Sec 115BAC – New Regime for Tax Computation

The government has been looking at avenues to make income tax provisions simplified and lessen dependencies on consultants. A step towards it came through the introduction of Sec 115BAC- Tax on Income of Individual/ HUF in the Budget of 2020, as an alternate to the existing regime.

Effective AY21-22 (FY 20-21), every individual and HUF has the option to either continue with existing tax rate where exemptions and deductions can be claimed or opt for the “new tax regime”; where the rates are lower but there are no exemptions or deduction. With some cost-benefit analysis taxpayers can now decide their avenue of savings and investments, i.e. whether to opt for taxable but highly rewarding schemes or tax-saving schemes with nominal return options. It is important for employers to understand the alternative tax computation regime for determining the TDS & it’s employees.

Following are the tax rates applicable for AY 21-22:

Old Rates

(With Exemptions)

Annual Income

New Rate

 (No Exemptions)

NIL  Up to Rs. 2.5L NIL
5% >Rs. 2.5- 5L 5%
20% >Rs. 5-7.5L 10%
>Rs. 7.5- 10L 15%
30% >Rs. 10-12.5L 20%
>Rs. 12.5-15L 25%
Rs. 15L and above 30%

 

The Assessee opting for New Scheme shall not be able to claim the following:

In case of a salaried employee:

  • Standard Deduction
  • Professional tax paid
  • Entertainment allowance (in case of govt employees)
  • Leave travel Concession
  • House Rent Allowance
  • Special Allowances provided u/s 10(14) except:
  1. Transport allowance granted to a handicapped employee
  2. Conveyance allowance
  3. Any allowance granted to meet the cost of travel on tour or on transfer
  4. Daily allowance

If Assessee has Income from Business and Profession:

  • Exemption to SEZ u/s. 10AA
  • Deductions u/s. 32AD, 33AB, 33ABA, 35(1)(ii),35(1)(iia), 35(1)(iii), 35(2AA), 35AD and 35CCC
  • Additional depreciation u/s. 32(iia)
  • Carried forward or unabsorbed depreciation of earlier years

All Taxpayers:

  • Interest paid on home loan on self-occupied house
  • All deductions provided under Chapter VIA (except 80CCD(2) and 80JJAA)

Benefits still available under new regime:

  • Interest received on post office saving account u/s 10(15)(i) Max Rs. 3,500
  • Gratuity received from employer Maximum Rs. 20 Lacs
  • Amount received from LIP on maturity u/s 10(10D)
  • Interest on PPF under Sec 10(11)
  • Employer contribution in NPS or EPF upto 12% of salary & Interest on EPF upto 9.5% P.A.
  • Interest and maturity amount of PPF or Sukanya Smriddhi Yojna
  • Pension commutation

How to choose whether to opt for Old or New Regime?

A comparison needs to be done on case to case basis, in order to decide which regime to opt for. The following table is an attempt to broadly classify which regime should be opted based on the income of the assessee:

Tax Payable (in Rs.)
Annual Income Old Scheme
(with exemptions)*
Old Scheme
(without exemptions)
New Scheme
Up to Rs. 2.5L
Rs. 5L
Rs. 7.5L 65,000 39,000
Rs. 10L 65,000 117,000 78,000
Rs. 12.5L 117,000 195,000 130,000
Rs. 15L 195,000 273,000 195,000

*Considering exemption under Sec 80C, 80CCD(1B), Sec 80D and HRA of ~ Rs. 2.6L

Well the applicability of “new regime” may intuit dilemma and confusion amongst the Assessee; but with our next article, we shall endeavor to break down the section into simplified questions/ answers for better understanding.

Authored by – CA Anushka Saraogi

New Tax Computation Regime (Sec 115BAC) – Some FAQs

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