A new income tax regime was introduced in Budget 2020 with more tax slabs and lower tax rates. The main motive behind this is to remove the dependency of citizens on tax consultants and simplify the tax structure. The new tax regime has reduced tax slabs for individual and HUF taxpayers with a condition to forgo certain tax deductions or exemptions. Let us discuss the new regime in this article.
(1) Notwithstanding anything contained in this Act but subject to the provisions of this Chapter, the income-tax payable in respect of the total income of a person, being an individual or a Hindu undivided family, for any previous year relevant to the assessment year beginning on or after the 1st day of April, 2021, shall, at the option of such person, be computed at the rate given in the table below, if the conditions contained in sub-section (2) are satisfied:
Total Income (₹) | Rate of Tax |
Upto 2.50,000 | Nil |
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% |
Prescribed conditions [Section 115BAC]
The total income of the individual or Hindu undivided family shall be computed without claiming following exemptions or deductions or set off of losses:
1. Prescribed exemptions or deductions not available
(i) Leave Travel Allowance under Section 10(5) Allowance under Section 10(13A)
(ii) House Rent
(iii) Certain prescribed allowances under Section 10(14)
(iv) Exemption under section 10(17)
(v) Exemption in respect of clubbing of minor’s income under section 10(32)
(vi) Exemption for SEZ units under section 10AA
(vii) Deductions under section 16
(viii) Deduction of interest up to 2,00,000/- allowable under Section 24(b) in respect of self occupied property.
(ix) Additional initial depreciation in respect of plant and machinery under Section32(1)(iia)
(x) Investment allowance in respect of new plant and machinery in notified backward areas under Section 32AD
(xi) Tea/Coffee/Rubber development benefit under Section 33AB
(xii) Site restoration benefit under Section 33ABA
(xiii) Various deductions for donation for expenditure on scientific research or social sciences research under section 35(1)(ii), section 35(1)(iia), section 35(1)(iiia) or under section 35(2AA)
(xiv) Accelerated capital deduction for specified businesses under Section 35AD
(xv) Expenditure on agricultural extension project under Section 35CCC
(xvi) Deduction of 1/3rd of family pension allowable under Section 57(iia)
(xvii) All deductions allowed under Chapter VI-A (except the deduction under Section 80 CCD(2) and Section 80 JJAA) including of 1,50,000/- under Section 80C in respect of notified savings and investments and deduction of 50,000/- as contribution to NPS under Section 80CCD (1B).
2. Prescribed set off of losses not allowed
(i) Such individual or HUF who exercises such option, shall not be allowed to set off any loss or depreciation carried forward from an earlier assessment year if such loss or depreciation is attributable to any other deduction referred in points (i) to (xvii) above.
(ii) No set off of any loss under the head “Income from House Property” shall be allowed against income under any other head.
3. Loss or Depreciation specified under heading (2) deemed to have been given the full effect
Carried forward loss or depreciation shall be deemed to have given full effect to and no further adjustment in respect of such carried forward loss or depreciation shall be available meaning thereby that such loss or depreciation carried forward shall lapse.
4. WDV Adjustment in block of asset
If the option to pay tax under section 115BAC is exercised in respect of assessment year 2021-2022, then the written down value of the block of asset shall be increased by the amount of depreciation carried forward which is not available for set-off due to the restrictions contained in the proposed newly inserted section 115BAC.
5. When to exercise option of paying the tax at the applicable rates under this section?
An assessee having business/profession income has to opt on or before the due date U/s 139(1) for furnishing return of income for any previous year relevant to assessment year on or after 01.04.2021 and such option once exercised shall apply to subsequent assessment years.
(ii) An assessee not having business/profession income has to opt along with the return of income to be furnished U/s 139(1) for a previous year relevant to assessment year.
6. Implications of change of option after exercising this option once
In case an assessee having business/ profession income exercises this option in a previous year and subsequently he can withdraw only once for a previous year other than the year in which it was exercised and thereafter, the person shall never be eligible to exercise option under this section except where such person ceases to have any business/profession income in which case, he can opt the benefit available to person not having business income.
[Proviso to section 115BAD(1)] Consequence if prescribed conditions are not fulfilled
It is to be noted that when the person fails to satisfy the conditions contained in sub-section (2) in any previous year, the option shall become invalid in respect of the assessment year relevant to that previous year and other provisions of this Act shall apply, as if the option had not been exercised for the assessment year relevant to that previous year.
