Section 115BAC: New India tax proposals for individuals

The Budget session of 2020 unveiled a new competitive voluntary tax regime for individuals & HUF subject to the Income Tax Act 1961 through Section 115BAC . The new tax structure which was introduced from the financial year 2020-21 for individuals earning up to Rs. 15 lakhs basically to give a new concessional rate and with effect from same year most of the exemptions and deductions are no longer available.

The Reasons Justifying the Change of the Tax System

Currently, there is a long-standing and chronic problem of lengthy and complicated tax laws which have involved the accumulation of several decades with additional deductions, exemptions and special provisions. This has made tax compliance to be a challenging exercise for the taxpayers and also at the same time, the design has led to tax avoidance and tax evasion.

The new tax regime under Section 115BAC has announced attempting to bring simpler structure of taxes without most of deductions and exemptions and subtractions, and therefore, has reduced the opportunity for planning and avoidance of taxes. The general idea here is that the government can set a low tax rate mainly because taxpayers can be asked to give up these deductions and exemptions in the process to make tax compliance easier.

On the same note, under the new regime, the tax rates applicable to various categories of taxpayers are presented in the table below.

The new structure of taxes lays down the renewed income-tax slab and rates of tax for all individual/HUFs. The tax rates under Section 115BAC are as follows:The tax rates under Section 115BAC are as follows:

1. Income up to Rs. 2 /- Thank you for your cooperation and support You can Branch :MIG – 1A , Mumbai Look forward to your patronage for my services. 5 lakh: Nil

• Income between Rs. 2. 5 lakh and Rs. 5 lakh: Finally, the use of charts in turn presents a 5% benefit compared with the direct use of Size=.

• 15000 Other 7% 3500 Total 100% 315000 Source: Competition Commission of India Hand Book 2008-09 The column ‘Other’ includes income from other sources which is income between Rs. 5 lakh and Rs. 7 lakh with a percentage share of 7% of the total income and the total income from all sources is Rs. 315000. 5 lakh: 10%

• Income between Rs. 7. 5 lakh and Rs. 10 lakh: 10 %

• Salary or income between Rs. 10 lakhs and Rs. 5 lakh: 20%

• Income between Rs. 12. 5 lakh and Rs. 15 lakh: According to the above results, it should be noted that 25% of the total students have functional FXS.

• Income above Rs. 15 lakh: It is revealed that about 30% of new plant construction costs

The new tax rates are substantially lower than the existing rates in every bracket especially in the new slab of income above Rs. 15 lakhs.

 Deductions and Exemptions Forgone

 To get the benefit of the tax rates mentioned under Section 115BAC, the taxpayers are required to sacrifice the several allowances and exclusions that exist under the current IT laws. These include:

1. Standard deduction of Rs. 50,000 is given to each taxpayer and for senior citizens, this has been increased to Rs. 65,000.

• Insurance premia, PPF, EPF amongst others, which is allowed under Section 80C of the income tax act.

• The other areas which are covered under Deductions are 80D, this regards to health insurance premiums.

• The other instrument of operating directly on the policy of education loans is the deductions under section 80E.

• These lay emphasis on charity through deductions under Section 80G.

• Deductions under Section 80 TT A (interest on savings bank account)

• Exemptions in House Rent Allowance (HRA), Leave Travel Allowance (LTA) and some other allowances

 Thus, it is understood that though the above-said deductions and exemptions are not available under the new tax regime, there are some other deductions and exemptions which includes disabilities, life-saving medical treatment, and education for children with disability is permitted.

 The Choice: New/ Existing Regime

 The provisions of Section 115BAC aimed at opting for new tax regime are completely voluntary in nature, it means the taxpayer has the opportunities to opt for either the new regime as speared head or to remain under the old regime. It is to be noted that the choice of opting for the new regime is to be exercised at the time of affixing the income-tax return every year.

 This is a necessary step that taxpayers need to accomplish to figure out which regime is in their best interest and requires them to calculate the amount of tax that they will be paying upon applying the parameters of either of the said regimes. In general, the new regime could be beneficial for people who have high income and small amount of deductions and exemptions to be exempted.

At first, it is necessary to note that the introduction of new tax regimes under section 115BAC is one of the major achievements to separate the income tax structure of India . On one hand it provides the possibility of lesser taxes but on the other hand it provides the benefit at the cost of relinquishing some of the deductions and exemptions allowed to the taxpayers. The current tax structures compel the taxpayers to think it through and make a rational decision on which tax system is most advantageous for them. As we have observed the new tax regime is less amenable to tax evasion and can be expected to foster higher compliance level to the advantage of all the parties involve as well as the government in the future.