Section 115BAC: New Optional Income Tax Regime for Individual/HUF in India

Budget 2020 brought a new optional income tax regime for individuals & HUF. This optional tax regime is made applicable for F.Y. 2020-21 (A.Y. 2021-22) & onwards. The provisions of this scheme are covered under section 115BAC of the Income Tax Act, 1961. The basic feature of this new tax regime is the lower tax rates as compared to the existing tax slab. But it is also important to note that the taxpayer who opts for the new optional tax regime will have to forego various exemptions and deductions as available under the Income Tax Act. This scheme has gotten the attention of a large number of taxpayers though they are confused about whether to opt for the new tax regime or not. This article will help you decide which regime to choose whether the old tax regime or the new tax regime. Let’s discuss

What is the New Tax Regime under Section 115BAC?

‘New Tax Regime’ under section 115BAC is the concessional income tax rates scheme allowed by the Income Tax Act in the case of individual & HUF taxpayers. Under this scheme, the taxpayers can opt to pay tax at lower rates. However, there are certain conditions for availing of the concessional tax regime u/s 115BAC.

From which year is the New Tax Regime under section 115BAC applicable?

New Tax Regime u/s 115BAC is applicable for F.Y. 2020-21 (A.Y. 2021-22) & onwards.

Who is eligible to avail the New Tax Regime u/s 115BAC?

New Tax Regime u/s 115BAC is available to Individuals & HUFs. The option u/s 115BAC can be taken by both residents as well as a non-resident taxpayers. Further, the option is available to senior citizens as well as other taxpayers.

Income Tax rates under New Tax Regime u/s 115BAC

This section of the article gives you the income tax slab rates as prescribed u/s 115BAC in the case of New Tax Regime in comparison to Old Tax Regime:

Old Tax Regime		New Tax Regime u/s 115BAC
Total Income	Tax Rate	Total Income	Tax Rate
Up to Rs. 2,50,000	Nil	Up to Rs. 2,50,000	Nil
Rs. 2,50,001 to Rs. 5,00,000	5%	Rs. 2,50,001 to Rs. 5,00,000	5%
Rs. 5,00,001 to Rs. 7,50,000	20%	Rs. 5,00,001 to Rs. 7,50,000	10%
Rs. 7,50,001 to Rs. 10 Lakhs	20%	Rs. 7,50,001 to Rs. 10 Lakhs	15%
Rs. 10,00,001 to Rs. 12.50 Lakhs	30%	Rs. 10,00,001 to Rs. 12.50 Lakhs	20%
Rs. 12,50,001 to Rs. 15 Lakhs	30%	Rs. 12,50,001 to Rs. 15 Lakhs	25%
Above Rs. 15 Lakhs	30%	Above Rs. 15 Lakhs	30%

Note:

The benefit of the slab rate of Rs. 3 Lakhs (senior citizens) & Rs. 5 Lakhs (super senior citizens) will not be available in the New Tax Regime.
Rebate under section 87A will be available to the taxpayers opting new tax regime similar to the old tax regime.

What are the exemptions & deductions not available in the new tax regime under section 115BAC?

The total income of an individual or HUF assessee opting for section 115BAC shall be computed without claiming any deductions or exemptions as below:

Under the Head Salary:

Leave Travel Concession or Assistance [Section 10(5)]
Exemption for House Rent Allowance [Section 10(13A)]
Allowances which are otherwise exempt under section 10(14) [Following Allowance continue to be exempt under the new tax regime: Transport Allowances granted to Divyang employees, Conveyance Allowance, any allowance to meet the cost of travel or on transfer, Allowance to meet the ordinarily daily charges incurred by the employee]
Allowances to MP & MLAs [Section 10(17)]
Standard Deduction of Rs. 50,000 [Section 16(ia)]
Deduction for professional tax
Entertainment Allowance

Under the head House Property:

Interest on borrowing in respect of self-occupied property u/s 24(b)
Loss under the head “Income from House Property” shall not be carried forward. Loss from house property continues to be set off against income from other house property but it cannot be set off against any other head of Income
Standard deduction of 30% and Municipal Taxes are allowed in the new tax regime also.

Under other heads of income:

Additional Depreciation [Section 32(1) (iia)]
Investment Allowance of 15% for investment in plant & machinery in notified areas [Section 32AD]
Deduction to Tea/ Rubber/ Coffee manufacturers under section 33AB
Deduction of deposit in Site Restoration Fund [Section 33ABA]
Deduction for certain payments to scientific research institutions, universities, IIT, national laboratory, or a company engaged in scientific research [Section 35(1)(ii)/(iia)/(iii) or 35(2AA)]
Deduction under section 35AD
Deduction in respect of expenditure on agricultural extension projects [Section 35CCC]
Deduction available to SEZ unit under section 10AA
Deduction from Family Pension under section 57(iia) equal to 1/3^rd of pension or Rs. 15,000 whichever is less
Deduction of Rs. 1,500 u/s 10(32) in case of clubbing of income of a minor child

Deductions under Chapter VIA:

Deductions under sections 80C to 80U are not allowed under the new tax regime

Exceptions: Only the following deductions are allowed under the new tax regime:

Section 80CCD (2): Contribution to notified pension scheme [Employer’s contribution]
Section 80JJAA: Deduction in respect of employment of new employees
Section 80LA: Deduction for a unit in International Financial Services Centre

Note:

If you are opting for the new tax regime & you are having losses in earlier years, the benefit of carry forward losses shall not be available u/s 115BAC. Therefore, the brought forward losses shall lapse on opting for section 115BAC.
Similarly, if there is any brought forward depreciation on account of additional depreciation, it will also lapse.
Claim for depreciation will be allowed in the new tax regime except for claim for additional depreciation.
Deduction under section 80TTA for interest on saving bank accounts & under section 80TTB for interest on deposits to senior citizens shall not be allowed under the new tax regime u/s 115BAC.

What are the allowances which will be exempted under the new tax regime u/s 115BAC?

Following allowances will be exempted under the new tax regime similar to the old tax regime:

Transport Allowance to a Divyang employee to meet the expenditure for commutation between the place of residence and the place of work
Conveyance Allowance granted to meet the expenditure on conveyance in the performance of duties
Allowances to meet the cost of travel on tour or transfer
Daily Allowances to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty

How to opt for the new tax regime under section 115BAC?

The manner of opting for the new tax regime depends upon the type of assessee. For simplicity of understanding, we have divided it into two sections:

Individual/HUF having income from business/ profession:

In the case of an Individual/HUF having income from business/profession, the option under section 115BAC is to be exercised on or before the due date of filing ITR specified under section 139(1). It means that you have to exercise the option of the new tax regime before efiling of income tax return.
Once opted, the option shall continue to apply for the subsequent years. It means that the assessee is not required to give intimation of opting new tax regime every year.
But if the assessee wants to opt-out of the new tax regime in subsequent years, he can do it for once. Once opted out of the new tax regime, he cannot choose for the new tax regime again in his lifetime except where such person ceases to have any income from business or profession.

Individual/HUF not having income from business/profession:

Individuals/ HUF not having income from business/ profession can opt for new tax regime u/s 115BAC every year along with the return of income to be furnished u/s 139(1).
It means that this category of taxpayers can opt-in/opt-out indefinite times in subsequent years.

Which form is required to be filed for opting new tax regime?

The CBDT has prescribed Form 10-IE to opt for the new tax regime under section 115BAC.
Individuals/ HUFs having business or profession income are required to fill this form before filing their ITR online.
They are required to submit Form No. 10-IE on or before the due date of filing return u/s 139(1) i.e. belated filing is not allowed.
However, Salaried individuals do not have to fill out this form separately. They just need to exercise this option while filing the return by ticking the appropriate box in the income tax form itself.

What is the due date for filing Form 10-IE?

Individual/HUF having business or Profession Income:

This category of taxpayers is required to file Form 10-IE on or before the due date of filing ITR. Therefore, the belated filing of Form-10IE is not allowed.

Individual/HUF not having business or profession income:

This category of taxpayers is required to exercise this option at the time of IT return filing i.e. in this case, the due date of filing ITR is not relevant but exercising of option at the time of filing ITR is more relevant. Thus, Form 10-IE could be filed even in case of the belated return.

Can the option under section 115BAC be withdrawn for the same assessment year after filing Form 10-IE?

The option once exercised by filing Form 10-IE cannot be withdrawn subsequently for the same assessment year.

Read Article on Form-10IE

Can I claim house property loss in the new tax regime?

Under the new tax regime, you cannot claim a deduction for interest on a housing loan if you own a self-occupied property. As per the Income Tax law, a deduction of up to Rs. 2 Lakhs is available for interest on housing loans against self-occupied property. As soon as you opt for the new tax regime, you will lose this benefit.

However, in case of a let-out or rented property, you will continue to have deduction available in respect of interest on a housing loan. But you will not be able to set off losses under the head house property with any other head of income. Further, Losses under the head house property cannot be carried forward to subsequent years.

Conclusion:

New Tax Regime u/s 115BAC has been introduced by the Government with a view to making tax provisions simple for the normal taxpayers. Individuals & HUFs are certainly going to get the benefit from lower tax rates prescribed by the new tax regime. However, before making any option, the taxpayers should carefully compare the tax effect under the new vs. old tax regime. Especially the individuals & HUFs who are having business or profession income should be very cautious while opting new tax regime because switching out of the new tax regime will disqualify them from re-opting the new tax regime in the future. We hope that this article would be helpful for you in clearing your doubts relating to section 115BAC of the Income Tax Act. We will soon come out with another article comparing the new vs. old tax regimes by means of examples.

Read Related Articles:

Form 10IE- Option to Choose New Tax Regime

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