Article By : Shubham Mishra
Finance Act 2020 provides an option to pay income tax at new slab rate to individual and HUF by insertion of section 115BAC in act. This option will be available to assessee from previous year 2020-21, i.e. for Assessment Year 2021-22.
Individuals and HUFs have been given an option to select, either to compute their income tax liabilities by existing tax rates or new tax rates from Assessment year 2021-22.
Section 115BAC provides following:-
i. On satisfaction of certain conditions, an individual or HUF shall, from assessment year 2021-22 onwards, have an option to pay tax in respect of the total income at following rates:
i. The option shall be exercised for:-
a) Every previous year where the individual or the HUF has no business income, and
b) A Previous year shall be valid for that previous year and all subsequent years where the individual or HUF having business income.
ii. The concessional rate shall apply, when option is exercised:-
a. On or before filling due date of return, where such individual or HUF has business income. (i.e. Valid for all subsequent years)
b. Along with the filling of return, where such individual or HUF has no business income, (i.e. fresh exercise for each year)
iii. The provisions relating to AMT shall not apply to such individual or HUF having business income as referred in section 115JC.
iv. The provisions relating to carry forward and set off of AMT credit shall not apply to such individual or HUF having business income as referred in section 115JD.
v. Carried forward or depreciation from any earlier assessment year, if such loss or depreciation is attributable to any of the deductions referred as below shall be deemed to have been given full effect to and no further deduction for such loss or depreciation shall be allowed for any subsequent year so however, if depreciation allowance effect had not been given to WDV of block of asset prior to exercise the option then adjustment would be done in opening WDV of Block of asset.
vi. If the individual or HUF has a Unit in the International Financial Services Centre (IFSC), the deduction under section 80LA shall be available to such Unit subject to fulfillment of the conditions.
vii. The option can be withdrawn only once for a previous year other than the year in which it was exercised, and never be eligible to exercise this option again except where such person ceases to have any income from business or profession in which case, option for set off of losses.
viii. The option shall become invalid for a previous year or previous years, if the Individual or HUF fails to satisfy the conditions and other provisions of the Act.
ix. The condition for concessional rate shall be that the total income of the individual or HUF is computed,—
a. without any exemption or deduction under the provisions of:-
Leave travel concession as contained in clause (5) of section 10;
House rent allowance as contained in clause (13A) of section 10;
Some of the allowance as contained in clause (14) of section 10;
Allowances to MPs/MLAs as contained in clause (17) of section 10;
Allowance for income of minor (clubbing income) as contained in clause (32) of section 10;
Exemption for SEZ unit contained in section 10AA;
Standard deduction, deduction for entertainment allowance and employment/professional tax as contained in section 16;
Interest under section 24 in respect of self-occupied or vacant property referred to in sub-section (2) of section 23. (Loss under the head income from house property for rented house shall not be allowed to be set off under any other head and would be allowed to be carried forward as per extant law);
Additional deprecation under clause (iia) of sub-section (1) of section 32;
Deductions under section 32AD, 33AB, 33ABA;
Various deduction for donation for or expenditure on scientific research contained in sub-clause (ii) or sub-clause (iia) or sub-clause (iii) of sub-section (1) or sub-section (2AA) of section 35;
Deduction under section 35AD or section 35CCC;
Deduction from family pension under clause (iia) of section 57;
Any deduction under chapter VIA (like section 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, etc). However, deduction under sub-section (2) of section 80CCD (employer contribution on account of employee in notified pension scheme) and section 80JJAA (for new employment) can be claimed.
Free food and beverage through vouchers provided to the employee by the employer under rule 3 of Income tax Act 1961.
As many allowances have been provided through notification of rules, so after amendment in the Income-tax Rules, 1962, following allowances shall be allowed notified under section 10(14) of the Act to the Individual or HUF exercising option under the this section:
Transport Allowance granted to a divyang employee to meet expenditure for the purpose of commuting between place of residence and place of duty.
Conveyance Allowance granted to meet the expenditure on conveyance in performance of duties of an office;
Any Allowance granted to meet the cost of travel on tour or on transfer;
Daily Allowance to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty.
b. Without set off of any loss:-
§ carried forward or depreciation from any earlier assessment year, if such loss or depreciation is attributable to any of the deductions referred to in (a) above; or
§ under the head house property with any other head of income;
c. By claiming the depreciation, if any, under section 32, except clause (iia) of sub-section (1) (i.e. additional depreciation) thereof, and
d. Without any exemption or deduction for allowances or perquisite, by whatever name called, provided under any other law for the time being in force.
Clarification in respect of option under section 115BAC of the Income-tax Act, 1961
Circular C1 of 2020 dated 13-April-2020
1. Board, in exercise of powers conferred under section 119 of the Act, hereby clarifies that an employee, having income other than the income under the head "profit and gains of business or profession" and intending to opt for the concessional rate under section 115BAC of the Act, may intimate the deductor, being his employer, of such intention for each previous year and upon such intimation, the deductor shall compute his total income, and make TDS thereon in accordance with the provisions of section 115BAC of the Act. If such intimation is not made by the employee, the employer shall make TDS without considering the provision of section 115BAC of the Act.
2. It is also clarified that the intimation so made to the deductor shall be only for the purposes of TDS during the previous year and cannot be modified during that year. However, the intimation would not amount to exercising option in terms of sub-section (5) of section 115BAC of the Act and the person shall be required to do so alongwith the return to be furnished under sub-section (1) of section 139 of the Act for that previous year. Thus, option at the time of filing of return of income under sub-section (1) of section 139 of the Act could be different from the intimation made by such employee to the employer for that previous year.
3. Further, in case of a person who has income under the head "profit and gains of business or profession" also, the option for taxation under section 115BAC of the Act once exercised for a previous year at the time of filing of return of income under sub-section (1) of section 139 of the Act cannot be changed for subsequent previous years except in certain circumstances.
Accordingly, the above clarification would apply to such person with a modification that the intimation to the employer in his case for subsequent previous years must not deviate from the option under section 115BAC of the Act once exercised in a previous year.
Section 115BAC of Finance Act, 2020 as per Bare Act
Tax on income of individuals and Hindu undivided family.
115BAC
(1) Notwithstanding anything contained in this Act but subject to the provisions of this Chapter, the income-tax payable in respect of the total income of a person, being an individual or a Hindu undivided family, for any previous year relevant to the assessment year beginning on or after the 1st day of April, 2021, shall, at the option of such person, be computed at the rate of tax given in the following Table, if the conditions contained in sub-section (2) are satisfied, namely:—
Provided that where the person fails to satisfy the conditions contained in sub-section (2) in any previous year, the option shall become invalid in respect of the assessment year relevant to that previous year and other provisions of this Act shall apply, as if the option had not been exercised for the assessment year relevant to that previous year:
Provided further that where the option is exercised under clause (i) of sub-section (5), in the event of failure to satisfy the conditions contained in sub-section (2), it shall become invalid for subsequent assessment years also and other provisions of this Act shall apply for those years accordingly.
(2) For the purposes of sub-section (1), the total income of the individual or Hindu undivided family shall be computed,—
(i) without any exemption or deduction under the provisions of clause (5) or clause (13A) or prescribed under clause (14) (other than those as may be prescribed for this purpose) or clause (17) or clause (32), of section 10 or section 10AA or section 16 or clause (b) of section 24 (in respect of the property referred to in sub-section (2) of section 23) or clause (iia) of sub-section (1) of section 32 or section 32AD or section 33AB or section 33ABA or sub-clause (ii) or sub-clause (iia) or sub-clause (iii) of sub-section (1) or sub-section (2AA) of section 35 or section 35AD or section 35CCC or clause (iia) of section 57 or under any of the provisions of Chapter VI-A other than the provisions of sub-section (2) of section 80CCD or section 80JJAA;
(ii) without set off of any loss,—
(a) carried forward or depreciation from any earlier assessment year, if such loss or depreciation is attributable to any of the deductions referred to in clause (i);
(b) under the head "Income from house property" with any other head of income;
(iii) by claiming the depreciation, if any, under any provision of section 32, except clause (iia) of sub-section (1) of the said section, determined in such manner as may be prescribed; and
(iv) without any exemption or deduction for allowances or perquisite, by whatever name called, provided under any other law for the time being in force.
(3) The loss and depreciation referred to in clause (ii) of sub-section (2) shall be deemed to have been given full effect to and no further deduction for such loss or depreciation shall be allowed for any subsequent year:
Provided that where there is a depreciation allowance in respect of a block of assets which has not been given full effect to prior to the assessment year beginning on the 1st day of April, 2021, corresponding adjustment shall be made to the written down value of such block of assets as on the 1st day of April, 2020 in the prescribed manner, if the option under sub-section (5) is exercised for a previous year relevant to the assessment year beginning on the 1st day of April, 2021.
(4) In case of a person, having a Unit in the International Financial Services Centre, as referred to in sub-section (1A) of section 80LA, which has exercised option under sub-section (5), the conditions contained in sub-section (2) shall be modified to the extent that the deduction under section 80LA shall be available to such Unit subject to fulfilment of the conditions contained in the said section.
Explanation.—For the purposes of this sub-section, the term "Unit" shall have the meaning assigned to it in clause (zc) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005).
(5) Nothing contained in this section shall apply unless option is exercised in the prescribed manner by the person,—
(i) having income from business or profession, on or before the due date specified under sub-section (1) of section 139 for furnishing the returns of income for any previous year relevant to the assessment year commencing on or after the 1st day of April, 2021, and such option once exercised shall apply to subsequent assessment years;
(ii) having income other than the income referred to in clause (i), alongwith the return of income to be furnished under sub-section (1) of section 139 for a previous year relevant to the assessment year:
Provided that the option under clause (i), once exercised for any previous year can be withdrawn only once for a previous year other than the year in which it was exercised and thereafter, the person shall never be eligible to exercise option under this section, except where such person ceases to have any income from business or profession in which case, option under clause (ii) shall be available.
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