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Individuals and HUFs can choose the tax rates – Section 115BAC

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The Government of India has introduced a new Section 115BAC in the Finance Act 2020. The memorandum to Finance Bill 2020 says it is an incentive to Individual and HUF (hereinafter referred to as taxpayers), which are in line with options given to the Corporates under Taxation Law Amendment Act,2019 (TLAA).

The Tax rates under the new regime and the existing regime ( Both are available)

Total Income New Slab RateTotal IncomeExisting Rate
Rs 2.5 lakh to Rs 5 lakh5%Rs 2.5 lakh to Rs 5 lakh5%
Rs 5 lakh to Rs 7.5 lakh10%Rs 5 lakh to Rs 10 lakh20%
Rs 7.5 lakh to Rs 10 lakh15%Above Rs.10 Lakhs30%
Rs 10 lakh to Rs 12.5 lakh20%  
Rs 12.5 lakh to Rs 15 lakh25%  
above Rs 15 lakh30%  
Two easy looking Choices – doesn’t mean easy to choose!

To avail the concessional tax rate a tax payer has to forego the following exemptions, deductions and benefits. There are approximately around 70 exemptions/deductions to which a tax payer is not eligible under the new regime and the most common one are;

  • Standard Deduction of Rs.50,000/- (available to Taxpayers having Salary Income under existing tax regime)
  • Professional Tax paid on employment – (available to Tax Payers having Salary Income under existing tax regime)
  • House Rent Allowance (available to Tax Payers having Salary Income under existing tax regime)
  • Children Education Allowance  (available to Tax Payers having Salary Income under existing tax regime)
  • Special Allowances like Uniform Allowance (available to Tax Payers having Salary Income under existing tax regime)
  • Meal Vouchers (available to Tax Payers having Salary Income under existing tax regime)
  • In the case of tax payer having business income
    1. Additional Depreciation
    2. Allowances for Scientific Research
  • Deduction from Family Pension
  • Interest on Housing Loan for Self occupied property or Vacant Property
  • Chapter VIA Deductions (80C, 80D, 80E and so on)
    1. Life Insurance Premium
    2. Children Tuition Fees
    3. Housing Loan Repayment
    4. Contribution to Provident Fund
    5. Contribution to Equity linked Saving Scheme
    6. Mediclaim (health insurance)
    7. Repayment of Education Loan
    8. Donation

The primary objective of introduction of the new tax regime for Individuals/HUFs was to simplify the tax laws, as tax laws are generally perceived as more complicated legislation, but however a tax payer has to do an herculean exercise to see whether the new tax regime is beneficial to him or not.

The following table gives an indication when the new tax regime is beneficial to him/her; (all in Rs.)

Taxable
Income
Break Even Point 
for
deductions
/exemptions
When is New Tax Regime
Beneficial?
When is Old Tax Regime Beneficial?
Up to
5,00,000
0No differenceNo Difference
5,50,00025,000If deductions/exemptions
are <=Rs 25,000.
If deductions/exemptions
> Rs 25,000.
6,00,00050,000If deductions/exemptions
are <=Rs 50,000.
If deductions/exemptions
> Rs 50,000.
6,50,00075,000If deductions/exemptions
are <=Rs 75,000.
If deductions/exemptions
> Rs 75,000.
7,00,000100,000If deductions/exemptions
are <=Rs 100,000.
If deductions/exemptions
> Rs 100,000.
7,50,000125,000If deductions/exemptions
are <=Rs 125,000.
If deductions/exemptions
> Rs 125,000.
8,00,000137,500If deductions/exemptions
are <=Rs 137,500.
If deductions/exemptions
> Rs 137,500.
8,50,000150,000If deductions/exemptions
are <=Rs 150,000.
If deductions/exemptions
> Rs 150,000.
9,00,000162,500If deductions/exemptions
are <=Rs 162,500.
If deductions/exemptions
> Rs 162,500.
9,50,000175,000If deductions/exemptions
are <=Rs 175,000.
If deductions/exemptions
> Rs 175,000.
10,00,000187,500If deductions/exemptions
are <=Rs 187,500.
If deductions/exemptions
> Rs 187,500.
10,50,000187,500If deductions/exemptions
are <=Rs 187,500.
If deductions/exemptions
> Rs 187,500.
11,00,000187,500If deductions/exemptions
are <=Rs 187,500.
If deductions/exemptions
> Rs 187,500.
11,50,000187,500If deductions/exemptions
are <=Rs 187,500.
If deductions/exemptions
> Rs 187,500.
12,00,000191,670If deductions/exemptions
are <=Rs 191,670.
If deductions/exemptions
> Rs 191,670.
12,50,000208,330If deductions/exemptions
are <=Rs 208,330.
If deductions/exemptions
> Rs 208,330.
13,00,000216,665If deductions/exemptions
are <=Rs 216,665.
If deductions/exemptions
> Rs 216,665.
13,50,000225,000If deductions/exemptions
are <=Rs 225,000.
If deductions/exemptions
> Rs 225,000.
14,00,000233,330If deductions/exemptions
are <=Rs 233,330.
If deductions/exemptions
> Rs 233,330.
14,50,000241,670If deductions/exemptions
are <=Rs 241,670.
If deductions/exemptions
> Rs 241,670.
15,00,000
& Above
250,000If deductions/exemptions
are <=Rs 250,000.
If deductions/exemptions
> Rs 250,000.
Long list of indifference points

How to opt for new tax regime;

  • A tax payer not having income from Business or Profession can opt for the new tax regime at the time of filing the tax returns for the respective assessment year.
  • A tax payer having income from Business or Profession can opt for the new tax regime before the due date for filing the tax returns and once opted same shall apply to subsequent assessment years.

How to exit from the new tax regime;  

  • A tax payer having only Income from Salary, House Property, Capital Gain and Other Sources can choose every year while filing the tax returns
  • A tax payer having income from Business or Profession can opt out of the new regime only once and there after the normal provisions of Income Tax Act will be applicable. He cannot choose the new tax regime as long as he is having Income from Business or Profession.

So how does one choose which regime is better ? To help you decide, we have already provided detailed list of indifference points and along with that following Rules of Thumb can be helpful.

#Tax PayerWhen is new tax regime beneficialRemarks
1Salaried EmployeesThose who have just taken up the employment and whose salary is more than Rs.600,000/- and staying in own house and not made sufficient savings like investment in PF/Insurance Premium during the year.    As the Tax payer has an option to opt for the new tax regime better to evaluate before filing the tax returns every year.
2Having income from business/ProfessionThose who are not paying interest on self-occupied property and not having sufficient savings like investment in PF/Insurance Premium during the yearExtreme caution to be exercised before opting for the new tax regime as there is only one time option to exit from the scheme.
Rules of Thumb for New Tax Regime

The write-up is for general understanding. We suggest the readers to discuss with their CAs before deciding on choosing either of the tax rates.

Venkatesh is a practicing Chartered Accountant specializing in the field of direct taxes and corporate laws and compliance. He is the founding partner of Venkatesh Bhaskar & Associates. He has served as Chairman of Bangalore Branch of ICAI (2011-12). Presented papers at various forums. He is also partner at M/s. N C S Raghavan & Co. He can be contacted at venkatesh@vbaca.co.in

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