 5%
Rs. 5,00,000- Rs. 10,00,000 20%
Above Rs. 10,00,000 30%

 

  • 2. Resident senior citizen, i.e., every individual, being a resident in India, who is of the age of 60 years or more but less than 80 years at any time during the previous year:
Net income range Income-Tax rate
Up to Rs. 3,00,000 Nil
Rs. 3,00,000 – Rs. 5,00,000 5%
Rs. 5,00,000- Rs. 10,00,000 20%
Above Rs. 10,00,000 30%

 

  • 3. Resident super senior citizen, i.e., every individual, being a resident in India, who is of the age of 80 years or more at any time during the previous year:
 Net income range Income-Tax rate
Up to Rs. 5,00,000 Nil
Rs. 5,00,000- Rs. 10,00,000 20%
Above Rs. 10,00,000 30%

       Plus: –

      Surcharge: – 10% of income tax where total income exceeds Rs. 50,00,000.

15% of income tax where total income exceeds Rs. 1,00,00,000.

25% of income tax where total income exceeds Rs. 2,00,00,000.

37% of income tax where total income exceeds Rs. 5,00,00,000.

Health and Education cess: – 4% of income tax and surcharge.

Note: – A resident individual is entitled for rebate under section 87A if his total income does not exceed Rs. 5,00,000. The amount of rebate shall be 100% of income-tax or Rs. 12,500, whichever is less.

  1. Income Tax Rates For HUF/AOP/BOI/Any other Artificial Juridical Person under the old tax regime:
Net income range Income-Tax rate
Up to Rs. 2,50,000 Nil
Rs. 2,50,000- Rs. 5,00,000 5%
Rs. 5,00,000- Rs. 10,00,000 20%
Above Rs. 10,00,000 30%

Plus: – 

Surcharge: – 10% of income tax where total income exceeds Rs. 50,00,000.

15% of income tax where total income exceeds Rs. 1,00,00,000.

25% of income tax where total income exceeds Rs. 2,00,00,000.

37% of income tax where total income exceeds Rs. 5,00,00,000.

Health and Education cess: – 4% of income tax and surcharge.

  1. Income tax applicable to Individual and HUF under new optional  tax regime (Section 115BAC).

A new tax regime for Individual and HUF has been proposed by the Finance Bill, 2020 to tax the income of such assessees at lower tax rates if they agree to forego prescribed deductions and exemptions under the Income Tax Act. Special provision for calculating income of assessees opting for this section is prescribed under the said section.

Net income range Any Individual/ HUF
   
Up to Rs. 2,50,000 Nil
From Rs 2,50,001 to Rs 5,00,000 5%
From Rs 5,00,001 to Rs 7,50,000 10%
From Rs 7,50,001 to Rs 10,00,000 15%
From Rs 10,00,001 to Rs 12,50,000 20%
From Rs 12,50,001 to Rs 15,00,000 25%
Above Rs. 15,00,000 30%

Plus: – 

Surcharge: – 10% of income tax where total income exceeds Rs. 50,00,000.

15% of income tax where total income exceeds Rs. 1,00,00,000.

25% of income tax where total income exceeds Rs. 2,00,00,000.

37% of income tax where total income exceeds Rs. 5,00,00,000.

Health and Education cess: – 4% of income tax and surcharge.

  1. Income Tax Rate for Partnership Firm:

A partnership firm (including LLP) is taxable at 30%.

Plus:

Surcharge:- 12% of tax where total income exceeds Rs. 1 crore.

Health and Education cess: 4% of income tax plus surcharge.

  1. Tax Rate for Companies: 
    • 1. Tax rates for domestic companies:
Particulars Tax rates
Company opting for section 115BA* 25%
Company having turnover or gross receipt of up to Rs. 400 crore in the previous year 2017-18* 30%
Company opting for section 115BAA** 22%
Company opting for section 115BAB** 15%
Any other company* 30%
MAT*** 15%
  • 2. Tax rates for foreign companies:

The tax rate for foreign company is 40%.

Plus: – 

Surcharge:-

Company Net income is between Rs. 1Cr. – 10 Cr. Net income exceeds Rs. 10Cr.
Domestic company 7% 12%
Foreign company 2% 5%

Health and Education cess: 4% of income tax plus surcharge.

  1. Income Tax Slab Rate for Co-operative Society:
    • 1. Income tax rates under the old regime: –
Net income range Income-Tax rate
Up to Rs. 10,000 10%
Rs. 10,000 to Rs. 20,000 20%
Above Rs. 20,000 30%

Plus:

Surcharge:- 12% of tax where total income exceeds Rs. 1 crore.

Health and Education cess: 4% of income tax plus surcharge.

  • 2. Income tax applicable to co-operative society under new optional tax regime (Section 115BAC): –

Income of a co-operative society under the new regime is taxable at flat rate of 22% provided it forgoes specified deductions and exemptions and computes its income in accordance with the provisions of the new inserted section.

Plus:

Surcharge:- 10% of income tax.

Health and Education cess: 4% of income tax plus surcharge.

  1. Income Tax Slab Rate for Local Authority:

A local authority is taxable at 30%.

Plus:

Surcharge:- 12% of tax where total income exceeds Rs. 1 crore.

Health and Education cess: 4% of income tax plus surcharge.

 

Disclaimer: This information is updated till 01 February 2020