New Tax Regime Under Section 115 BAC: Features and Implementation
From the financial year 2020-21, an optional tax regime came into existence. The Budget of 2020 specifies this new regime under Section 115 BAC, wherein HUF and individual taxpayers have the opportunity to pay taxes at lower rates. This system applies to income earned from 1 April 2020, which relates to assessment year 2021-22.
This article discusses the features of this provision! Keep reading!
Tax Rates as Per the New Regime u/s 115 BAC
The tax rates of the existing regime and the new regime are as follows:
| Existing Income Slabs | Tax Rates | New Income Slabs | Tax Rates |
| Above Rs. 2.5 lakh – Rs. 5 lakh | 5% | Above Rs. 2.5 lakh – Rs. 5 lakh | 5% |
| Above Rs. 5 lakh – Rs. 10 lakh | 20% | Above Rs. 5 lakh – Rs. 7.5 lakh | 10% |
| Above Rs. 10 lakh | 30% | Above Rs. 7.5 lakh – Rs. 10 lakh | 15% |
| − | − | Above Rs. 10 lakh – Rs. 12.5 lakh | 20% |
| − | − | Above Rs. 12.5 lakh – Rs. 15 lakh | 25% |
| − | − | Above Rs. 15 lakh | 30% |
Section 115 BAC does not approve 70 exemptions and deductions available under the old tax regime. The taxation under both the existing and new regimes without exemptions and deductions is as follows:
| Yearly Income | Tax as Per New Regime | Tax as Per Existing Regime | Tax Difference |
| Up to Rs. 15 lakhs | Rs. 195,000 | Rs. 273,000 | Rs. 78,000 |
| Up to Rs. 12.5 lakhs | Rs. 130,000 | Rs. 195,000 | Rs. 65,000 |
| Up to Rs. 10 lakhs | Rs. 78,000 | Rs. 117,000 | Rs. 39,000 |
| Up to Rs. 7.5 lakhs | Rs. 39,000 | Rs. 65,000 | Rs. 26,000 |
The above table highlights that the new provision saves taxes for individuals who do not claim exemptions or deductions.
Also Read – How To Use Income Tax Calculator Online?
Deductions and Exemptions Not Eligible Under Section 115 BAC
The following are the major exemptions and deductions a person cannot claim as per the new provision:
- Deduction for income from family pension
- Chapter VI-A deduction− all Sections except Section 80JJAA and Section 80CCD(2)
- Housing loan interest on the vacant property or self-occupied property u/s 24 (b)
- Children education allowance
- Helper allowance
- Minor child income allowance
- House rent allowance (HRA)
- Leave travel allowance (LTA)
- Other special allowances under Section 10(14)
- Standard deduction under Section 80 TTB/80TTA,
- Entertainment allowance and employment/professional tax
- Deduction or exemption for any other allowances or perquisites
Deductions and Exemptions Available Under Section 115 BAC
An individual can claim tax benefits for:
- Deduction for additional employee charge as per Section 80JJA
- An individual’s compensation to meet the travel expenses for transfer or tour
- Deduction for an employer’s contribution to National Pension Scheme (Section 80CCD(2))
- An employee’s daily allowance under certain situations
- Conveyance allowance of an employee
- Transport allowance for a specially-abled individual
Also Read – Deductions Under Section 80C Of Income Tax
New Tax Regime Implementation
Salaried individuals need to choose the new system at the beginning of FY 2020-21 and inform their employers. Employees cannot alter this choice during the financial year. However, they may change their selection while filing the tax return details in July 2021. The due date for income tax filing for 2020-21 is 31 December 2021 (extended from 31 July 2021).
If an employee does not select the new regime when the financial year begins, the employer will deduct TDS as per the existing tax regime. Therefore, a salaried individual can opt-out and opt-in every year. An employee can select the new regime for one year and the regular regime for another year.
A non-salaried individual must select the new tax regime when filing the income tax return. They need not intimate or declare their selection to anyone during the financial year.
However, taxpayers having income from professions or businesses cannot opt-out or opt-in of the new system every year. Once a non-salaried person opts out of Section 115BAC, they cannot apply for it again in the future.
Choosing the New Tax Regime
An individual needs to choose the tax regime when the financial year begins. People should compare the tax payable under the existing tax regime with the new regime before making a choice.
After a person chooses the tax system at the beginning of a financial year, the calculations for TDS, investments or advanced taxes are made. A taxpayer willing to register for the new regime has to submit Form 10IE to the tax department before tax filing.
Example
| Income (Rs.) | Sum (Rs.) | New Regime (Rs.) | Old Regime (Rs.) |
| Annual Salary | 1,200,000 | 1,200,000 | 1,200,000 |
| Minus: Standard deduction | 40,000 | − | 40,000 |
| Minus: Professional tax | 2,000 | − | 2,000 |
| Gross total income | 11,58,000 | 1,200,000 | 11,58,000 |
| Minus: Section 80C deduction | 150,000 | − | 150,000 |
| Total income | 10,08,000 | 10,08,000 | |
| Income tax | 1,52,500 | 1,14,900 | |
| Add: 4% education cess | 6100 | 4596 | |
| Total tax | 1,58,600 | 1,19,496 |
In the above example, the existing tax system is beneficial by Rs. 39104.
Final Word
Section 115 BAC is more fruitful for taxpayers who do not have any tax-saving investments and are not willing to make such investments in the near future. If you have an income tax slab between Rs. 5 lakhs to Rs. 10 lakhs, you will gain from lower tax rates of the new provision.
In contrast, people having an annual income of above Rs. 15 lakhs will gain more from the existing system by generating tax-saving investments. Everyone should examine their tax-saving investments and calculate the income tax before selecting the regime.
Frequently Asked Questions
Ans: If an individual has a self-occupied property, he will not receive a deduction on housing loan interest under the new rule. The tax deduction of Rs. 2,00,000 under the existing regime is not available in Section 115 BAC. In addition, an individual cannot offset the loss from property to upcoming years for adjustment.
Ans: Section 115 BAC does not allow the following exemptions and deductions against business income. This includes the following deductions/exemptions:
> Exemption for SEZ units under Section 10AA
> Capital expenditure as per Section 35AD
> Expenses on scientific research as per Section 35
> Deductions for sector-based business under Sections 33ABA and 33AB
> Investment allowance as per Section 32AD
> Additional depreciation as per Section 32
Ans: Income tax filers will have to submit a declaration, known as Form 10IE, to choose the new tax regime. HUF and individuals having business income can submit the form prior to the due date of ITR filing, i.e. 31 July or an extended date prescribed by the Government.
Ans: A taxpayer will require the following details while filing Form 10 IE:
Name of the HUF/individual
PAN
Address proof
Confirmation of whether a HUF or individual has any profits from profession or business
Date of incorporation/date of birth
Declaration
Form 10 IE details previously filed
Confirmation of whether taxpayers have any units in IFSC as specified in sub-section (1A) under Section 80LA
Nature of profession/business (compulsory for business income)
Ans: The Income Tax Act keeps different rates of tax for different categories. The classification of taxpayers is as follows:
Companies
Firms
Body of individuals
Association of persons
Hindu undivided family
Individuals (non-residents and residents)
Disclaimer
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
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