Challenging Case Studies.
Research Document Studies.
In India, we have a progressive method of personal
taxation for Income tax which means high income earners pay higher tax. To
govern the same, taxation in India for individual & HUF is determined based
on Income Tax slabs which are defined by the Finance Act every year. So, for further
reducing tax burden on the small taxpayers, a new scheme of charging taxes at
lower rates has been introduced in Budget 2020. The Finance Bill 2020 is passed
by Lok Sabha on 23rd March 2020.
The Finance Act 2020 has introduced the
concept of a new tax regime by inserting a new section 115BAC. From FY 2020-21(AY 2021-22) onwards the
individuals and HUFs will have an option to choose between the new and old tax
regime. Both regimes have separate tax slabs and rates along with separate
Following are the slab rates in the new tax
The new tax rates are applicable to all
Individuals being senior citizens, super senior citizens, Residents,
Non-Residents & HUFs. There is no change in the rates of Surcharge &
cess under the new scheme. However, if the assessee chooses the new tax regime
there are certain benefits that he/she cannot claim. They are:-
A. Incase of non-Business assessee;
1. Leave travel concession as a deduction from
2. House rent allowance as a deduction from their
3. Deduction of any allowance or benefit granted
as a part of their salary.
4. Standard deduction of Rs. 50,000 as a
deduction from their salary.
5. Employment/professional tax deduction from
6. Interest on housing loan paid in respect of
self-occupied or vacant property (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)
7. Any deduction under chapter VI-A [except
80CCD(2) - NPS Contribution by the employer]
8. Deduction of expenses in relation Family
B. In case of Business assessee;
1. All deduction or exemptions listed above in A.
2. Additional depreciation on plant and Machinery
in case of manufacturing unit
3. Benefit on Investment in new plant or
machinery in notified backward area in certain states such as Andhra Pradesh,
Bihar, Telangana or West Bengal
4. Benefit on Investment in special account by
assessee carrying on business of growing and manufacturing of Tea, coffee and
5. Benefit on weighted deduction on expenditure
or contribution to scientific research
6. Any deduction under chapter VI-A [except 80JJAA
- employment of new employees]
7. Others as may be prescribed.
Selection between the old and new scheme is
optional in the first year for every individual / HUF regardless of their
Income source. Individuals and HUF having Income other than business income can
change their tax scheme every year at their will but Individuals or HUFs having
business income does not have the option to change the tax scheme every year,
Once they opt for the new scheme they cannot go back to the old scheme.
Let us take an example:
- Mr. Rohit, a resident
Individual who is a salary earner and has some FDs with bank. So, his two major
sources of income are Salary & Interest. His gross salary is Rs. 16,00,000 Interest
Income including savings and FD interest is 150,000. Gross total income is Rs
17,50,000. Deductions include HRA of Rs 200,000 (Section 10(13), LIC Premium of
Rs 150,000 (Section 80C), Medical Premium of Rs 25,000 (Section 80D) and
deduction on bank Interest of 10,000 (Section 80TTA).
Let us calculate his income tax considering
both the options and compare which is better for the Mr Rohit.
From the above example we can conclude that it
would be better for Mr Rohit to continue
paying tax in current year (AY 2021-22) using the old scheme as the tax payable
is much lower (277,680-230,800 = 46,890). Since he is not having business
income, he can change over to new scheme next year, in case the same is
beneficial to him. He is allowed to change the option every year thereafter.
- Ms Priya a resident individual
owns a business and her profit from the same for the FY 2020-21 is Rs.7,75,000.
Her other income includes saving bank interest of Rs 25,000. She does not have
any deductions except the 10,000 on saving bank Interest u/s 80TTA. Let us see
if the new taxation scheme is suitable for her.
From the above example we can conclude that Ms
Priya should opt for the new tax regime as she saves total tax of Rs. 28,020
(73,320-45,240). However, since Priya is having business income and she has
opted for a new scheme, she will not be allowed to change the option in
After examining both above examples the new
tax regime is very beneficial to some but not so much to others. Assessee with
high income say of 15 Lakhs or more may not benefit by using the new scheme as
at the same time smaller assesses with income under 10 lakhs may opt for this
scheme. Keeping in mind that if the new scheme is adopted no deductions can be
claimed under chapter VIA including investment in PPF, Life Insurance premium,
Medical premium etc. this could prove to be an incentive to the assesses who
invest in these for the sole purpose of saving tax, but if an assessee pays
these amounts in the normal course of his life (Life insurance premium,
Insurance) that would be disadvantageous.
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