Alternate Tax Regimes

New Tax Regime under section 115BAC for all assessees other than a company

CA. Manoj Gupta

The Finance Act, 2023 has carried out certain amendments to section 115BAC from the assessment year 2024-25. The Finance Act, 2023 has made the new tax regime as default regime by inserting a new sub-section (1A) in section 115BAC from the assessment year 2024-25.

The Finance Act, 2023 has also amended section 115BAC from the assessment year 2024-25 so as to provide that this section shall be applicable compulsorily for an individual or Hindu undivided family or association of persons (other than a co-operative society), or body of individuals, whether incorporated or not, or an artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2, other than a person who has exercised an option for old tax regime.

Accordingly, following procedural amendments have been carried out.

(i) Certain benefits to be allowed still

Rule 2BB was amended from 1-4-2021 i.e. from the assessment year 2021-22 when optional new tax regime was introduced via section 115BAC so as to provide that an employee, being an assessee, who has exercised option under sub-section (5) of section 115BAC shall be entitled to exemption only in respect of the allowances mentioned below :

(a) any allowance granted to meet the cost of travel on tour or on transfer [allowance granted to meet the cost of travel on transfer includes any sum paid in connection with transfer, packing and transportation of personal effects on such transfer];

(b) any allowance, whether, granted on tour or for the period of journey in connection with transfer, to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty;

(c) any allowance granted to meet the expenditure incurred on conveyance in performance of duties of an office or employment of profit :

It is provided that free conveyance is not provided by the employer;

(d) Transport allowance granted to an employee, who is blind or orthopedically handicapped with disability of lower extremities, to meet his expenditure for the purpose of commuting between the place of his residence and the place of his duty. [Subject to maximum of Rs. 3,200 per month]

Above rule 2BB has been amended from 21-6-2023 so as to provide that an employee, being an assessee,

(i) who has exercised option under sub-section (5) of section 115BAC; or

(ii) whose income is chargeable to tax under sub-section (1A) of section 115BAC,

shall be entitled to exemption only in respect of the allowances mentioned in sub-clauses (a) to (c) of sub-rule (1) and at serial No. 11 of the Table below sub-rule (2) to the extent and subject to the conditions, if any, specified therein.

Accordingly, employees on whom new tax regime will be defaulted from the assessment year 2024-25 will be entitled to exemption only in respect of the allowances mentioned below :

(a) any allowance granted to meet the cost of travel on tour or on transfer [allowance granted to meet the cost of travel on transfer includes any sum paid in connection with transfer, packing and transportation of personal effects on such transfer];

(b) any allowance, whether, granted on tour or for the period of journey in connection with transfer, to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty;

(c) any allowance granted to meet the expenditure incurred on conveyance in performance of duties of an office or employment of profit :

It is provided that free conveyance is not provided by the employer;

(d) Transport allowance granted to an employee, who is blind or orthopedically handicapped with disability of lower extremities, to meet his expenditure for the purpose of commuting between the place of his residence and the place of his duty. [Subject to maximum of Rs. 3,200 per month]

(ii) No exemption in respect of free food or vouchers

As of now Rule 3 provides that no exemption in respect of free food and beverage through vouchers provided to the employee, being the person exercising option under the new section 115BAC, by the employer.

Rule 3 of the rules has been amended from 21-6-2023, so as to remove exemption in respect of free food and beverage through vouchers provided to the employee, being the person exercising option under the new section 115BAC, by the employer or to the employee, being the person on whom new section 115BAC is defaulted from the assessment year 2024-25, by the employer.

(iii) Method of computing depreciation

In order to be eligible for special tax rate the individual and HUF shall compute its total income by claiming the depreciation, if any, under section 32, other than additional depreciation, determined in such manner as may be prescribed.

First proviso to rule 5(1) provides that in case of an individual/HUF which has exercised option under sub-section (5) of section 115BAC, the allowance under clause (ii) of sub-section (1) of section 32 in respect of depreciation of any block of assets entitled to more than forty per cent shall be restricted to forty per cent on the written down value of such block of assets.

First proviso to rule 5(1) has been amended from 21-6-2023 so as to provide that allowance under clause (ii) of sub-section (1) of section 32 in respect of depreciation of any block of assets shall not exceed forty per cent. of the written down value of such block of assets in case of an individual or a Hindu undivided family, or an association of persons (other than a co-operative society) or a body of individuals, whether incorporated or not, or an artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2 whose income is chargeable to tax under sub-section (1A) of section 115BAC.

(iv) Unabsorbed depreciation to be adjusted once option is defaulted under section 115BAC

Where there is a depreciation allowance in respect of a block of asset 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 section 115BAC is exercised for a previous year relevant to the assessment year beginning on the 1st day of April, 2020.

As per third proviso to rule 5(1) for the purposes of section 115BAC [as it stood immediately before its amendment by the Finance Act, 2023 ] and section 115BAD, if the following conditions are satisfied, namely :-

(i) the option under sub-section (5) of the respective section is exercised for a previous year relevant to the assessment year beginning on the 1st day of April, 2021;

(ii) there is a depreciation allowance, in respect of a block of asset, from any earlier assessment year which is attributable to the provisions in clause (iia) of sub-section (1) of section 32; and

(iii) such depreciation is not allowed to be set off under sub-clause (a) of clause (ii) of sub-section (2) of section 115BAC or clause (ii) of sub-section (2) of section 115BAD,

the written down value of the block of asset as on the 1st day of April, 2020 shall be increased by such depreciation not allowed to be set off.

Section 115BAC(3) post amendment by the Finance Act, 2023 provides that in a case where,

(i) the assessee has not exercised the option under sub-section (5) for any previous year relevant to the assessment year beginning on or before the 1st day of April, 2023 (i.e. has not opted for new tax regime for any assessment year prior to assessment year 2024-25);

(ii) the income-tax on the total income of the assessee is computed under sub-section (1A)(i.e. on whom new tax regime is defaulted from the assessment year 2024-25); and

(iii) there is a depreciation allowance in respect of a block of assets which has not been given full effect prior to the assessment year beginning on the 1st day of April, 2024,

corresponding adjustment shall be made to the written down value of such block of assets as on the 1st day of April, 2023 in the manner as may be prescribed.

Accordingly, a new fourth proviso has been added to above rule so as to provide that where income is chargeable to tax under sub-section (1A) of section 115BAC, the written down value of the block of asset as on the 1st day of April, 2023 shall be increased by such depreciation which is attributable to clause (iia) of sub-section (1) of section 32 and which is not allowed to be set off under sub-clause (a) of clause (ii) of sub-section (2) of section 115BAC if both the following conditions are satisfied, namely: -

(i) the assessee has not exercised option under sub-section (5) for any previous year relevant to the assessment year beginning on or before the 1st day of April, 2023; and

(ii) 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, 2024, and is attributable to the provisions of clause (iia) of sub-section (1) of section 32.

(v) Exercise of option as to applicability of old tax regime be exercised from the assessment year 2024-25

Section 115BAC(6) as amended by the Finance Act, 2023 provides that default option for new tax regime shall not apply to a person where an option is exercised by such person, in the manner as may be prescribed, for any assessment year, and such option is exercised, -

(i) on or before the due date specified under sub-section(1) of section 139 for furnishing the return of income for such assessment year, in case of a person having income from business or profession, and such option once exercised shall apply to subsequent assessment years. The option 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; or

(ii) along with the return of income to be furnished under sub-section (1) of section 139 for such assessment year, in case of a person not having income from business or profession.

Salaried assessee need not file prescribed Form by virtue of rule 12(2) and they will have to opt for old tax regime while furnishing return of income and can however switch in/out of scheme each year.

Rule 21AGA has been inserted from the assessment year 2024-25 so as to provide as under:

(a) The option to be exercised in accordance with the provisions of sub-section (6) of section 115BAC by a person, being an individual or Hindu undivided family, or an association of persons (other than a co-operative society) or a body of individuals, whether incorporated or not, or an artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2, for any previous year relevant to the assessment year beginning on or after the 1st day of April, 2024 (i.e. assessment year 2024-25) , shall be, --

(a) in Form No. 10-IEA on or before the due date specified under sub-section (1) of section 139 for furnishing the return of income for such assessment year, in the case of a person having income from business or profession;

(b) in the return of income to be furnished under sub-section (1) of section 139 for such assessment year, in the case of a person not having income from business or profession as referred to in clause (i).

(b) The withdrawal of option under the proviso to sub-section (6) of section 115BAC shall also be in Form No. 10-IEA.

(c) Form No. 10-IEA shall be furnished electronically either under digital signature or electronic verification code.

4. Method of computing depreciation in case of co-operative society opting for section 115BAE

The Finance Act, 2023 has inserted a new section 115BAE in the Act from the assessment year 2024-25 so as to provide special tax rates for certain domestic manufacturing co-operative societies.

As per new section 115BAE a co-operative society may opt for lower rate of tax being 15 per cent for the assessment year 2024-25 or thereafter, subject to fulfilment of certain conditions.

Proviso to rule 5(1) provides has been amended from 21-6-2023 so as to provide that, the allowance under clause (ii) of sub-section (1) of section 32 in respect of depreciation of any block of assets entitled to more than forty per cent shall be restricted to forty per cent on the written down value of such block of assets in case of co-operative society resident in India which has exercised option under sub-section (5) of section 115BAE.