Section 115BAC - Features of the new tax system and its benefits - 115BAC of Income Tax Act

From FY 2020-21, you can choose to pay tax under the new tax system of your choice. The new tax system is available for individuals and HUFs with lower tax rates and fewer exemptions / exemptions. We will discuss the features of the new tax system and how you can benefit from it.

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15min

1. What is the new tax regime for FY 2020-21?

The 2020 budget introduces a new system under section 115BAC that gives individuals HUF taxpayers the option to pay income tax at lower rates. The new system applies to revenue earned from 1 April 2020 (FY 2020-21), related to AY 2021-22.

2. What are the tax rates under the new regime?

The tax rates under the new tax system and existing tax system are:

New slab rates   Existing slab rates  
Income from Rs 2.5 lakh to Rs 5 lakh 5% Income from Rs 2.5 lakh to Rs 5 lakh 5%
Income from Rs 5 lakh to Rs 7.5 lakh 10% Income from Rs 5 lakh to Rs 10 lakh 20%
Income from Rs 7.5 lakh to Rs 10 lakh 15% Income above Rs 10 lakh 30%
Income from Rs 10 lakh to Rs 12.5 lakh 20%
Income from Rs 12.5 lakh to Rs 15 lakh 25%
Income above Rs 15 lakh 30%

The new tax system does not allow for 70 deductions and exemptions (discussed in section 4). Taxes payable under both the new and existing laws excluding deducted applications and exemptions are as follows:

Annual income Tax under the existing regime (Rs) Tax under the new regime (Rs) Tax savings under the new regime (Rs)
Up to Rs 7,50,000 65,000 39,000 26,000
Up to Rs 10,00,000 117,000 78,000 39,000
Up to Rs 12,50,000 195,000 130,000 65,000
Up to Rs 15,00,000 273,000 195,000 78,000
The table above shows that the new tax system usually saves taxes for taxpayers who do not want a deduction or exemption.

3. Exemptions and deductions are not required under the new tax system

The following are some of the great deals and exemptions you can claim under the new tax system:

  • Standard deductions under Section 80TTA / 80TTB, professional tax and recreational allowance
  • Leave Travel Grant (LTA)
  • Hire Housing Grant (HRA)
  • Small child income
  • Assistant Grant
  • Children's Education Grant
  • Other special grants [Section 10 (14)]
  • Interest on mortgage loans in residential or vacant land (Section 24)
  • Detention of Chapter VI-A (Section 80C, 80D, 80E etc., excluding Section 80CCD (2) and Section 80JJAA)
  • Exemptions or deductions for any other benefits or grants
  • deductions from family pension funds

4. What are the exemptions and deductions available under the new regime?

You may want to be exempt from tax:

  • Transport allowances for a person with a special disability.
  • An allowance received to meet travel expenses incurred as part of the lease.
  • Any compensation received to cover travel or travel expenses.
  • Daily allowance received to cover normal expenses or expenses incurred due to absence from his or her normal duties.
  • Employer contribution deduction NPS account (Section 80CCD (2)).
  • Withholding additional employee costs (Section 80JJA).

5. Can I choose between the new tax regime and the existing regime?

A taxpayer can choose a new tax plan at the beginning of FY 2020-21 and be closer to his or her employer. An employee cannot change his or her choice at any time during the financial year. However, they may change their preferences when filling out a tax return in July 2021. Final tax filing deadline for FY 2020-21 (AY 2021-22) is 31 December 2021 (extended from 31 July 2021). If an employee does not select a new tax plan at the beginning of the financial year, the employer will deduct the tax (TDS) under the existing tax plan . Therefore, the leading taxpayer can come in and withdraw every year. That means you can choose a new tax plan in one year and choose the regular tax in another year. An unpaid taxpayer must choose a new system when completing tax returns. They do not have to announce or approach anyone for their choice during the year. However, the unpaid taxpayer (taxpayers with income from a business or work) may not choose to enter and withdraw from the new tax system every year. If an unpaid person exits the new tax system, he/she will not be able to re-enter the new tax system in the future.

6. How do I choose the new regime and plan my tax?

From a tax planning perspective, choosing a tax plan at the beginning of the financial year is important. The taxpayer must compare income tax under the new tax system with the existing system. Once a taxpayer has chosen a tax plan at the beginning of the year, investments and TDS or prepaid tax calculations are performed accordingly. Also, the taxpayer must submit a Form 10IE to the revenue department before filing a refund if the taxpayer intends to select a new tax system.

7. Example 1: Where the new regime is better in respect of tax outflow

Income (Rs) Amount (Rs) Old regime (Rs) New regime (Rs)
Salary 1,250,000 12,50,000 12,50,000
Less: Standard deduction 50,000 50,000
Less: Professional tax 2,400 2400
Gross total income 1,197,600 11,97,600 12,50,000
Less: Deduction u/s 80C 150,000 1,50,000
Total income 1,047,600 1,047,600  
Income tax   126,780 125,000
Add: Education cess @ 4%   5,071 5,000
Total tax    131,851 130,000

In the example above, with an income of Rs 12,50,000, the new tax system benefits a little over Rs 1,851. However, if you are looking for additional deductions for health insurance, NPS investments, education loans and more, the existing system will help with tax savings.

Income (Rs) Amount (Rs) Old regime (Rs) New regime (Rs)
Salary 1,000,000 1,000,000 1,000,000
Less: Standard deduction 50,000 50,000 Nil
Less: Professional tax 2,400 2,400 Nil
Gross total income 947,600 947,600 1,000,000
Less: Deduction u/s 80C 150,000 150,000 Nil
Total income 797,600 797,600 1,000,000
Income tax   72,020 75,000
Add: Education cess @ 4%   2,881 3,000
Total tax   74,901 78,000

In example 2, with an income of Rs 10 lakh, the current tax system benefits Rs 3,099. If a person wants a lower deduction for health savings in health insurance, NPS investments and more, the new system will be of great benefit to people who use tax-saving investments. Also, people with incomes of between Rs 5-10 lakh with low deduction claims will benefit from the new government. Conversely, people under the higher tax bracket of more than Rs 15 lakh per annum can benefit more from the existing system by making tax-saving investments. It is important to note that each taxpayer must calculate his income tax, consider his investment savings and choose a policy.

8. House property loss under the new tax regime

In residential situations , you can not apply for a mortgage deduction under the new tax law. The deduction of Rs 2 lakh allowed in the existing system is not available in the new tax system. Also, you may not be able to deduct the loss of Rs 2 lakh from the house area on your salary. If you have taken out real estate, you may want to be deducted with interest paid home loan . Note that the new tax system limits the deduction of localized tax revenue against the old state. In the new system, you cannot remove losses from the area due to the high interest paid over the rental income. Also, you may not be able to transfer losses from your home to future years.

9. Deductions are not allowed against business income under the new regime

Deductions and exemptions are not allowed on business revenue:

  • Further depreciation under section 32
  • Investment Grant under section 32AD
  • Deductions for a specific category under sections 33AB and 33ABA
  • Cost in scientific research under section 35
  • Large costs under section 35AD
  • Release under section 10AA in SEZ units

10. Unabsorbed depreciation and business loss under the new regime

In the case of corporate income, individuals or HUFs cannot claim to have their foreclosure losses or irreplaceable depreciation . Deductions are not available under the new law to the extent associated with a deduction / release.

Frequently Asked Questions

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How do I choose the new regime and plan my tax?

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From a tax planning perspective, choosing a tax plan at the beginning of the financial year is important. The taxpayer must compare income tax under the new tax system with the existing system. Once a taxpayer has chosen a tax plan at the beginning of the year, investments and TDS or prepaid tax calculations are performed accordingly. Also, the taxpayer must submit a Form 10IE to the revenue department before filing a refund if the taxpayer intends to select a new tax system.


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CEO Krishna Gopal

Krishna Gopal Varshney is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Myitronline.com. Myitronline is amongst the top emerging startups of Asia and authorized ERI by the Income Tax Department. A dedicated and tireless Expert Service Provider for the clients seeking tax filing assistance and all other essential requirements associated with Business/Professional establishment. Connect to us and let us give the Best Support to make you a Success. ”

Krishna Gopal Varshney
Co-founder & CEO