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Alternate Tax Regime for Individuals u/s 115BAC from AY 2021-22

This article is only meant for salaried class employees and not meant for individuals who are having business Income. As there are few differences in the scheme for the salaried class of persons and non-salaried class of persons.

The Budget 2020 introduces a new system under section 115BAC giving an option to individuals and HUF taxpayers to pay income tax at lower rates. The new system is applicable for income earned from 1 April 2020 (FY 2020-21), which relates to AY 2021-22.

New Tax slab Rates is given below in the table.

Sl. No.  Total incomeRate of tax As per New Regime
1.Up to Rs. 2,50,000NIL
2.From Rs. 2,50,001 to Rs. 5,00,0005%
3.From Rs. 5,00,001 to Rs. 7,50,00010%
4.From Rs. 7,50,001 to Rs. 10,00,00015%
5.From Rs. 10,00,001 to Rs. 12,50,00020%
6.From Rs. 12,50,001 to Rs. 15,00,00025%
7.Above Rs. 15,00,00030%

Tax Rates as per Existing Regime

Sl. No.  Total incomeRate of Tax As per Existing Regime
1.Up to Rs. 2,50,000NIL
2.From Rs. 2,50,001 to Rs. 5,00,0005%
3.From Rs. 5,00,001 to Rs. 7,50,00020%
4.From Rs. 7,50,001 to Rs. 10,00,00030%

Some Important Points:

  1. Basic Exemption Limit is INR 2, 50,000/- in each and every case. That is no different exemption limit is there in case of Senior citizen or Super Senior citizen. (There is exemption Limit of INR 3 Lacs for the Senior Citizen and INR 5 Lacs Exemption for the Super Senior Citizens under the old regime)
  2. Rebate under section 87A is also applicable in the alternate tax regime in line with existing scheme. i.e., up to the INR Rs. 12,500/- tax rebate under section 87A is allowed if income is up to INR 5 Lacs.

Deductions to forego:

Following below mentioned Deduction shall not be allowed to the person adopting the new regime:

  1. Leave Travel Concession Benefit (LTC) under section 10(5)
  2. House Rent Allowance Benefit (HRA) under section 10(13A)
  3. Standard Deduction, Entertainment Allowance, Professional Tax on Salaries under section 16
  4. Other Special Allowance under section 10(14)
  5. Interest on Housing Loan under section 24(b)
  6. Allowance to MPs under section 10(17)
  7. Allowance on Account of Clubbing of Minor Child’s Income under section 10(32)
  8. Deduction from Family Pension under section 57(iia)
  9. Deductions under Chapter VI-A (80C, 80D, 80E Etc.) except employer contribution to NPS under section 80CCD(2)

So, if you do not have genuine deductions then without invest your money in unwanted options you can go for new regime, simply pay tax at new slab, it will also save your tax in comparison to existing tax slab.

How to adopt the New Regime:

According to the rules, person can choose the option at the time of filing the return. He /she has to tick the option whether he/she wants to calculate the Tax under the old regime or under new regime, and this option can vary every year which means assessee can change the option every year if he/she is not having Business Income.

Intimation to Employer for TDS

According to the circular No. C1/2020 dated 13th April 2020 employee has to intimate the employer that which option he/she is going to choose so that employer can deduct the TDS accordingly. However, such intimation is not deemed as adopting any option for the ITR filling i.e., suppose employee give the employer intimation of adoption of new regime and he/she agreed for TDS deduction according to the slab of new regime and later on the at the time of filing of ITR, employee change his mind to remain under existing scheme, then he/she can do so at the time of Filing income tax return. In other words, final adoption of the regime will take place at the time of filing income tax return.

In Last

This new scheme will be prima facia more advantageous for that salaried person who do not have so much investment deductions like un-married young employees, they have to pay tax at the higher side without any deduction available, and now after the launch of this new scheme they will be benefited. Everyone need to calculate the tax under the both regime and then compare the tax so that no any confusion left un-cleared. Though there are some tactics through which one can more quickly find out the best option but it is strongly advisable to compare the both result by proper calculations. One more favorable thing is that employee at their option can choose every year the best option for them. Overall this regime is a good step taken by the Government.