During the Budget 2020 speech, the Finance Minister Nirmala Sitharaman announced the insertion of a new section called 115BAC into the Income Tax Act in the Union Budget 2020. Section 115 BAC, effective from FY 2020-21, deals with the new and optional income tax regime for individuals and Hindu Undivided Families (HUFs). Let us understand the new slab rates, eligibility criteria for the new regime and the deductions that are allowed or disallowed under Section 115BAC. We will discuss the features of the new tax regime and how you can benefit from it.
IT Department Clarification: The Ministry of Finance issued a clarification on April 13th, 2020 regarding TDS deduction by employers with res pect to the provisions of Section 115BAC. It states that salaried individuals should inform the employer, if they are planning to opt for the new income tax regime u/s 115 BAC, so that the employer can deduct the TDS as per the new slab rates. If an employer fails to inform about his/ her decision to opt for new tax regime, then the employer will continue to deduct TDS as per the old (existing) slab rates.
What is the new tax regime under Section 115BCA?
section 115BAC shall be inserted by the Finance Act, 2020, w.e.f. 1-4-2021:
Tax on income of individuals and Hindu undivided family.
Section 115BAC is the newly inserted section in the Income Tax Act, 1961 that deals with the new income tax regime. This section and alternate tax regime was introduced in Union Budget 2020 and is applicable to individuals and Hindu Undivided Families (HUFs) only. A key feature of this new regime is that the income tax slab rates have been significantly reduced. However, the new rates come at the cost of various key income tax exemptions and deductions, which are currently available under the old (existing) income tax regime.
The following table shows the new slab rates as per Section 115BAC.
|Annual Income||New Income Tax Slab Rate|
|Nil to Rs. 2.5 lakh||Exempt|
|Above Rs. 2.5 lakh to Rs. 5 lakh||5%|
|Above Rs. 5 lakh to Rs. 7.5 lakh||10%|
|Above Rs. 7.5 lakh to Rs. 10 lakh||15%|
|Above Rs. 10 lakh to Rs. 12.5 lakh||20%|
|Above Rs. 12.5 lakh to Rs. 15 lakh||25%|
|Above Rs. 15 lakh||30%|
The new tax regime removes the claim for about 70 deductions and exemptions. The tax payable under both the latest and the existing regimes without claiming deductions and exemptions is as below:
|Annual Income||Tax Under the existing regime (Amount in Rs.)||Tax under the new regime (Amount in Rs.)||Tax saving under the new regime (Amount in Rs.)|
|Up to Rs 7,50,000||65,000||39,000||26,000|
|Up to Rs. 10,00,000||1,17,000||78,000||39,000|
|Up to Rs. 12,50,000||1,95,000||1,30,000||65,000|
|Up to Rs. 15,00,000||2,73,000||1,95,000||78,000|
Eligibility criteria for the new tax regime?
In AY 2021-22, individuals and HUFs will have the option to pay income tax as per the new (reduced) income tax slab rates provided their total income for the relevant FY satisfies the following conditions.
- The declared income does not include any business income.
- It is calculated without any exemptions or deductions provided under the following
- Chapter VI-A except those u/s 80CCD/ 80JJAA,
- Section 24b,
- Clause (5)/(13A)/(14)/(17)/(32) of Section 10/10AA/16,
- Section 32(1)/ 32AD/ 33AB/ 33ABA,
- Section 35/ 35AD/ 35CCC,
- Clause (iia) of Section 57.
- It is calculated without setting off losses from any earlier assessment year (AY) due to the above-mentioned deductions or from house property.
- It is calculated without claiming any depreciation under clause (iia) of Section 32.
- It is calculated without any exemption or deduction with respect to any allowances or perquisites.
Deductions and exemptions not allowed under Section 115BAC
The following table shows the major income tax deductions and exemptions that have been disallowed under the new income tax regime. Please note that the new regime is optional in FY 2020-21 and you may opt for the old (existing) regime, where all of the following deductions can be claimed.
- The standard deduction, professional tax and entertainment allowance on salaries
- Leave Travel Allowance (LTA)
- House Rent Allowance (HRA)
- Chapter VI-A deduction (80C,80D, 80E and so on) (Except Section 80CCD(2) and 80JJAA)
- Without exemption or deduction for any other perquisites or allowances
- Deduction from family pension income
- Minor child income allowance
- Helper allowance
- Children education allowance
- Other special allowances [Section10(14)]
- Interest on housing loan on the self-occupied property or vacant property (Section 24)
Exemptions and Deductions allowed under section 115BAC
While most of the income tax deductions have been discontinued under the new income tax regime (as mentioned in the earlier section), the following deductions are allowed:
- Transport allowances in case of a specially-abled person.
- Conveyance allowance received to meet the conveyance expenditure incurred as part of the employment.
- Any compensation received to meet the cost of travel on tour or transfer.
- Daily allowance received to meet the ordinary regular charges or expenditure you incur on account of absence from his regular place of duty.
- The employer’s contribution to notified pension account under Section 80CCD (2) of the Income Tax Act. However, this deduction cannot exceed 10% of the employee’s previous year’s salary.
- Up to 30% of additional employee cost as per Section 80JJAA of Income Tax Act.
Important points to consider about the new tax regime
- Section 115BAC of the Income Tax Act deals with the new income tax slab rates, which are applicable only for individuals and Hindu Undivided Families (HUFs).
- Although the new regime comes with significantly reduced slab rates, it takes away a major chunk of tax deductions and exemptions that could be availed under the old regime.
- The option to pay income tax as per the new regime can become invalid for the relevant financial year, if the individual or HUF fails to satisfy any of the conditions mentioned in Section 115BAC.
- The rates of surcharge and cess in the new income tax regime are same as those in the old (existing) regime.
- The new income tax regime is optional, and you can still opt for the old (existing) regime.
- You cannot opt for the new regime, if you have any business income in the applicable FY.
Click Here:- Which is better – Old or New Income Tax Regime?
Disclaimer:- “All the information given is from credible and authentic resources and has been published after moderation. Any change in detail or information other than fact must be considered a human error.”Dheeraj Kumar Singh