IT Return: Are you opting for new tax regime u/s 115BAC ?
Section 115BAC: Features of the new tax regime and its benefits
Individuals and HUF taxpayers are eligible to choose a new tax regime from FY 2020-21.
From FY 2020-21, you can choose to pay income tax under an optional new tax regime. The new tax regime is available for individuals and HUFs with lower tax rates and zero deductions/exemptions. We will discuss the features of the new tax regime and how you can benefit from it.
What is the new tax regime for FY 2020-21?
The Budget 2020 introduces a new regime under section 115BAC giving an option to individuals and HUF taxpayers to pay income tax at lower rates. The new system is applicable for income earned from 1 April 2020 (FY 2020-21), which relates to AY 2021-22.
What are the tax rates under the new regime?
The tax rates under the new tax regime and the existing tax regime are:
| New slab rates | Existing slab rates | ||
|---|---|---|---|
| Income from Rs 2.5 lakh to Rs 5 lakh | 5% | Income from Rs 2.5 lakh to Rs 5 lakh | 5% |
| Income from Rs 5 lakh to Rs 7.5 lakh | 10% | Income from Rs 5 lakh to Rs 10 lakh | 20% |
| Income from Rs 7.5 lakh to Rs 10 lakh | 15% | Income above Rs 10 lakh | 30% |
| Income from Rs 10 lakh to Rs 12.5 lakh | 20% | ||
| Income from Rs 12.5 lakh to Rs 15 lakh | 25% | ||
| Income above Rs 15 lakh | 30% |
The new tax regime does not allow 70 deductions and exemptions (discussed in para 4). The tax payable under both the latest and the existing regimes without claiming deductions and exemptions is as below:
| Annual income | Tax under the existing regime (Rs) | Tax under the new regime (Rs) | Tax savings under the new regime (Rs) |
| Up to Rs 7,50,000 | 65,000 | 39,000 | 26,000 |
| Up to Rs 10,00,000 | 117,000 | 78,000 | 39,000 |
| Up to Rs 12,50,000 | 195,000 | 130,000 | 65,000 |
| Up to Rs 15,00,000 | 273,000 | 195,000 | 78,000 |
The new tax regime saves taxes for taxpayers who don’t claim any deductions or exemptions.
Exemptions and deductions not claimable under the new tax regime
The following are the deductions and exemptions you cannot claim under the new tax system:
- The standard deduction, professional tax and entertainment allowance on salaries
- Leave Travel Allowance (LTA)
- House Rent Allowance (HRA)
- Minor child income allowance
- Helper allowance
- Children education allowance
- Other special allowances [Section 10(14)]
- Interest on housing loan on the self-occupied property or vacant property (Section 24)
- Chapter VI-A deduction (80C,80D, 80E and so on) (Except Section 80CCD(2) and 80JJAA)
- Without exemption or deduction for any other perquisites or allowances
- Deduction from family pension income
What are the exemptions and deductions available under the new regime?
You can claim tax exemption for:
- Transport allowances in case of a specially-abled person.
- Conveyance allowance received to meet the conveyance expenditure incurred as part of the employment.
- Any compensation received to meet the cost of travel on tour or transfer.
- Daily allowance received to meet the ordinary regular charges or expenditure you incur on account of absence from his regular place of duty.
Can I choose between the new tax regime and the existing regime?
A salaried taxpayer can choose the new tax regime at the beginning of FY 2020-21 and intimate their employer. The employee cannot change their choice anytime during the financial year. However, the change can be done at the time of filing the income tax return in July 2021.
The due date for tax filing for the FY 2020-21 (AY 2021-22) is 31st Dec 2021 (extended from 31st July 2021).
In case an employee does not choose the new tax regime at the beginning of the financial year, the employer will deduct tax (TDS) under the existing tax regime. Hence, a salaried taxpayer can opt-in and opt-out every year. That means you can choose the new tax regime in one year and choose the regular tax regime in another year.
A non-salaried taxpayer has to choose the new regime at the time of filing the tax return. They need not declare or intimate their choice to anyone at any time during the year. However, a non-salaried taxpayer cannot opt-in and opt-out of the new tax regime every year. Once a non-salaried opts out of the new tax regime, they cannot opt-in again for the new tax regime in the future.
How do I choose the new regime and plan my tax?
From a tax planning perspective, it is essential to choose the tax regime at the beginning of the financial year. A taxpayer must make a comparison of the income tax under the new tax regime with the existing regime. Once the taxpayer chooses the tax regime at the beginning of the year, the investments and TDS or advance tax payable calculations are made accordingly. Also the taxpayer has to furnish Form 10IE to the income tax department before filing the return if the taxpayer intends to opt for the new tax regime.
Example 1: Where New regime is better in respect of tax outflow
| Income (Rs) | Old regime (Rs) | New regime (Rs) | Tax Difference (Rs) | |
| Salary | 1,250,000 | 12,50,000 | 12,50,000 | |
| Less: Standard deduction | 50,000 | 50,000 | – | |
| Less: Professional tax | 2,400 | 2400 | – | |
| Gross total income | 1,197,600 | 11,97,600 | 12,50,000 | |
| Less: Deduction u/s 80C | 150,000 | 1,50,000 | – | |
| Total income | 1,047,600 | 1,047,600 | ||
| Income tax | 126,780 | 125,000 | ||
| Add: Education cess @ 4% | 5,071 | 5,000 | ||
| Total tax | 131,851 | 130,000 | 1,851 |
In the above example, for an income of Rs 12,50,000, the new tax regime is marginally beneficial. However, if you claim further deductions for health insurance, investment in NPS, education loan and so on, the existing regime will be helpful in respect of tax savings.
Example 2:Where Old regime is better in respect of tax outflow
| Income (Rs) | Old regime (Rs) | New regime (Rs) | Tax Difference (Rs) | |
| Salary | 1,000,000 | 1,000,000 | 1,000,000 | |
| Less: Standard deduction | 50,000 | 50,000 | Nil | |
| Less: Professional tax | 2,400 | 2,400 | Nil | |
| Gross total income | 947,600 | 947,600 | 1,000,000 | |
| Less: Deduction u/s 80C | 150,000 | 150,000 | Nil | |
| Total income | 797,600 | 797,600 | 1,000,000 | |
| Income tax | 72,020 | 75,000 | ||
| Add: Education cess @ 4% | 2,881 | 3,000 | ||
| Total tax | 74,901 | 78,000 | -3,099 |
In Example 2, for an income of Rs 10 lakh, the existing tax regime is beneficial.
In case an individual claims lower deductions for tax savings, towards health insurance, investment in NPS and so on, the new regime will be more beneficial as against individuals who utilise the tax saving investments.
Also individuals with an income bracket between Rs.5-10 Lakh with lower claim of deductions will benefit from the new regime whereas individuals falling under higher income tax bracket above Rs.15 lakh of income per annum can benefit more from the existing regime by making tax saving investments.
It is important to note that each taxpayer should calculate income tax, taking into account their tax-saving investments and then choose the regime.
House property loss under the new tax regime
In case of a self-occupied property, you cannot claim a deduction on interest for a housing loan under the new tax regime. The deduction of Rs 2.00 lakh allowed in the existing system is not available in the new tax regime. Also, you cannot set-off the loss of Rs 2 lakh from house property from your salary income.
If you have let-out a house property, you can claim a deduction for interest paid on the housing loan. Do note that the new tax regime restricts the deduction to the taxable rent received from the property as against the old regime. In the new regime, you cannot set-off the loss arising from the house property due to excess of interest paid over the rental income. Also, you cannot carry forward the loss from house property to future years for set off.
Deductions for business expenditure not allowed under the new regime
Deductions and exemptions not allowed for business income:
- Additional depreciation under section 32.
- Investment allowance under section 32AD
- Sector-specific business deductions under section 33AB and 33ABA
- Expenditure on scientific research under section 35
- Capital expenditure under section 35AD
- Exemption under section 10AA for SEZ units
Unabsorbed depreciation and business loss under the new regime
In the case of a business income, an individual or HUF cannot claim set-off of the brought forward business loss or unabsorbed depreciation.
The deductions not available under the new regime to the extent they relate to deductions/exemptions withdrawn.
