PERSONAL

3
TAXATION

3.1 Individuals and HUFs can pay tax as per new tax regime
of Section 115BAC
[Applicable from Assessment Year 2021-22]
Currently, the Individuals and HUF are taxed as per the slab
rates and the highest slab rate is 30% which applies when in-
come exceeds ` 10,00,000. The Finance Bill, 2020, has provided
an option to Individuals and HUF for payment of taxes at the
following reduced rates:
Total Income (Rs) Rate
Upto 2,50,000 Nil
From 2,50,001 to 5,00,000 5%
From 5,00,001 to 7,50,000 10%
From 7,50,001 to 10,00,000 15%
From 10,00,001 to 12,50,000 20%
From 12,50,001 to 15,00,000 25%
Above 15,00,000 30%

The option to pay tax at lower rates shall be available only if the
total income of assessee is computed without claiming following
exemptions or deductions:
(a) Leave Travel concession [Section 10(5)];
(b) House Rent Allowance [Section 10(13A)];

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(c) Official and personal allowances (other than those as may be

prescribed) [Section 10(14)];
(d) Allowances to MPs/MLAs [Section 10(17)];
(e) Allowances for income of minor [Section 10(32)]
(f) Deduction for units established in Special Economic Zones (SEZ)
[Section 10AA];
(g) Standard Deduction [Section 16(ia)];
(h) Entertainment Allowance [Section 16((ii)];
(i) Professional Tax [Section 16(iii)];
(j) Interest on housing loan [Section 24(b)];
(k) Additional depreciation in respect of new plant and machinery
[Section 32(1)(iia)];
(l) Deduction for investment in new plant and machinery in notified
backward areas [Section 32AD];
(m) Deduction in respect of tea, coffee or rubber business [Section
33AB];
(n) Deduction in respect of business consisting of prospecting or
extraction or production of petroleum or natural gas in India
[Section 33ABA];
(o) Deduction for donation made to approved scientific research
association, university college or other institutes for doing
scientific research which may or may not be related to business
[Section 35(1)(ii)];
(p) Deduction for payment made to an Indian company for doing
scientific research which may or may not be related to business
[Section 35(1)(iia)];
(q) Deduction for donation made to university, college, or other
institution for doing research in social science or statistical
research [Section 35(1)(iii)];
(r) Deduction for donation made for expenditure on scientific
research [Section 35(2AA)];
(s) Deduction in respect of capital expenditure incurred in respect of
certain specified businesses, i.e., cold chain facility, warehousing
facility, etc. [Section 35AD];

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(t) Deduction for expenditure on agriculture extension project

[Section 35CCC];
(u) Deduction for family Pension [Section 57(iia)]; and
(v) Deduction in respect of certain incomes other than specified
under Sections 80JJAA, 80CCD(2) and deduction under section
80LA for Unit located in IFSC [Part C of Chapter VI-A].
Total income of the assessee is calculated after claiming
depreciation under section 32, other than additional depreciation,
and without adjusting brought forward losses and depreciation
from any earlier year (if such loss or depreciation pertains to
any deduction under the aforesaid sections). Further, loss under
the head house property can’t be set off against other heads
of Income. Moreover, such loss and depreciation will not be
carried forward.
If the assessee has any unabsorbed depreciation, relating to
additional depreciation, which has not been given full effect, the
corresponding adjustment shall be made to WDV of the block of
assets in the prescribed manner (refer the illustrations given in
taxation of co-operative society to understand the calculation
as per this provision. See para 2.2).
In case the assessee has business income, this option shall be
exercised on or before the due date for furnishing the returns
of income. Once the assessee has exercised the option for any
previous year, it cannot be subsequently withdrawn for the same
or any other previous year. The option once exercised for any
previous year can be withdrawn only once in subsequent previ-
ous year (other than the year in which it was exercised) and
thereafter, he shall never be eligible to exercise this option again
except where such person ceases to have any business income.
If assessee does not have business income, the option must be
exercised along with the return of income for every previous
year. If an assessee, after opting for Section 115BAC, claims
any of prescribed deduction or allowance in any previous year,
then the option to pay tax at concessional rate shall become
invalid for that year.
The assessee opting for this scheme have been kept out of the
purview of Alternate Minimum Tax (AMT). Further the provision
relating to the computation, carry forward and set off of AMT
credit shall not apply to these assessees.
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3.2 Whether Individuals or HUFs should opt for new tax

regime of Section 115BAC?
The Finance minister in her budget speech highlighted that
tax burden on a person earning ` 15 lakhs shall be reduced by
` 78,000. However, this situation will rarely arise as a tax saving
of ` 78,000 arises only when the assessee has not been avail-
ing any exemption or deduction in the current regime. We have
analysed the following situation to understand the implications
of this new tax regime:
Nature of deduction Break- When it is beneficial to Reference
available in the cur- even point opt for the new regime
rent tax regime of Section 115BAC?
No deduction is allowable - Always Table 1
Deduction allowable 8,50,000 Income in excess of Table 2
under Section 80C Break-even
Deduction allowable 12,25,000 Income in excess of Table 3
under: Break-even
- Section 80C
- Section 80D1
Deduction allowable 15,00,000 Never Table 4
under:
- Section 80C
- Section 80D1
- Section 16 (Standard
Deduction)
Deduction allowable - Never Table 5
under:
- Section 80C
- Section 80D1
- Section 16 (Standard
Deduction)
- Section 24 (Interest
on housing loan)

1. It has been assumed that deduction of ` 50,000 shall be claimed under Section 80D.
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3.2-1 Table 1: Individual not eligible for any deduction

Income Tax liability Tax liability Net tax
under New regime under Old regime saving
6,00,000 23,400 33,800 10,400
7,00,000 33,800 54,600 20,800
8,00,000 46,800 75,400 28,600
9,00,000 62,400 96,200 33,800
10,00,000 78,000 1,17,000 39,000
11,00,000 98,800 1,48,200 49,400
12,00,000 1,19,600 1,79,400 59,800
12,50,000 1,30,000 1,95,000 65,000
13,00,000 1,43,000 2,10,600 67,600
14,00,000 1,69,000 2,41,800 72,800
15,00,000 1,95,000 2,73,000 78,000

3.2-2 Table 2 : Individual eligible for deduction under section

80C
Income Tax liability under Tax liability under Old Net tax
New regime regime saving
6,00,000 23,400 - -23,400
6,50,000 28,600 - -28,600
7,00,000 33,800 23,400 -10,400
7,50,000 39,000 33,800 -5,200
7,75,000 42,900 39,000 -3,900
7,90,000 45,240 42,120 -3,120
8,00,000 46,800 44,200 -2,600
8,50,000 54,600 54,600 -
9,00,000 62,400 65,000 2,600
9,10,000 63,960 67,080 3,120
9,20,000 65,520 69,160 3,640
9,25,000 66,300 70,200 3,900
9,50,000 70,200 75,400 5,200
10,00,000 78,000 85,800 7,800

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3.2-3 Table 3: Assessee is eligible for deduction under

sections 80C and 80D
Tax liability under Tax liability under Net tax
Income New regime Old regime saving
6,00,000 23,400 - -23,400
6,50,000 28,600 - -28,600
7,00,000 33,800 - -33,800
7,50,000 39,000 23,400 -15,600
8,00,000 46,800 33,800 -13,000
8,50,000 54,600 44,200 -10,400
9,00,000 62,400 54,600 -7,800
9,50,000 70,200 65,000 -5,200
10,00,000 78,000 75,400 -2,600
10,50,000 88,400 85,800 -2,600
11,00,000 98,800 96,200 -2,600
11,50,000 1,09,200 1,06,600 -2,600
12,00,000 1,19,600 1,17,000 -2,600
12,25,000 1,24,800 1,24,800 -
12,30,000 1,25,840 1,26,360 520
12,40,000 1,27,920 1,29,480 1,560
12,50,000 1,30,000 1,32,600 2,600

3.2-4 Table 4: Assessee is eligible for deduction under sections

80C and 80D and standard deduction under section 16
Income Tax liability under Tax liability under Net Tax
New regime Old regime Saving
6,00,000 23,400 - -23,400
7,00,000 33,800 - -33,800
8,00,000 46,800 23,400 -23,400
9,00,000 62,400 44,200 -18,200
10,00,000 78,000 65,000 -13,000
11,00,000 98,800 85,800 -13,000
12,00,000 1,19,600 1,06,600 -13,000
13,00,000 1,43,000 1,32,600 -10,400
14,00,000 1,69,000 1,63,800 -5,200
15,00,000 1,95,000 1,95,000 -
16,00,000 2,26,200 2,26,200 -
17,00,000 2,57,400 2,57,400 -
18,00,000 2,88,600 2,88,600 -
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3.2-5 Table 5: Assessee is eligible for deduction under sections

80C and 80D, standard deduction under section 16 and
deduction for interest on housing loan under section 24(b)
Income Tax liability under Tax liability under Old Net Tax
New regime regime Saving
6,00,000 23,400 - -23,400
6,50,000 28,600 - -28,600
7,00,000 33,800 - -33,800
7,50,000 39,000 - -39,000
8,00,000 46,800 - -46,800
8,50,000 54,600 - -54,600
9,00,000 62,400 - -62,400
9,50,000 70,200 - -70,200
10,00,000 78,000 23,400 -54,600
10,50,000 88,400 33,800 -54,600
11,00,000 98,800 44,200 -54,600
11,50,000 1,09,200 54,600 -54,600
12,00,000 1,19,600 65,000 -54,600
12,50,000 1,30,000 75,400 -54,600
13,00,000 1,43,000 85,800 -57,200
13,50,000 1,56,000 96,200 -59,800
14,00,000 1,69,000 1,06,600 -62,400
14,50,000 1,82,000 1,17,000 -65,000
15,00,000 1,95,000 1,32,600 -62,400
15,50,000 2,10,600 1,48,200 -62,400
16,00,000 2,26,200 1,63,800 -62,400
16,50,000 2,41,800 1,79,400 -62,400
17,00,000 2,57,400 1,95,000 -62,400

3.3 Rationalization of tax treatment of employer’s

contribution
[Applicable from Assessment Year 2021-22]

Under the existing provisions of the Act, the contribution by the

employer to the account of an employee in a recognized provident
fund is chargeable to tax if such contribution exceeds 12% of
salary. Further, the amount of any contribution to an approved
superannuation fund by the employer exceeding ` 1,50,000 is

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treated as perquisite in the hands of the employee. Similarly, the

assessee is allowed a deduction under National Pension Scheme
(NPS) for 14% of the salary contributed by the Central Govern-
ment and 10% of the salary contributed by any other employer.
Presently, there is no combined upper limit for the purpose of
deduction on the amount of contribution made by the employer.

The Finance Bill proposes a upper limit of ` 7,50,000 per annum

for deduction in respect of employer’s contribution to NPS,
superannuation fund and recognized provident fund and any
excess contribution above ` 7,50,000 is chargeable to tax in the
hands of the employee. Consequently, it is also proposed that
any annual accretion by way of interest, dividend or any other
amount of similar nature during the previous year to the balance
at the credit of the fund or scheme may be treated as perquisite
to the extent it relates to the employer’s contribution which is
included in total income.

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