The Union Budget this year had offered an individual the choice of paying tax under the new tax structure with lower rates but foregoing deductions or continue paying tax under the existing tax laws and claiming the applicable exemptions.
Only Individual or a Hindu undivided family are eligible assessee. All the other forms of entities (i.e. AOP, BOI, Trust, partnership firms, LLPs, etc.) have no option, but to follow the old regime of taxation.
The Central Board of Direct Taxes (CBDT) issued a circular on April 13, directing all employers to obtain a declaration from employees if they wish to opt for the new tax regime.
As per the circular, “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.”
This means where no intimation is received form employee, employer shall deduct at old rates of taxes only.
The circular further clarifies that once the regime is opted by an individual at the start of the financial year, then such option cannot be changed during the financial year. However, as per the circular, the option can be changed at the time of filing of income tax return.
Income tax slabs under the new tax regime for all individuals for FY 2020-21 (AY 2021-22) with comparison with Old Rates is as follows
| Income Tax Slab- Total Income (‘INR’) | Tax Rate (%) – New regime (Section 115BAC) | Tax Rate (%) – Old regime |
| Up to Rs 2.5 lakh | NIL | NIL |
| Rs 2.5 lakh to Rs 5 lakh | 5% (Tax rebate of Rs 12,500 available under section 87A) | 5% (Tax rebate of Rs 12,500 available under section 87A) |
| Rs 5 lakh to Rs 7.5 lakh | 10% | 20% |
| Rs 7.5 lakh to Rs 10 lakh | 15% | 20% |
| Rs 10 lakh to Rs 12.5 lakh | 20% | 30% |
| Rs 12.5 lakh to Rs 15 lakh | 25% | 30% |
| Rs 15 lakh and above | 30% | 30% |
Analysis-
Individual or a Hindu undivided family having income upto INR 500000 are indifferent in both options.
Now lets check the tax differences with new and old rates
| Total Income INR | Tax with New rates | Tax with Old rates | Difference of tax |
| 750000 | 37500 | 62500 | 25000 |
| 850000 | 52500 | 82500 | 30000 |
| 950000 | 67500 | 102500 | 35000 |
| 1000000 | 75000 | 112500 | 37500 |
| 1100000 | 95000 | 142500 | 47500 |
| 1250000 | 125000 | 187500 | 62500 |
| 1400000 | 162500 | 232500 | 70000 |
| 1500000 | 187500 | 262500 | 75000 |
| 2000000 | 337500 | 412500 | 75000 |
From the above it can be seen that new rates are more beneficial. However new rates can only be opted if individuals forgo certain deduction or exemption as follows
Deductions not eligible to be claimed:
| Sr. No. | Section | Deduction | Amount of deduction |
| 1. | 10(5) | Leave Travel Concession | Travel concession or assistance received or due |
| 2. | 10(13A) | House Rent Allowance | As per the limits subject to maximum of 50% of Basic Salary |
| 3. | 10(14) | Other Allowances | Certain allowances for salaried employees |
| 4. | 10(17) | Allowances to MPs/MLAs | Actual amount of such Allowance received |
| 5. | 10(32) | Allowance for income of minor clubbed | INR 1,500 per child |
| 6. | 10AA | Deduction for SEZ units | up to 100% of profits |
| 7. | 16 | Standard deduction for salaried employees | INR 50,000 |
| 8. | 24(b) | Interest u/s 24 in respect of self-occupied (‘SOP’) or vacant property | INR 2,00,000 |
| 9. | 32(1)(iia) | Additional Depreciation | 20% of new plant and machinery purchased |
| 10. | 32AD | Investment allowance | 15% of the investment made in new plant & machinery |
| 11. | 33AB | Deduction for deposit with tea, coffee and rubber Board | Upto 40% of income from PGBP |
| 12. | 33ABA | Site Restoration Fund | Upto 20% of income from PGBP |
| 13. | 35 (1) (ii), (iia), (iii),35(2AA) | Expenditure for scientific research | Case to case basis |
| 14. | 35AD | Specified business | Case to case basis |
| 15. | 35CCC | Notified Agricultural extension project | 150% of investment |
| 16. | 57(iia) | Deduction from family pension received | Up to INR 15,000 |
| 17. | 80C to 80U | Any deduction under Chapter VI-A [except 80JJAA and 80CCD(2)] | Case to case basis (Details are given below) |
Chapter VI-A deduction not allowed (Commonly used)
| Sections | Income Tax Deduction for FY 2019-20 (AY 2020-21) | Limit for FY 2019-20 (AY 2020-21) |
| Section 80C | Investing into very common and popular investment options like LIC, PPF, Sukanya Samriddhi Account, Mutual Funds, FD etc | Upto Rs 1,50,000 |
| Section 80CCC | Investment in Pension Funds | |
| Section 80CCD (1) | Atal Pension Yojana and National Pension Scheme Contribution | |
| Section 80CCD(1B) | Atal Pension Yojana and National Pension SchemeContribution | Upto Rs 50,000 |
| Section 80D | Medical Insurance Premium and Medical Expenditure | Upto Rs 1,00,000 |
| Section 80DD | Medical Treatment of a Dependent with Disability | Normal Disability: Rs 75000/- Severe Disability: Rs 125000/- |
| Section 80DDB | Specified Diseases | Senior Citizens: Upto Rs 1,00,000 Others: Upto Rs 40,000 |
| Section 80E | Interest paid on Loan taken for Higher Education | 100% of the interest paid upto 8 assessment years |
| Section 80EE | Interest paid on Housing Loan | Upto Rs 50,000 subject to some conditions |
| Section 80EEA | Interest paid on Housing Loan | Upto Rs 1,50,000/- subject to some conditions |
| Section 80EEB | Interest paid on Electric Vehicle Loan | Upto Rs 1,50,000 subject to some conditions |
| Section 80G | Donation to Charitable Institutions | 100% or 50% of the Donated amount or Qualifying limit, Allowed donation in cash upto Rs.2000/- |
| Section 80TTA | Interest earned on Savings Accounts | Upto Rs 10,000/- |
| Section 80TTB | Interest Income earned on deposits(Savings/ FDs) | Upto Rs 50,000/- |
| Section 80U | Disabled Individuals | Normal Disability: Rs. 75,000/- Severe Disability: Rs. 1,25,000/- |
For more details regarding deduction to salaried employees visit https://kanhaiyag.wordpress.com/2020/01/20/income-tax-deductions-list-fy-2019-20-for-salaried-employees/
So, which rate should be opted ?
Answer to this depends upon case to case basis. Person having certain amount of investments/ deductions/exemptions should opt for old rates of taxes and person having minimum or no investments/ deductions/exemptions should opt for new rates of taxes.
Question that arises now in mind is what should be the amount of break even investments/deductions/exemptions one should have to decide which rates to opt for?
Continuing the above table, here is the amount of eligible exemptions/deduction one should have
| Total Income | Tax with New rates | Tax with Old rates | Difference of tax | Break even amount of exemptions |
| 500000 | 0 | 0 | 0 | 0 |
| 650000 | 27500 | 42500 | 15000 | 75000 |
| 750000 | 37500 | 62500 | 25000 | 125000 |
| 850000 | 52500 | 82500 | 30000 | 150000 |
| 950000 | 67500 | 102500 | 35000 | 175000 |
| 1000000 | 75000 | 112500 | 37500 | 187500 |
| 1100000 | 95000 | 142500 | 47500 | 187500 |
| 1190000 | 113000 | 169500 | 56500 | 188333.33 |
| 1250000 | 125000 | 187500 | 62500 | 208333.33 |
| 1400000 | 162500 | 232500 | 70000 | 233333.33 |
| 1500000 | 187500 | 262500 | 75000 | 250000 |
| 2000000 | 337500 | 412500 | 75000 | 250000 |
Second row calculations in above table means if the individual/HUF is having income of INR 650000 during the year and have investment more than INR 75000 then individual should opt for old tax rates and if the exemptions is less than 75000 then opt for new tax rates.
Analysis-
Anyone claiming tax exemptions and deductions of more than Rs 2.5 lakh in a year will not gain any benefit from the new structure.
Also as there is different tax for senior citizen and super senior citizen. Below is the break even levels of tax deductions and exemptions to decide
| Total Income | For those under 60 of age | For senior citizen( between 60 to 80yrs) | For super senior citizens(80 yrs and above) |
| 500000 | – | – | – |
| 650000 | 75,000 | 62,500 | 12,500 |
| 750000 | 125,000 | 112,500 | 62,500 |
| 850000 | 150,000 | 137,500 | 87,500 |
| 950000 | 175,000 | 162,500 | 112,500 |
| 1000000 | 187,500 | 175,000 | 125,000 |
| 1100000 | 187,500 | 175,000 | 125,000 |
| 1190000 | 188,333 | 180,000 | 146,667 |
| 1250000 | 208,333 | 200,000 | 166,667 |
| 1400000 | 233,333 | 225,000 | 191,667 |
| 1500000 | 250,000 | 241,667 | 208,333 |
| 2000000 | 250,000 | 241,667 | 208,333 |
Note-
- The tax calculated on the basis of such rates will be subject to health and education cess of 4%.
- Surcharges shall be applicable if income exceeds Rs. 50,00,000
Where to file a claim?
An eligible assessee shall opt for the new regime while filing his return of income under Section 139(1) of the Act.
Section 115BAC of the Act can be exercised only before due date of filing a return of income under Section 139(1) of the Act. This means one have to go for old rate if assessee is filing belated return.
In the case of a revised return [under Section 139(5) of the Act] or a return filed under Section 148 of the Act (in case of re-assessment), the assessee will have the option to opt for the new regime under Section 115BAC of the Act only where such option has been exercised by the assessee while filing the original return of income filed under Section 139(1) of the Act.
Can option be Changed each year ?
Assessee not engaged in Business / profession can opt for new regime on year-on-year basis and Withdrawal of option to opt for new regime is allowed on a year on year basis
Assessee engaged in Business / profession cannot opt for new regime on year-on-year basis. They can opt this option only once and have to follow it every following year. Withdrawal of option to opt for new regime is allowed only once till the existence of business / profession.
Final notes
- An eligible assessee has to do a detailed financial analysis and choose the best option applicable as per the facts of his case and exercise the same.
- The employer to obtain declarations from the employee to opt for the new regime and withhold tax based on the provisions of Section 115BAC. Where no intimation is received form employee, employer shall deduct at old rates of taxes only.
- Option once exercised cannot be changed during the year. However, option can be changed at the time of filing of income tax return before due date of filing of return
- Assessee having tax exemption/deductions above Rs. 250000 should opt for old rate of taxes
