Section 115BAC of Income Tax Act, 1961: Tax on Income of Individual or HUF

Section 115BAC of Income Tax Act, 1961: Tax on Income of Individual or HUF

The Finance Act, 2020 has introduced a new section 115BAC giving an option to the resident as well as non-resident Individual or Hindu Undivided Family (HUF) to pay income tax at a new slab of tax rates. The New section is applicable with effect from Financial Year 2020-21 (A Y 21-22).

Tax Rate Slab is as follows:-

With the introduction of new rates, the Government has removed more than 50 deductions and exemptions. The above rates will apply only if Assessee satisfied the following conditions:-

Conditions No. 1: Assesse should not claim the following deductions and exemptions:-

1. Leave Travel Concession under clause 5 of section.
2. House Rent Allowances under clause 13A of section 10.
3. Allowances under clause 14 of section 10 (except Transport Allowance, Conveyance Allowance, Travel Allowance, and Daily Allowance, please refer to Note-1 below).
4. Allowances to Members of Parliament (MP) and Members of Legislative Assembly (MLA) under clause 17 of section 10.
5. Allowances for the income of minor child under clause 32 of section 10.
6. Deduction for SEZ unit under section 10AA.
7. Deduction on account of professional tax paid, entertainment allowances, and standard deduction under section 16.
8. Interest in respect of the self-occupied property under clause (b) of section 24.
9. Loss from let out /deemed let out property not be allowed to set off from any other head of income (allowed to carry forward).
10. Additional depreciation under clause (iia) of sub-section (1) of section 32.
11. Investment allowance under section 32AD.
12. Deduction to tea, coffee, rubber manufacturer under section 33AB.
13. Deduction to assess involved in prospecting, extraction, or production of petroleum and natural gas under section 33ABA.
14. Donation or expenditure on scientific research under section 35(1)(ii), 35(1)(iia), 35(1)(iii) and 35(2AA).
15. Deduction on account of specified business under section 35AD.
16. Deduction on account of agriculture extension project under section 35CCC.
17. Deduction on account of family pension under section 57(iia).
18. Deduction under Chapter VI-A (i.e. deduction under section 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80-IA, 80-IAB, 80-IAC, 80-IB, 80-IBA etc. However deduction under section 80CCD (2) contribution to NPS by employer and 80JJAA new employment allowed.

Conditions No. 2: Assessee opting the said rates also not allowed to:-

1. Set-off any losses or depreciation related to deductions and exemptions mentioned in condition no 1.
2. Set-off any loss from house property against any other head of income.

Conditions No. 3: Assessee is allowed to claims depreciation under section 32 (except depreciation under section 32(1)(iia).

Conditions No. 4: Any allowed to claim any deductions or exemption for allowances and perquisite provided under any other law for the time being in force.

Other Points to be remembered before opting for this section:-

1. In case any depreciation allowances in respect of block of assets which has not been given full effect prior to FY 20-21, the corresponding adjustment shall be done in the Written down Value of block as of 01-04-2020.
2. Rebate under section 87A is available.
3. If any forgoing conditions not satisfied by the Assessee, the option of said rates shall become invalid and normal provisions of the Act shall apply.
4. Individuals or HUF not having business income would have an option to choose either aforesaid new rates or normal rates each year depending upon their tax liability.
5. Individual or HUF having a business income, option once exercised cannot be withdrawn. In such case, an option once exercised would be applicable for all subsequent assessment years and can be withdrawn only once for a previous year other than the year in which it was exercised, and thereafter, the individual or HUF shall never be eligible to exercise the option under this section, except where such individual or HUF ceases to have business income.
6. Special rates income would be taxable on special rates only.
7. The surcharge will be applicable as per the total income of the assessee same as in the normal provisions e.g. 10%, 20%, 25%, or 37%.
8. Alternative Minimum Tax (AMT) is not applicable.
9. B/F amount of AMT will be lapsed if opt for this section.

CBDT Clarification:

The Central Board of Direct Taxes (CBDT) has clarified that an employee intending to opt for the concessional rates under this section, may intimate to his employer for each previous year and upon such intimation, the employer shall deduct TDS as per the section 115BAC. If such intimation is not made by the employee, the employer shall deduct the TDS as per normal provisions.

It is also clarified that the intimation so made to the employer shall be only for the purpose of TDS deduction during the previous year and cannot be modified during that year. However, at the time of filing of income tax return, employee may opt for different options. Further, in case of an employee having a business income, the intimation to the employer in his case for subsequent previous years must not deviate from the under this section once exercised in a previous year.

Note: 1 following allowances is allowed to claim under clause 14 of section 10 of the Income Tax Act to the individual or HUF:-

1. Transport allowances granted to handicapped employees to meet the expenditure for the purpose of commuting from resident to duty or vice versa.
2. Conveyance allowances granted to meet the expenditure on the conveyance for the performance of duties.
3. Travel Allowances to meet the travel cost.
4. Daily Allowances to meet the daily expenditure incurred by an employee.