New Scheme of Taxation under Section 115BAC of Income Tax Act, 1961

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New Scheme of Taxation under Section 115BAC of Income Tax Act 1961

A new tax planning comes into force by inserting a new section in Income Tax Act, 1961, which is known as Section 115BAC of Income Tax Act, 1961. The main characteristic of this new tax system issued by the Income Tax Department is that it has lower tax rates than existing slab rates, but the assessee must sacrifice about 70 exemptions and deductions that are currently accessible. In this article will discuss about New Scheme of Taxation U/S 115BAC of Income Tax Act 1961 in detail.

Table of content

Applicability of Section 115BAC of Income Tax Act 1961

This approach will be implemented in the beginning along with Assessment Year 2021-22. Individuals are affected by it. HUFs Both residents and non-residents are welcome. The scheme is, however, optional, and the assessee might continue to use his or her current taxes system. Switching from one scheme to another is permitted under specific conditions, which will be explained later.

Comparison of Old and New Tax Regime under Section 115BAC of Income Tax Act 1961

Let’s look at how the new tax slabs compare to the old tax slabs:

Old Tax Slabs New Tax Slabs
Income in Rupees Tax % Income in Rupees Tax %
  • 2,50,000-5,00,000
5%
  • 2,50,000-5,00,000
5%
  • 5,00,001-7,50,000
10%
  • 5,00,001-10,00,000
20%
  • 7,50,001-10,00,000
15%
  • 10,00,001-12,50,000
20%
  • 10,00,001 and above
30%
  • 12,50,001-15,00,000
25%
  • 15,00,001 and above
30%

Existing Tax Slabs

Let’s see how the new tax slabs stack up against the previous ones:

New Tax Slabs
Income in Rupees Tax %
  • 2,50,000-5,00,000
5%
  • 5,00,001-7,50,000
10%
  • 7,50,001-10,00,000
15%
  • 10,00,001-12,50,000
20%
  • 12,50,001-15,00,000
25%
  • 15,00,001 and above
30%

It is important to note that the old slab rate of Rs. 3, 00,000/ Rs. Moreover, 3,50,000 enjoyed by Senior Citizens/Super Senior Citizens will no longer be available to them if they choose this new tax regime. However, the Rebate under Section 87A, the Surcharge, the Education Cess, and the Special Rates of Chapter XII will be the same in the new tax regime as they are now.

Exemptions and Deductions from Section 115BAC

The following are the exemptions and deduction from Section 115 BAC :

  • Heading of Salary: If the assessee elects Section 115BAC, the entire income is estimated without any exemptions or deductions under the following provisions:
    • [Leave Travel Concession] Sec. 10(5)
    • [House Rent Allowance] Sec. 10(13A).
    • [Special allowances except for the following prescribed items] Sec. 10(14).
    • Divyang Employee is eligible for a transportation allowance.
    • Further, Allowance for Conveyance is also on the list.
    • Moreover, any stipend to help with travel or transfer costs is also present.
    • Further, Allowance to cover the employee’s ordinary everyday expenses is also present.
    • [Allowances to MPs or MLAs] Sec. 10(17).
  • Heading of House Property: If the assessee chooses Sec 115BAC, the entire income of the individual or HUF is calculated without any exemptions or deductions under the following provisions:
    • Section 24(b) [Interest on borrowings for self-occupied real estate].
    • Losses from residential property can be offset against income from residential property. It cannot, however, be deducted from any other source of income.
    •  A 30 percent deduction and the payment of municipal taxes are allowed when calculating income from house property. Interest on borrowed capital, on the other hand, is not deductible.
  • Heading of Profits and Gains from Business and profession: If the assessee chooses Sec 115BAC, the entire income of the individual or HUF is calculated without any exemptions or deductions under the following provisions:
    • Section 32(1)(iia) [Additional depreciation] 
    • Section 32AD [New plant or machinery investment in identified backward areas] Section 33AB [Development account for tea, coffee, and rubber]
    • Section 35(1) (ii)/(iia)/(iii) or Section 35(2AA) [Specific payments to research associations, universities, colleges, national laboratories, and other organisations].
    • [Investment connected deduction] Section 35AD
    • Sec 35CCC [Agricultural Extension Project Expenditure]
    • [Deduction from family pension] Section 57(iia)
    • Any brought forward loss from Assessment Years 2020-21 and earlier that is due to 32AD, 33AB, 35(1)(ii)/(iia)/(iii), 35(2AA), 35AD, 35CCC will not be carried forward and set-off.
    • This will also expire, as will Unabsorbed Depreciation due to Additional Depreciation.

Deductions as per Chapter VI A

If the assessee chooses Sec 115BAC, the individual’s or HUF’s total income is determined without any deductions under the following provisions: 

  • Section 80CCD (2) [Employer’s payment to Pension Fund].
  • Further, 80JJAA Section [Additional employee cost deduction] is also finds its place in the list.
  • Furthermore, Section 80LA [in the case of an IFSC-located unit that meets the standards set forth therein].

Advantages of New Tax Regimes

  • Tax rates are high under the existing tax system, however there are numerous strategies to lower tax liability. Over 70 exemptions and deductions are available to taxpayers, allowing them to reduce their taxable income and hence pay less tax.
  • Further, the new tax regime includes more slabs and lower taxes, but there are few alternatives to decrease taxes, such as claiming deductions and exemptions, because the taxpayer must forego over 70 deductions and exemptions.
  • If taxpayers want to pick the new tax system, they should compare the two and choose the one that is more beneficial to them in terms of tax savings. Both tax experts and taxpayers may find it inconvenient and time-consuming.
  • Moreover, nowadays most returns are filed using software that calculates taxes for both regimes automatically.
  • Further, Individual taxpayers can utilise the income tax department’s tax comparison tool, which is available on their web page, to determine which choice is best for them.

 ITR Filing for Company Starting from ₹ 4000/

Takeaway

According to the new Section 115BAC of the Income-tax Act, 1961, a person who is an individual or an undivided Hindu family (HUF) with income other than income from profession or business may exercise the option to be taxed under Section 115 BAC for a previous year along with his or her return of income to be filed under Section 139(1) of the Income-tax Act for each year.

The notification by the CBDT removes any misunderstanding regarding the employer’s responsibility in applying the new tax regime while computing TDS on salary. 

Employees will be less inconvenienced and will be able to obtain refunds of excess taxes withheld as a result of the communication (if any). As a result, if employees notify their employer that they want to switch to a different tax rate, the employer must deduct TDS at the new rate.

For more information about this topic, kindly contact to our experts.

CA Pulkit Goyal, is a fellow member of the Institute of Chartered Accountants of India (ICAI) having 10 years of experience in the profession of Chartered Accountancy and thorough understanding of the corporate as well as non-corporate entities taxation system. His core area of practice is foreign company taxation which has given him an edge in analytical thinking & executing assignments with a unique perspective. He has worked as a consultant with professionally managed corporates. He has experience of writing in different areas and keep at pace with the latest changes and analyze the different implications of various provisions of the act.

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