OPTION TO LESSER RATE OF INCOME TAX

[Mr. M. GOVINDARAJAN]

The Finance Minister in the current year Financial Act did not change the income tax rate as prevailing in the previous year.   However she declared concessional rate of income tax in addition to the existing tax rate for which the assessee is to give option to the department.  This concessional rate is subject to some conditions.

Section 53 of the Finance Act, 2020 (‘Act’ for short) inserted a new section 115BAC under the Heading ‘Tax on income of individuals and Hindu undivided family’.  Section 115BAC (1) provides that Notwithstanding anything contained in Income Tax Act but subject to the provisions of this Chapter, the income-tax payable in respect of the total income of a person, being an individual or a Hindu undivided family, for any previous year relevant to the assessment year beginning on or after the 01.04.2021, shall, at the option of such person, be computed at the rate of tax given below if the conditions required are satisfied.

Lesser Rate of tax

• Upto ₹ 2,50,000/-  :   NIL;
• From ₹ 2,50,001/- to ₹ 5,00,000/- : 5%;
• From ₹ 5,00,001/- to ₹ 7,50,000/- : 10%;
• From ₹ 7,50,001/- to ₹ 10,00,000/-    :    15%;
• From ₹ 10,00,001/- to ₹ 12,50,000/-  ;     20%;
• From ₹ 12,50,001/- to ₹ 15,00,000/-   ;    25%;
• Above ₹ 15,00,000/- :   30%.

Conditions

Section 115BAC (2) of the Income Tax Act provides the conditions for availing option for the concessional rate of tax.  The conditions are as below-

• The total income of the individual or Hindu undivided family shall be computed,-

1. without any exemption or deduction under the provisions of-

• Section 10 (5) – in the case of an individual, the value of any travel concession or assistance received by, or due to, him,-

•  from his employer for himself and his family, in connection with his proceeding on leave to any place in India ;
• from his employer or former employer for himself and his family, in connection with his proceeding to any place in India after retirement from service or after the termination of his service,

 subject to such conditions as may be prescribed (including conditions as to number of journeys and the amount which shall be exempt per head) having regard to the travel concession or assistance granted to the employees of the Central Government.

• Section 10(13A) - any special allowance specifically granted to an assessee by his employer to meet expenditure actually incurred on payment of rent (by whatever name called) in respect of residential accommodation occupied by the assessee.
• Section 10(14) - any such special allowance or benefit, not being in the nature of a perquisite within the meaning of clause (2) of section 17, specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment of profit, as may be prescribed, to the extent to which such expenses are actually incurred for that purpose ;

any such allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at the place where he ordinarily resides, or to compensate him for the increased cost of living, as may be prescribed and to the extent as may be prescribed.

• Section 10(17) - any income by way of-

• daily allowance received by any person by reason of his membership of Parliament or of any State Legislature or of any Committee thereof;
• any allowance received by any person by reason of his membership of Parliament under the Members of Parliament (Constituency Allowance) Rules, 1986;
• any constituency allowance received by any person by reason of his membership of any State Legislature under any Act or rules made by that State Legislature;

• Section 10(32) - in the case of an assessee referred to in sub-section (1A) of section 64, (Income of individual to include income of spouse, minor child, etc.) any income includible in his total income under that sub-section, to the extent such income does not exceed one thousand five hundred rupees in respect of each minor child whose income is so includible;
• Section 10AA – deductions allowed in respect of newly established units in Special Economic Zone-

• 100% of profits and gains derived from the export, of such articles or things or from services for a period of 5 consecutive assessment years beginning with the assessment year relevant to the previous year in which the Unit begins to manufacture or produce such articles or things or provide services, as the case may be, and 50% of such profits and gains for further 5 assessment years and thereafter;
• for the next 5 consecutive assessment years, so much of the amount not exceeding 50% of the profit as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account (to be called the ‘Special Economic Zone Re-investment Reserve Account/) to be created and utilized for the purposes of the business of the assessee 

• Section 16 -  Deduction from salaries –

• a deduction of ₹ 50,000/-  or the amount of the salary, whichever is less;
• a deduction in respect of any allowance in the nature of an entertainment allowance specifically granted by an employer to the assessee who is in receipt of a salary from the Government, a sum equal to one-fifth of his salary (exclusive of any allowance, benefit or other perquisite) or ₹ 5,000/- whichever is less;
•  a deduction of any sum paid by the assessee on account of a tax on employment within the meaning of clause (2) of article 276 of the Constitution, leviable by or under any law.

• Section 24(b) – deductions from income from house property –

• where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital:

• Section 32(1)(iia)  - Depreciation - in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2005, by an assessee engaged in the business of manufacture or production of any article or thing,   or in the business of generation, transmission or distribution of power a further sum equal to twenty per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii) .
• Section 32AD - Investment in new plant or machinery in notified backward areas in certain States – deduction o f tax –

• Where an assessee, sets up an undertaking or enterprise for manufacture or production of any article or thing, on or after the 1st day of April, 2015 in any backward area notified by the Central Government in this behalf, ‘in the State of Andhra Pradesh or in the State of Bihar or in the State of Telangana or in the State of West Bengal, and acquires and installs any new asset for the purposes of the said undertaking or enterprise during the period beginning on the 1st day of April, 2015 and ending before the 1st day of April, 2020 in the said backward area, then, there shall be allowed a deduction of a sum equal to 15% of the actual cost of such new asset for the assessment year relevant to the previous year in which such new asset is installed.

•  Section 33AB - Tea development account, coffee development account and rubber development account –

• Where an assessee carrying on business of growing and manufacturing tea or coffee or rubber in India has, before the expiry of six months from the end of the previous year or before the due date of furnishing the return of his income, whichever is earlier,-

5.  deposited with the National Bank any amount or amounts in an account (hereafter in this section referred to as the special account) maintained by the assessee with that Bank in accordance with, and for the purposes specified in, a scheme (hereafter in this section referred to as the scheme) approved in this behalf by the Tea Board or the Coffee Board or the Rubber Board ; or
5. deposited any amount in an account (hereafter in this section referred to as the Deposit Account) opened by the assessee in accordance with, and for the purposes specified in, a scheme framed by the Tea Board or the Coffee Board or the Rubber Board, as the case may be (hereafter in this section referred to as the deposit scheme), with the previous approval of the Central Government

the assessee shall, subject to the provisions of this section, be allowed a deduction (such deduction being allowed before the loss, if any, brought forward from earlier years is set off under section 72) of-

• a sum equal to the amount or the aggregate of the amounts so deposited ; or
• a sum equal to 40% of the profits of such business (computed under the head "Profits and gains of business or profession" before making any deduction under this section).

• Section 33ABA – Site Restoration Fund –

• Where an assessee is carrying on business consisting of the prospecting for, or extraction or production of, petroleum or natural gas or both in India and in relation to which the Central Government has entered into an agreement with such assessee for such business, has before the end of the previous year-

5. deposited with the State Bank of India any amount or amounts in an account (hereafter in this section referred to as the special account) maintained by the assessee with that Bank in accordance with, and for the purposes specified in, a scheme (hereafter in this section referred to as the scheme) approved in this behalf by the Government of India in the Ministry of Petroleum and Natural Gas; or
5. deposited any amount in an account (hereafter in this section referred to as the Site Restoration Account) opened by the assessee in accordance with, and for the purposes specified in, a scheme framed by the Ministry referred to in clause (a) (hereafter in this section referred to as the deposit scheme),

the assessee shall, subject to the provisions of this section, be allowed a deduction (such deduction being allowed before the loss, if any, brought forward from earlier years is set off under section 72) of-

• a sum equal to the amount or the aggregate of the amounts so deposited; or
• a sum equal to twenty per cent of the profits of such business (computed under the head "Profits and gains of business or profession" before making any deduction under this section),

• Section 35(1)(ii) -   Expenditure on scientific research - In respect of expenditure on scientific research, the following deductions shall be allowed-

5. an amount equal to one and one half  times of any sum paid to a research association which has as its object the undertaking of scientific research or to a university, college or other institution to be used for scientific research.

• Section 35(1)(iia) – deduction for any sum paid to a company to be used by it for scientific research.
• Section 35(1)(iii)  - deduction for any sum paid to a research association which has as its object the undertaking of research in social science or statistical research or to a university, college or other institution to be used for research in social science or statistical research.
• Section 35 (2AA) – deduction - Where the assessee pays any sum to a National Laboratory or a University or an Indian Institute of Technology or a specified person with a specific direction that the said sum shall be used for scientific research undertaken under a programme approved in this behalf by the prescribed authority, then there shall be allowed a deduction of a sum equal to one and one-half times the sum so paid.
• Section  35 AD - Deduction in respect of expenditure on specified business - An assessee shall, if he opts, be allowed a deduction in respect of the whole of any expenditure of capital nature incurred, wholly and exclusively, for the purposes of any specified business carried on by him during the previous year in which such expenditure is incurred by him.
• Section 35 CCC - Expenditure on agricultural extension project - Where an assessee incurs any expenditure on agricultural extension project notified by the Board in this behalf in accordance with the guidelines as may be prescribed, then, there shall be allowed a deduction of a sum equal to one and one-half times of such expenditure.
• Section 57 (iia) – income from other sources - in the case of income in the nature of family pension, a deduction of a sum equal to thirty-three and 0.33% of such income or  ₹ 15,000/-, whichever is less.
• Deductions under any of the provisions of Chapter VI-A other than the provisions of sub-section (2) of section 80CCD or section 80JJAA-

• Section 80C - Deduction in respect of life insurance premia, deferred annuity, contributions to provident fund, subscription to certain equity shares or debentures, etc.
• Section 80CCA - Deduction in respect of deposits under National Savings Scheme or payment to a deferred annuity plan.
• Section 80CCB - Deduction in respect of investment made under Equity Linked Savings Scheme.
• Section 80CCC - Deduction in respect of contribution to certain pension funds.
• Section 80CCD(i)  - Deduction in respect of contribution to pension scheme of Central Government - Where an assessee, being an individual employed by the Central Government on or after the 1st day of January, 2004 or, being an individual employed by any other employer or any other assessee, being an individual, has in the previous year paid or deposited any amount in his account under a pension scheme notified or as may be notified by the Central Government, he shall, in accordance with, and subject to, the provisions of this section, be allowed a deduction in the computation of his total income, of the whole of the amount so paid or deposited as does not exceed,-

• in the case of an employee, 10% of his salary in the previous year; and
• in any other case, 20% of his gross total income in the previous year;

• Section 80 CCE -   The aggregate amount of deductions under section 80C, section 80CCC and sub-section (1) of section 80CCD shall not, in any case, exceed ₹ 1,50,000/-
• Section 80 CCF - Deduction in respect of subscription to long-term infrastructure bonds - In computing the total income of an assessee, being an individual or a Hindu undivided family, there shall be deducted, the whole of the amount, to the extent such amount does not exceed ₹ 20,000/-, paid or deposited, during the previous year relevant to the assessment year beginning on the 1st day of April, 2011 or to the assessment year beginning on the 1st day of April, 2012, as subscription to long-term infrastructure bonds as may, for the purposes of this section, be notified by the Central Government
• Section 80CCG - Deduction in respect of investment made under an equity savings scheme - Where an assessee, being a resident individual, has, in a previous year, acquired listed equity shares or listed units of an equity oriented fund in accordance with a scheme, as may be notified by the Central Government in this behalf, he shall, subject to the provisions of sub-section (3), be allowed a deduction, in the computation of his total income of the assessment year relevant to such previous year, of 50% of the amount invested in such equity shares or units to the extent such deduction does not exceed ₹ 25,000/-.
• Section 80D - Deduction in respect of health insurance –

• Health insurance for Family – ₹ 25,000/-
• Health insurance of parents – ₹ 25,000/-
• Medical expenditure for family –₹ 50,000/-
• Medical expenditure for parents – ₹ 50,000/-

• Section 80DD - Deduction in respect of maintenance including medical treatment of a dependant who is a person with disability – ₹ 75,000/-
• Section 80DDB - Deduction in respect of medical treatment, etc. – ₹ 40,000/-
• Section 80E - Deduction in respect of interest on loan taken for higher educa­tion.
• Section 80EE - Deduction in respect of interest on loan taken for residential house property.
• Section 80EEA - Deduction in respect of interest on loan taken for certain house property. 
• Section 80EEB - Deduction in respect of purchase of electric vehicle.
• Section 80G - Deduction in respect of donations to certain funds, charitable institutions, etc.
• Section 80GG - Deductions in respect of rents paid.
• Section 80GGA - Deduction in respect of certain donations for scientific research or rural development.
• Section 80GGB - Deduction in respect of contributions given by companies to political parties or an electoral trust.
• Section 80GGC - Deduction in respect of contributions given by any person to political parties or electoral trust.
• Section 80HH - Deduction in respect of profits and gains from newly established industrial undertakings or hotel business in backward areas.
• Section 80HHA - Deduction in respect of profits and gains from newly established small-scale industrial undertakings in certain areas.- 20% of profit.
• Section 80 HHB - Deduction in respect of profits and gains from projects outside India.
• Section 80HHBA - Deduction in respect of profits and gains from housing projects in certain cases.
• Section 80HHC - Deduction in respect of profits retained for export business.
• Section 80HHD - Deduction in respect of earnings in convertible foreign exchange.
• Section 80HHE - Deduction in respect of profits from export of computer software, etc.
• Section 80HHF - Deduction in respect of profits and gains from export or transfer of film software, etc.
• Section 80I - Deduction in respect of profits and gains from industrial undertakings after a certain date, etc.
• Section 80IA - Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc.
• Section 80IAB - Deductions in respect of profits and gains by an undertaking or enterprise engaged in development of Special Economic Zone.
• Section 80IAC - Deductions in respect of certain incomes.
• Section 80IB - Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings.
• Section 80 IBA - Deductions in respect of profits and gains from housing projects.
• Section 80IC - Deductions in respect of certain undertakings or enterprises in certain special category States.
• Section 80ID - Deduction in respect of profits and gains from business of hotels and convention centers in specified area.
• Section 80 IE - Deductions in respect of certain undertakings in North-Eastern States.
• Section 80 JJA- Deduction in respect of profits and gains from business of collecting and processing of bio-degradable waste.
• Section 80 LA - Deductions in respect of certain incomes of Offshore Banking Units and International Financial Services Centre.    
• Section 80M - Deduction in respect of certain inter-corporate dividends.
• Section 80 O - Deduction in respect of royalties, etc., from certain foreign enterprises.
• Section 80P - Deduction in respect of income of co-operative societies.
• Section 80PA - Deduction in respect of certain income of Producer Companies.
• Section 80Q - Deduction in respect of profits and gains from the business of publication of books.
• Section 80QQA - Deduction in respect of professional income of authors of text books in Indian languages.
• Section 80QQB - Deduction in respect of royalty income, etc., of authors of certain books other than text-books.
• Section 80R - Deduction in respect of remuneration from certain foreign sources in the case of professors, teachers, etc.
• Section 80RR - Deduction in respect of professional income from foreign sources in certain cases.
• Section 80RRA - Deduction in respect of remuneration received for services rendered outside India.
• Section 80RRB - Deduction in respect of royalty on patents.
• Section 80 TTA - Deduction in respect of interest on deposits in savings account.
• Section 80TTB - Deduction in respect of interest on deposits in case of senior citizens – ₹ 50,000/-
• Section 80U - Deduction in case of a person with disability.

2. without set off of any loss,-

• carried forward or depreciation from any earlier assessment year, if such loss or depreciation is attributable to any of the deductions referred to in clause (i);
• under the head “Income from house property” with any other head of income;

3. by claiming the depreciation, if any, under any provision of section 32, except clause (iia) of sub-section (1) of the said section, determined in such manner as may be prescribed; and
4.  without any exemption or deduction for allowances or perquisite, by whatever name called, provided under any other law for the time being in force.

Option

Section 115 BAC (5)(i)  provides that the option is to be exercised on or before the due date of filing the returns of income for any previous year relevant to the assessment year commencing on or after the 1st day of April, 2021 by the person having income from business or profession  Such option once exercised shall apply to subsequent assessment years. 

Section 115 BAC 5(ii) provides that a person having income other than the income referred to in clause (i), along with the return of income to be furnished under sub-section (1) of section 139 for a previous year relevant to the assessment year.

The option under clause (i), once exercised for any previous year can be withdrawn only once for a previous year other than the year in which it was exercised and thereafter, the person shall never be eligible to exercise option under this section, except where such person ceases to have any income from business or profession in which case, option under clause (ii) shall be available.

The loss and depreciation referred to in clause (ii) of sub-section (2) shall be deemed to have been given full effect to and no further deduction for such loss or depreciation shall be allowed for any subsequent year.  Where there is a depreciation allowance in respect of a block of assets which has not been given full effect to prior to the assessment year beginning on the 1st day of April, 2021, corresponding adjustment shall be made to the written down value of such block of assets as on the 1st day of April, 2020 in the prescribed manner, if the option under sub-section (5) is exercised for a previous year relevant to the assessment year beginning on the 1st day of April, 2021.

In case of a person, having a Unit in the International Financial Services Centre, as referred to in sub-section (1A) of section 80LA, which has exercised option under sub-section (5), the conditions contained in sub-section (2) shall be modified to the extent that the deduction under section 80LA shall be available to such Unit subject to fulfillment of the conditions contained in the said section.

 Invalidity of option

Where the person fails to satisfy the conditions contained in sub-section (2) in any previous year, the option shall become invalid in respect of the assessment year relevant to that previous year and other provisions of this Act shall apply, as if the option had not been exercised for the assessment year relevant to that previous year.  Where the option is exercised under clause (i) of sub-section (5), in the event of failure to satisfy the conditions contained in sub-section (2), it shall become invalid for subsequent assessment years also and other provisions of this Act shall apply for those years accordingly.