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Section-115BAC- Tax on Income of Individuals and HUF under New Tax Regime

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Tax on Income of Individuals and HUF

The Finance budget 2020 has introduced a historic change in the direct tax regime and introduced a new tax regime via newly inserted section in the form of Section -115BAC which tells us about the option before the Assessee to go for the new tax regime.

Section-115BAC contains different rates as per different slabs of income to be applicable from FY 2020-2021 (AY 2021-22) without specified deductions and exemptions, set off and carry forward of losses, depreciation and additional depreciation (including unabsorbed depreciation), etc.

Conditions to be satisfied for eligibility under this section
Assessee being an Individual or HUF can opt for this section only if he satisfies all below mentioned conditions:

  • Not claim any set off of losses, carry forward or brought forward of losses or unabsorbed depreciation or additional depreciation and depreciation u/s 32(1) (iia) but can claim normal depreciation u/s 32(1) (ii).
  • Foregone all the deductions and exemptions mentioned below:
Section Kind of Deduction/Exemption
10(5) Leave Travel Concession (LTA)
10(13A) House Rent Allowance (HRA)
10(14) Other allowances
10(17) Allowances to MP/MLA
10AA Deduction specified for SEZ units
10(32) Exemption in case of income clubbed of a minor child
16 Standard Deduction
24(b) except for let out property Interest on home loan for self-occupied property or vacant property
32AD Investment allowance
33AB Deposit with tea, coffee and rubber board
33ABA Site restoration fund
35(1)
(ii), (iia), (iii),35(2AA)
Expenditure on scientific research
35AD Deduction for specified businesses
35CCC Deduction for Agricultural extension project
57(iia) Deduction for family pension
Sec-80C to 80U except 80CCD(2) and 80JJAA All deductions under Chapter-VIA except 80CCD(2) and 80JJAA

Rates prescribed under the section 

Income Tax Slab Tax Rates
Up to Rs 2.5 lakhs NIL
Rs 2.5 lakhs to Rs 5 lakh 5% (Tax Rebate of Rs 12,500 available u/s 87A)
Rs 5 lakh to Rs 7.5 lakh 10%
Rs 7.5 lakhs to Rs 10 lakh 15%
Rs 10 lakhs to Rs 12.5 lakh 20%
Rs 12.5 lakh to Rs 15 lakhs 25%
Above 15 lakhs 30%

*Education cess @4% will also be levied on the final tax payable.
Note: Surcharge will be applicable if the total income exceeds 50 lakhs.

Option available for subsequent years

  • If the assessee is engaged in Business/Profession : Option is allowed once for opting for new regime
  • If the assessee is not engaged in Business/Profession: Option to avail new regime is available on Year on year basis

Old tax Regime V/s New Tax Regime
From the plain reading of the section it is not possible to declare which scheme is better.
So let us take some examples before inferring anything.

Illustration 1: Mr. A is a salaried individual residing in Delhi and earning as follows:
Basic Salary = Rs 50,000 p.m.
DA = Rs 8,000 p.m.
HRA = Rs 10,000 p.m.
Income under the head “Other Sources” = Rs 125,000 (out of which 25,000 is saving bank interest)
He has also invested Rs 150,000 in the LIC policy and Rs 20,000 in Medical policy.

Answer:

Under Old Tax Regime 

Income u/h Salary                                           816,000
Basic salary                        600,000
+ DA                                      96,000
+HRA                                    120,000
Less: Standard deduction u/s 16                 (50,000)
Income from Other Sources                         125,000
Saving Bank Interest         25,000
Other Income                   100,000
Gross Total Income                                       891,000
Less: Deductions under Chapter-VI A
80TTA- Saving bank Interest   10,000
80C- LIC Policy                         150,000
80D- Medical Policy                 20,000          (180,000) 

Total Income                                             711,000

Tax Payable                                                      56,890
(after cesses and rounding off)

 

                           

Under New Tax regime

Income u/h Salary                                             816,000
Basic salary                        600,000
+ DA                                      96,000
+HRA                                    120,000
Income from Other Sources                            125,000
Saving Bank Interest         25,000
Other Income                   100,000
Gross Total Income                                          941,000
Taxable Income                                                 941,000
(Since no deduction is allowed
GTI and Taxable income are same in this case)

Tax Payable as per new regime

For 1st Rs 2.5 lakhs –             Nil
From 2.5 lakh- Rs 5lakh-      12,500
From Rs 5lakh- 7.5 lakh-      25,000
For remaining Rs 1,91,000- 28,650
                                   Total     66,150
Adding cess @ 4%                     2,646
Final Tax Payable after Rounding off   68,800     

Conclusion: In the above case Mr. A having good amount of deductions should go for the old regime as it is ensuring a tax saving of Rs 11,910 against the new regime.

Illustration 2:
Suppose in the above illustration Mr. A does not have any savings in LIC and Medical insurance policy for the purposes of deduction.

Answer:

Under Old Tax Regime
As far as old regime is concerned the taxable income in absence of 80C and 80D deduction will be increased by Rs 170,000 to Rs 881,000 and subsequently tax payable will be increased by Rs 35,360 to Rs 92,250. 

Under new tax regime
Since no deductions are available in the new tax regime in the current example there will not be any change in the Taxable income or Tax payable.

Conclusion: After studying the impact of both the illustrations given above we can conclude that if an Assessee is investing a higher amount in these tax saving schemes he will bend more towards the old regime and otherwise new regime might stand better.

Withdrawal of option in the subsequent year

  • If the assessee is engaged in Business/Profession then:
    • Option for withdrawal of option is allowed only once in the subsequent years and once opted the person will never be eligible for the option for any of the subsequent year.
    • The option once withdrawn will be only if Assessee’s business income ceases in the subsequent year.
  • If the assessee is not engaged in Business/Profession then: Option to withdraw will be available on year on year basis

At AJSH, we assist our clients in taxation matters, accounting, payroll, tax planning, audit etc. If you have any questions or want to know more about tax on Income of Individuals and HUF under new tax regime, kindly contact us.

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