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Decoding the New Tax Regime of Section 115BAC introduced in Union Budget 2020

New tax regime under Section 115BAC

The Finance Minister Smt. Nirmala Sitharaman has presented her 2nd Budget on 1st February, 2020.A new optional personal tax scheme has been proposed vide a newly inserted section i.e., 115BAC for the Individuals and HUF. 

From the assessment year 2021-22 (FY 2020-21), individual and HUF tax payers have an option to opt for taxation under the section 115BAC of the Act provided they decide to forego the specified deductions and exemptions.

The option to pay tax at lower rates shall be available only if the total income of assessee is computed without claiming following exemptions or deductions:

a) Leave Travel concession [Section 10(5)]

b) House Rent Allowance [Section 10(13A)]

c) Official and personal allowances (other than those as may be prescribed) [Section 10(14)]

d) Allowances to MPs/MLAs [Section 10(17)]

e) Allowances for income of minor [Section 10(32)]

f) Deduction for units established in Special Economic Zones (SEZ) [Section 10AA];

g) Standard Deduction [Section 16(ia)]

h) Entertainment Allowance [Section 16((ii)]

i) Professional Tax [Section 16(iii)]

j) Interest on housing loan [Section 24(b)]

k) Additional depreciation in respect of new plant and machinery [Section 32(1)(iia)];

l) Deduction for investment in new plant and machinery in notified backward areas [Section 32AD];

m) Deduction in respect of tea, coffee or rubber business [Section 33AB];

n) Deduction in respect of business consisting of prospecting or extraction or production of petroleum or natural gas in India [Section 33ABA];

o) Deduction for donation made to approved scientific research association, university college or other institutes for doing scientific research which may or may not be related to business [Section 35(1)(ii)];

p) Deduction for payment made to an Indian company for doing scientific research which may or may not be related to business [Section 35(1)(iia)];

q) Deduction for donation made to university, college, or other institution for doing research in social science or statistical research [Section 35(1)(iii)];

r) Deduction for donation made for or expenditure on scientific research [Section 35(2AA)];

s) Deduction in respect of capital expenditure incurred in respect of certain specified businesses, i.e., cold chain facility, warehousing facility, etc. [Section 35AD];

t) Deduction for expenditure on agriculture extension project [Section 35CCC];

u) Deduction for family Pension [Section 57(iia)]

v) Deduction in respect of certain incomes other than specified under Section 80JJAA, 80CCD(2) and deduction under section 80LA for Unit located in IFSC [Part C of Chapter VI-A].

 
Watch our Video on Detailed Analysis of Section 115 BAC and its effects on Individuals and HUF:

Additionally, in case the assessee has business income, this option shall be exercised on or before the due date for furnishing the returns of income. Once the assessee has exercised the option for any previous year, it cannot be subsequently withdrawn for the same or any other previous year. The option once exercised for any previous year can be withdrawn only once in subsequent previous year (other than the year in which it was exercised) and thereafter, he shall never be eligible to exercise this option again except where such person ceases to have any business income.

However, if assessee does not have business income, the option must be exercised along with the return of income for every previous year. If an assessee, after opting for Section 115BAC, claims any of prescribed deduction or allowance in any previous year, then the option to pay tax at concessional rate shall become invalid for that year.

The Finance Minister in her speech highlighted that the new regime will help the tax payers in reducing their tax burden. Following is our analysis on the new regime in comparison to the existing tax scheme as introduced in the Bill: -

Nature of deduction available in the current tax regime

Breakeven point

When it is beneficial to opt for the new regime of Section 115BAC?

 

 

 

No deduction is allowable

-

Always

Deduction allowable under Section 80C

8,50,000

Income in excess of Breakeven

Deduction allowable under:

Sections 80C

Section 80D

12,25,000

Income in excess of Breakeven

Deduction allowable under:

Sections 80C

Section 80D

Section 16 (Standard Deduction)

15,00,000

Never

Deduction allowable under:

Sections 80C

Section 80D

Section 16 (Standard Deduction)

Section 24 (Interest on housing loan)

-

Never

Disclaimer: This information is updated till 13 February 2020.

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