Income Tax 01 Feb,2020
838 Views
Benefit to personal taxpayers with embedded conditions
V. K. SubramaniCA

The Finance Bill, 2020 has more than 100 amendments proposed to income tax law. A cursory look of the amendments would show that the lawmakers have burnt midnight oil by tinkering with the various provisions by proposing so many micro changes to the legal provisions. The initial euphoria of concessional rate of tax bestowed on the taxpayers stated by the Hon'ble Finance Minister in the Budget speech would die down when the fine print is gone through by the taxpayers.

The Finance Bill, 2020 proposes to insert section 115BAC meant for individual and HUF assessees applicable for the assessment year 2021-22 and thereafter.

The new tax rates proposed under section 115BAC for the assessment year 2021-22 are as under:

S. No. Total Income Rate of tax
1 Upto Rs.2,50,000 Nil
2 From 2,50,001 to Rs.5,00,000 5%
3 From 5,00,001 to Rs.7,50,000 10 %
4 From 7,50,001 to Rs.10,00,000 15%
5 From 10,00,001 to Rs.12,50,000 20 %
6 From 12,50,001 to Rs.15,00,000 25%
7 Above Rs.15,00,000 30 %

Benefits of exemptions and deductions to be foregone:

The following deductions/exemptions are denied when the assessee opts for section 115BAC:

  •  The taxpayer being individual or HUF cannot claim exemption under section 10 such as -

(i) Leave travel concession under section 10(5) - applicable for persons in employment.

(ii) House rent allowance under section 10(13A) - applicable for persons in employment.

(iii) Allowances exempt under section 10(14) (except those as may be prescribed for this purpose) which are also applicable for persons in employment.

  •  In the case of persons being Member of Parliament or any State Legislature or of any committee thereof any income by way of daily allowance or any allowance shall not be eligible for exemption when such person opts for section 115BAC.

  •  In case, the income of minor is clubbed with the income of the parent under section 64(1A), a sum of Rs.1500 is deducted by virtue of section 10(32). This deduction cannot be claimed by the parent who opts for section 115BAC.

  •  In the case of newly established undertaking in free trade zone, deduction is bestowed under section 10AA. In the case of personal taxpayer who opts for section 115BAC, this benefit of deduction under section 10AA has to be foregone.

  •  The standard deduction applicable for persons in employment against salary income cannot be claimed when the taxpayer who opts for section 115BAC.

  •  In the case of personal taxpayers who have self occupied the property for own residence or who cannot occupy the property owing to employment, business or profession carried on at any other place he has to reside at that other place in a building not belonging to him, the annual value of the property shall be taken to be `nil'. However, interest on moneys borrowed is deductible up to a maximum of Rs.2 lakhs. This deduction cannot be claimed when the taxpayer opts for section 115BAC.

  •  Additional depreciation in the case of persons engaged in the business of manufacture or production of any article or thing or in the business of generation, transmission or distribution of power is deductible at 20% of the actual cost of machinery or plant. This is in addition to the depreciation allowable under section 32(1)(ii). This additional depreciation has to be foregone by a taxpayer who opts for section 115BAC.

  •  Section 32AD provides for accelerated depreciation at 15% of the actual cost of new asset being plant or machinery when the undertaking or enterprise is engaged in manufacture or production of any article or thing in a notified backward area in the States of Andhra Pradesh, Bihar, Telangana or West Bengal. This deduction of accelerated depreciation cannot be claimed when the assessee opts for section 115BAC.

  •  Section 33AB provides for deduction equal to the amount of deposit or 40% of the profits of the business whichever is less of the person carrying on the business of growing and manufacturing tea or coffee or rubber in India. This deduction is also to be foregone by the taxpayers when opts for section 115BAC.

  •  Section 33ABA providing deduction for site restoration fund equal to the amount deposited or 20% of the profits of the business whichever is less of the person carrying on the business consisting of prospecting for or extraction or production of petroleum or natural gas or both in India. This deduction will not be available when the assessee opts for section 115BAC dealing with concessional rate of tax.

  •  Donations to National Laboratory or a University or an IIT deductible under section 35(2AA) cannot be claimed when the taxpayer opts for section 115BAC.

  •  In the case of certain specified businesses listed in section 35AD the entire amount of expenditure incurred towards plant and machinery is deductible. Such claim cannot be made when the assessee opts for section 115BAC.

  •  Deduction under section 35CCC relating to agricultural extension project is allowable @ 150% of the expenditure incurred. This cannot be claimed when the assessee opts for section 115BAC.

  •  In the case of person claiming deduction under section 57(iia) i.e. 1/3rd of such income or Rs.15,000 against family pension cannot be claimed when the assessee opts for section 115BAC.

  •  Deduction under Chapter VI-A other than section 80CCD(2) or section 80JJAA cannot be claimed against the income of the taxpayer, when the taxpayer opts for section 115BAC.

Carry forward and set off benefits:

  •  Depreciation brought forward from any earlier assessment year cannot be set off.

  •  Loss under the head "Income from house property" cannot be set off against any other head of income.

  •  Depreciation can be claimed under section 32. However, additional depreciation dealt with section 32(1)(iia) cannot be claimed. The depreciation of current year shall be deemed to have been given full effect. Therefore it is not eligible for carry forward and set off in any subsequent assessment year.

  •  No exemption or deduction for allowance or perquisite by whatever name called could be claimed against the income.

  •  Where the depreciation is not fully claimed for the assessment year preceding the assessment year 2021-22 then it shall be adjusted against the written down value of the block of assets as on 01.04.2020 in the prescribed manner, if the assessee has opted for section 115BAC for the assessment year 2021-22.

  •  The provisions of section 115BAC will not apply unless the assessee has opted for the same. The time limit for claiming the option are:

 (i) In the case of person having business income, on or before the due date specified in section 139(1) for furnishing the return of income for any previous year relevant to the assessment year commencing on or after 01.04.2021 and such option once exercised shall apply to subsequent assessment years also.

(ii) In the case of persons not having business income, the option could be furnished along with the return of income furnished under section 139(1) for a previous year relevant to the assessment year.

Lock in period:

Where the assessee having income from business exercising the option for any previous year, he can withdraw only once for a previous year other than the previous year in which it was exercised. Thereafter, the person shall never be eligible to exercise the option under this section except where he ceases to have business income in which case he can intimate the option along with the return of income.

In the case of persons not having income from business, the option could be exercised every year and there is no lock in period.

A comparative study of tax saving:

The following table gives a snapshot of tax liability under the present regime and the proposed optional regime.

S.No. Total Income Present Proposed Saving
1 Rs.2,50,000 Nil Nil  
2 Rs.5,50,000 23,400 18,200 5,200
3 Rs.7,50,000 65,000 39,000 26,000
4 Rs.10,00,000 1,17,000 78,000 39,000
5 Rs.12,50,000 1,95,000 1,30,000 65,000
6 Rs.15,00,000 2,73,000 1,95,000 78,000
7 Rs.20,00,000 4,29,000 3,51,000 78,000

Conclusion

The proposed section 115BAC seems to be attractive as regards tax outlay. However, it is not encouraging savings as it denies the benefit of various deductions available in Chapter VI-A. Probably, the Government wants the taxpayers to not to save but spend. The measure towards reduction in taxes and denying deduction for savings is similar to western culture. An average Indian is habituated to savings and this provision may not attract many taxpayers for the reason that those who have committed to saving habits may not opt for this scheme.