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Alternative Tax Regime - whether beneficial?

SEPTEMBER 03, 2021

By CA Lukose Joseph & CA Jobby George

SECTION 115BAC provides an option to Individuals and HUF to opt for alternative optional tax scheme with reduced rate (See Table 1 below) but with condition that some of the claims are blocked or denying some exemptions or deductions (See Table 2 below) applicable from Assessment year 2021-22 (Financial year 2020-21)

Table 1- Comparison Chart of Tax rates under both Regimes

Income Slabs

Tax Rates Old tax Regime(%)

Tax Rates New Tax Regime(%)

Up to Rs.2.50 Lakh

0

0

Rs.2.50 Lakh to Rs. 5 lakh

5

5

Rs. 5 Lakh toRs. 7.50 Lakh

20

10

Rs. 7.50 Lakh to Rs.10 Lakh

20

15

Rs.10 Lakh toRs.12.50 Lakh

30

20

Rs.12.50 Lakh toRs.15 Lakh

30

25

Above Rs.15 Lakh

30

30

Table 2.- Blocked items-(Deductions or Exemption not permitted under New Regime )

I. Income from Salaries:

1. Leave the travel concession [Sec 10(5)]

2. House rent allowance [Sec10(13A)]

3. Special allowance(s)[other than exemption pertaining to (a) travelling allowance ,transfer allowance and conveyance allowance for official purpose , and (b) transportation allowance of Rs.3,200 per month to an employee who is blind or deaf and dumb or orthopedically handicapped][Sec10(14)]

4. Standard deduction [Sec.16(ia)]

5. Entertainment allowance deduction [Sec.16(ii)]

6. Professional tax deduction [Sec.16(ii)]

7. Exemption of perquisite in respect of free food and non-alcoholic beverage (i.e., Rs 50 per meal) provided through paid voucher[sec17(2), read with rule 3(7))(iii)]

II. Income from House Property

Interest on housing loan in the case of one or two self-occupied properties [Ssec.24(b)]

III.Income from Business or Profession

1. Additional depreciation [Sec.32 (1) (iia)

2. Investment Allowance in case of backward area [Sec.32ATea/coffee/rubber/development account [Sec33AB]

3. Site Restoration Fund [Sec.33ABA]

4. Deduction for Scientific Research [Sec35(1)(ii)/(iia)/(iii),35(2AA)]

5. Capital expenditure pertaining to specified business [Sec.35AD]

6. Agriculture extension project[Sec.35CCC]

7. Special provisions in respect of newly established Units in Special Economic Zones [Sec10AA]

IV.Income from Other Sources

1. Allowance to MPs/MLAs- Sec.10(17)

2. Exemption up to 1500 available in the case of clubbed income of minor child [Sec.10(32)]

3. Standard deduction in the case of family pension [Sec.57(iia)]

V. Investment related Exemptions

Deduction under sec 80C to 80U [except employee contribution towards NPS under

Section80CCD(2), deduction under section 80JJAA]

 

If the assessee opts for new regime no set off of any loss carried forward loss or depreciation from any earlier assessment year will be allowed.

Again, any loss under the head "Income from House Property" cannot be set off with any other head in new regime.

No exemption or deduction will be allowed or perquisite provided under any other law cannot be claimed under new scheme.

The Act/Rule provides for filing Form 10IE for the application for exercise/withdrawal of the option.

We are frequently faced with the question whether the existing regime or opting new proposal is more beneficial to a tax payer -

We are trying to give a simple table which gives the answer to such a question. If the blocked incentive under new scheme is more than the figure arrived in column B in Table 3, 4 and 5 (age wise) below it is beneficial to opt for old tax regime or in other words column B gives the break -even point, which refer to the point at which tax due is same in both the regimes

Table 3

Break-even point for claiming old tax regime for individuals below 60

A

B

Income before Denied Credits(Rs)

Blocked items as per Table 2

Up to 5 lakh

 

Not applicable being both options give same result

5 to 7.5 lakh s

 

Half of the amount exceeding Rs.5 lakh

7.5 to 10 lakh

Rs.1.25 lakh +1/4 th of amount exceeding Rs.7.50 Lakh

10 to 11.875 lakh

 

Rs.1.875 lakh

11.875 to 12.5 lakh

Rs.1.875 lakh+1/3 rd of amount exceeding Rs. 11.875 lakh

12.50 lakh to 15 lakh

Rs.2,08,333+1/6 th of amount exceeding Rs.12.50 Lakh

Above 15 lakh

 

Rs. 2.5 lakh

Table 4

Break-even point for claiming old tax regime for individuals between 60 and 80

A

B

Income before Denied Credits(Rs)

Blocked items as per Table 2

Up to 5.25 lakh

 

Old regime more beneficial

5.25 to 7.5 lakh

 

Half of the amount exceeding Rs.5.25 lakh

7.5 to 10 lakh

Rs.1.125 lakh +1/4 th of amount exceeding Rs.7.50 Lakh

10 to 11.75

 

Rs.1.75 lakh

11.75to 12.5 lakh

Rs.1.75 lakh+1/3 rd of amount exceeding Rs.11.75 Lakh

12.50 lakh to 15 lakh

Rs.2 lakh +1/6 th of amount exceeding Rs.12.50 Lakh

Above 15 lakh

 

Rs.2,41,667/-

Table 5

Break-even point for claiming old tax regime for individuals above 80

A

B

Income before Denied Credits(Rs)

Blocked items as per Table 2

Up to 6.25 lakh

 

Old regime more beneficial

6.25 to 7.5 lakh

 

Half of the amount exceeding Rs.6.5 lakh

7.5 to 10 lakh

 

Rs.62,500 +1/4 th of amount exceeding Rs.7.50 Lakh

10 to 11.25 lakh

 

Rs.1.25 lakh

11.25 to 12.5 lakh

 

Rs.1.25 lakh+1/3 rd of the amount exceeding Rs. 11.25 lakh

12.50 to 15lakh

 

Rs.1,66,666/-+1/6 th of amount exceeding Rs.12.50lakh

Above 15 lakhs

 

Rs,2,08,333/-

The table helps one to arrive which tax regime is more beneficial based on total deductions and exemptions that can be claimed under previous regime. Arrive a decision based on your future plans as condition is laid down that in case of assessees having income other than salary, opt out is possible only once and once one has opted out of the new scheme he cannot again opt in as per the law prevailing now, except if business is closed.

[The views expressed are strictly personal.]

(DISCLAIMER : The views expressed are strictly of the author and Taxindiaonline.com doesn't necessarily subscribe to the same. Taxindiaonline.com Pvt. Ltd. is not responsible or liable for any loss or damage caused to anyone due to any interpretation, error, omission in the articles being hosted on the site)

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