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May Relief to Hither Payees Salaried Persons opting the New Section Section 115BAC Introduced in Budget 2020

Income Tax Form 10EIncome Tax Form 10E

During the Financial plan 2020 speech, the Account Pastor Nirmala Sitharaman reported the inclusion of a new section called 115BAC into the Income Tax Act in the Association Spending plan 2020. Section 115 BAC, successful from FY 2020-21, manages the new and discretionary income tax regime for people and Hindu Unified Families (HUFs). Let us understand the new piece rates, qualification rules for the new regime and the deductions that are permitted or prohibited under Section 115BAC.

What is Section 115BAC?

Section 115BAC is the newly embedded section in the Income Tax Act, 1961 that manages the new income tax regime. This section and interchange tax regime was presented in Association Spending plan 2020 and is pertinent to people and Hindu Unified Families (HUFs) as it were. A key element of this new regime is that the income tax piece rates have been altogether decreased. Notwithstanding, the new rates come at the expense of different key income tax exclusions and deductions, which areas of now accessible under the old (existing) income tax regime. 

The accompanying the table shows the new chunk rates according to Section 115BAC

Budget 2020

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What are the rules for the new tax regime? 

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In AY 2021-22, people and HUFs will have the choice to pay income tax according to the new (decreased) income tax piece rates gave their absolute income to the applicable FY fulfils the accompanying conditions.

The pronounced income does exclude any business income.

•           It is determined with no exclusions or deductions gave under the accompanying

•           Chapter VI-An aside from those u/s 80CCD/80JJAA,

•          Section 24b,

•           Clause (5)/(13A)/(14)/(17)/(32) of Section 10/10AA/16,

•           Section 32(1)/32AD/33AB/33ABA,

•           Section 35/35AD/35CCC,

•           Clause (iia) of Section 57.

•           It is determined without setting off misfortunes from any previous appraisal year (AY) because of the previously mentioned deductions or from house property.

•           It is determined without guaranteeing any deterioration understatement (iia) of Section 32.

•           It is determined with no exception or deduction regarding any stipends or perquisites.

Deductions and exclusions not permitted under Section 115BAC

The accompanying the table shows the significant income tax deductions and exclusions that have been refused under the new income tax regime. If you don’t mind note that the new the regime is discretionary in FY 2020-21 and you may pick the old (existing) the regime, where the entirety of the accompanying deductions can be asserted.

Major Deductions under Chapter VIA (u/s 80C, 80CCC, 80CCD, 80DD, 80DDB, 80E, 80EE, 80EEA, 80G, 80IA, etc)House Rent Allowance (HRA) u/s 10(13A)Home Loan Interest u/s 24(b)
Standard Deduction Leave Travel Allowance u/s 10(5)Deduction for Donation or Expenditure on Scientific Research
Allowances u/s 10(14)Deduction for Entertainment Allowance and Employment/Professional Tax u/s 16Depreciation u/s 32(iia)
Deductions u/s 32AD, 33AB, 33ABA, 35AD, 35CCCExemption for SEZ unit u/s 10AADeduction from Family Pension u/s 57(iia)

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Deductions permitted under Section 115BAC 

The accompanying the table shows the significant income tax deductions and exclusions that have been refused under the new income tax regime. If you don’t mind note that the new the regime is discretionary in FY 2020-21 and you may pick the old (existing) the regime, where the entirety of the accompanying deductions can be asserted.

Deductions allowed under Section 115BAC

While the majority of the income tax deductions have been ceased under the new income tax regime (as referenced in the previous section), the accompanying deductions are permitted.

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Income Tax Slab for the F.Y.2020-21
Deduction u/s 80CCD(2) (employer’s contribution to your pension account)Deduction u/s 80JJAA (additional employee cost)Transport Allowance for Differently Abled Employees (Divyang)
Conveyance Allowance for Performance of Office DutiesAny Allowance for the Cost of Travel/ Tour/ TransferDaily Allowance is given to Employees under Certain Conditions

Focuses to consider about the new tax regime

Section 115BAC of the Income Tax Act manages the new income tax piece rates, which are relevant just for people and Hindu Unified Families (HUFs).

•           Although the new regime accompanies essentially decreased piece rates, it removes a a significant lump of tax deductions and exclusions that could be profited under the old regime.

•           The new income tax regime is discretionary, and you can, in any case, select the old (existing) regime.

•           You can’t decide on the new regime on the off chance that you have any business income in the relevant FY.

•           The rates of overcharge and cess in the new income tax regime are equivalent to those in the old (existing) regime.

•           The the alternative to paying income tax according to the new regime can get invalid for the important financial year if the individual or HUF neglects to fulfil any of the conditions referenced in Section 115BAC.

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Old tax regime vs. the new tax regime 

The old (existing) tax regime allows for a variety of income tax deductions and exemptions, and hence is suitable for most of the taxpayers. However, the new tax regime may prove beneficial to those who have not significantly invested in various tax-saving schemes, such as Employee Provident Fund (EPF), Equity Linked Savings Scheme (ELSS), Life Insurance, National Pension Scheme (NPS), National Savings Certificate (NSC), tax-saving Fixed Deposit (FD), etc. Moreover, a standard deduction of Rs. 50,000 for salaried individuals and HRA allowance also do not apply under the new tax regime. 

Let us understand how the total tax payout is affected under the two regimes through the following table. We have considered an income tax deduction of Rs. 1.5 lakh u/s 80C, Rs. 25,000 u/s 80D and Rs. 50,000 as a standard deduction when computing tax using the existing income tax slab rates. Thus, the total deduction amounts to Rs. 2.25 lakh.

Income Tax Old Tax Regime for F.Y.2020-21

Thus, the new regime u/s 115 BAC may prove beneficial for the high-income group with minimal investment in tax-saving investments. However, the old (existing) regime may be better suited to the low-to-middle income group if they make sufficient investments in various tax-saving schemes. Hence, there is no set formula to decide between the two regimes. One must calculate the total tax outgo as per both the old and new slab rates before deciding whether to adopt Section 115BAC slab rates or not.

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