Snr presentation on old scheme vs. new scheme

Existing Tax Scheme
New Optional Tax Scheme
Analysis of Both Tax Schemes
Other Factors

The Union Budget 2020 has introduced new income tax slabs for Individual & HUF
taxpayers with reduced rates. The newly introduced slab rates are optional in nature.
However, the option to avail new tax rates shall be available only if a taxpayer foregoes
certain specified exemptions and deductions (New Optional Tax Scheme). These slab
rates are introduced vide section 115BAC of the Income Tax Act, 1961 and have been made
applicable effective AY 2021-2022 (i.e. FY 2020-2021).
The primary reason for introduction of New Optional Tax Scheme was for simplification of
tax laws. However, during the transition phase, it may become complicated for the
taxpayers to determine as to which of the options shall be beneficial for the respective
taxpayers.
Therefore, to ease the complications associated with the option to be exercised to
optimize the payment of taxes, we have performed a comprehensive analysis of the
following in this document:
1. The Existing Tax Scheme
2. The New Optional Tax Scheme
3. Process for opting the new tax scheme
4. Break-Even analysis of the Existing Tax Scheme vis-à-vis New Tax Scheme to
understand which system shall be beneficial under various scenarios
Private & Confidential Page 3 of 31

Other Factors
Introduction

Income Tax is levied on individual and HUF taxpayers on the basis of a slab
system where different tax rates have been prescribed for different income
slabs. Such tax system is progressive in nature such that tax rates keeps
increasing with each successive income slab.
Existing Tax Regime
• There are three categories of Individual Taxpayers:
➢ Individuals below the age of 60 years, which includes residents as
well as non-residents.
➢ Resident senior citizens (60 years and above but below the age of
80 years).
➢ Resident super senior citizens (above 80 years of age).
• There are different slabs for each category of taxpayer. Apart from tax,
Surcharge and Health & Education Cess are also charged on the tax
amount.
EXISTING TAX SCHEME

EXISTING TAX SCHEME - TAX SLABS
Income Tax Rate
Upto 2.5 Lacs Nil
Above 2.5 Lacs to 5 Lacs 5%
Above 5 Lacs to 10 Lacs 20%
Above 10 Lacs 30%
Income Tax Rate
Upto 5,00,000 Exempt
5,00,001 to 10,00,000 20%
Above 10 Lacs 30%
Income Tax Rate
Upto 3,00,000 Exempt
3,00,001 to 5,00,000 5%
5,00,001 to 10,00,000 20%
Above 10 Lacs 30%
Individual
(Up to 60 years of age)
Senior Citizens
(60 to 80 years of age)
Very Senior Citizens
(Above 80 years of age)

Existing Tax Scheme
Other Factors
Introduction

NEW OPTIONAL TAX SCHEME
▪ W.E.F. AY 2021-22, Section 115BAC has been introduced providing the
Individual taxpayers and HUF an option to pay tax at reduced rates;
▪ Individual and HUF taxpayers have an option to opt for taxation under
section 115BAC of the Act provided they decide to forego the ‘Specified
Deductions and Exemptions’.
▪ The taxpayer shall exercise the option on or before the due date specified
u/s 139(1) for furnishing the return of income.
▪ The slab rates as per the new scheme are as follows:
Slab of Total Income (₹) Proposed Tax Rate (%)
0-2.5 Lakhs 0
Above 2.5 Lakhs to 5 Lakhs 5
Above 5 Lakhs to 7.5 Lakhs 10
Above 10 Lakhs to 12.5 Lakhs 20
Above 15 Lakhs 30

PROCEDURE - PERSONS HAVING BUSINESS INCOME
▪ An individual/HUF assessee, having business or professional
income, can opt for the new tax regime u/s 115BAC, only once
and the option once exercised, for a previous year shall be
valid for that previous year and all subsequent year.
▪ The option of the new tax regime u/s 115BAC shall become
invalid for a previous year or previous years, as the case may
be, if the Individual or HUF fails to satisfy the conditions and
other provisions as stipulated in section 115BAC of the Income
Tax Act.
▪ The option can be withdrawn only once where it was
exercised by the individual or HUF having business income for
a previous year other than the year in which it was exercised
and thereafter, the individual or HUF shall never be eligible to
exercise option under this section, except where such
individual or HUF ceases to have any business income.

PROCEDURE FOR SALARIED EMPLOYEES
▪ An individual/HUF, having no business or professional income, can
exercise his option of choosing between the two tax regimes, every
year, based on his entitlement of ‘specified deductions’. So, an
individual/HUF assessee, having no income under the head Business
or Profession, can opt for the new tax regime in one financial year, and
can go back to the old tax regime in subsequent financial year,
depending upon the circumstances and entitlement of ‘Specified
Deductions’.
▪ As it is an optional scheme, the taxpayers have the option to choose
any of the options that may be beneficial to them.
▪ In case of salaried employees, the employer has to deduct taxes at
source as per the slab rates applicable upon the employees. Therefore,
the employer shall require a declaration from the employees at the
beginning of the Financial Year regarding the option that they wish to
exercise and shall deduct taxes accordingly.
▪ In case of non-submission of intimation by the employees, the
employer shall calculate and deduct tax based on the tax slabs and
rates as applicable in the existing tax system.
▪ Employees can switch to any of the options at the time of filing the
return of income u/s 139(1), if they feel that they have paid more tax
under the scheme than they had indicated to the employer at the
beginning of the financial year.

The deductions and exemptions that had to be forgone for opting new scheme of
taxation u/s 115BAC are as follows:
Section Short-Title
10(5) LTC
10(13A) HRA
10(14) Other Allowances
10(17) For MPs & MLAs
10(32) Clubbed Income
10AA SEZ
16 Standard Deduction
24(b) Interest on self occupied
property
32(1)(iia) Additional Depreciation
32AD Investment in P&M in
backward areas
Section Short-Title
33AB Tea, Coffee & Rubber
Development
33ABA Site Restoration Fund
35(2AA)(1
)(ii) or
(iia) or
(iii) or
35(2AA)
Exependiture on
Scientific Research
35AD Specified Business
important for economy
35CCC Agricultural Extension
Project
57(iia) Family Pension
Chapter
VIA
All deduction except
80CCD(2) and 80JJAA
SPECIFIED DEDUCTIONS & EXEMPTIONS

The maximum permissible amounts of the above mentioned “Specified Deductions”, which are available to
an individual/HUF assessee, under various sections, and which are required to be forgone, in order to avail
the benefit of reduced taxation u/s 115BAC, have been tabulated as under:
S.No. Deductions Remarks Available to
1. Leave Travel Concession u/s 10(5) The value of any travel concession
or assistance received or due.
Salaried
Individual
2. House Rent Allowance u/s 10(13A) Least of:
a. Actual HRA received
b. 40% of [Basic Salary + DA] (50%
for Delhi, Mumbai, Chennai,
Kolkata)
c. Rent paid – 10% of [Basic Salary
+ DA]
Salaried
Individual
3. Other Allowances Actual amount of such Allowance
received
Salaried
Individual
4. Allowances to MPs/MLAs u/s
10(17)
Actual amount of such Allowance
received
Salaried
Individual

5. Allowance for income of minor
u/s 10(32)
₹ 1,500/- per child Individual
6. Standard Deduction ₹ 50,000/- Salaried
Individual
7. Interest u/s 24 i.r.o. Self Occupied
or Vacant Property
₹ 2,00,000/- Individual/
HUF
8. Additional Depreciation u/s
32(1)(iia)
Allowed to eligible assessee: 20% of
the actual cost of P&M [35% in case
of Notified Backward Area]
Individual/
HUF
9. Deduction from Family Pension
u/s 57(iia)
Least of: One-Third of such income
or ₹ 15,000/-
Individual
10. Any deduction u/c VI-A [deductions u/s 80CCD(2) & 80JJAA are allowable in both the
schemes]
a) 80C, 80CCC, 80CCD(1): For
investments in specified schemes
₹ 1,50,000/- Individual/
HUF
b) 80CCD(1B): Deduction for deposit
under NPS
₹ 50,000/- Individual

c) 80D: Amount invested in Health
Insurance
₹ 25,000/- for self, spouse &
dependent children (₹50,000/- in
case of Sr. Citizens)
₹ 25,000/- for parents (₹50,000/- in
case of Sr. Citizens)
₹ 5,000/- for preventive health
check-up of self, spouse, dependent
children, father & mother
₹ 50,000/- for Medical Expenditures
on the health of a super Sr. Citizen
if mediclaim insurance is not paid
on the health of such person.
Individual/
HUF
d) 80DD: Expenditure incurred for
the medical treatment of a
dependent
₹ 75,000/- [₹ 1,25,000/- in case of
severe disability]
Individual/
HUF
e) 80DDB: Expenditure incurred for
the medical treatment of specified
diseases
Up to ₹ 40,000/- [₹ 1,00,000/- for Sr.
Citizens]
Individual

f) 80E: Interest paid on Education
Loan
Amount of interest paid during
initial year & 7 immediately
succeeding assessment years
Individual
g) 80G: Deduction for donation to
certain funds, charitable trusts
Deduction up to 100% /50% of the
aggregate amount of donation
Individual/
HUF
h) 80GG: Rent paid for Residential
accommodation
Least of the following:
a. Rent paid – 10% of Total Income
b. 25% of Total Income
c. ₹ 5,000/- per month
Individual
i) 80QQB: Royalty Income of Books In case of Lump Sum Payment:
Maximum of ₹ 3,00,000/-
In other cases:
Amount of such income subject to
maximum of 15% of value of books
sold during the year
Individual

j) 80RRB: Royalty of Patents ₹ 3,00,000/- Individual
k) 80TTA: Interest on Savings Bank
Account
₹ 10,000/- Individual/
HUF
l) 80TTB: Interest on deposits with
Banks, Post Offices
₹ 50,000/- Senior
Citizens
m) 80U: Person with disability ₹ 75,000/- [₹ 1,25,000/- in case of
severe disability]
Individual
11. 10AA: Exemption for SEZ Units Deduction to eligible persons as per
the provisions of said section
Individual/
HUF
12. 32AD, 33AB, 33ABA Deduction to eligible persons as per
Individual/
HUF
13. Deduction for donation or
expenditure on scientific research
u/s 35(1)(ii)/(iia)/(iii) or sec
35(2AA)
Deduction to eligible persons as per
Individual/
HUF
14. Deduction u/s 35AD or section
35CCC
Deduction to eligible persons as per
Individual/
HUF
Private & Confidential Page16 of 31

Existing Tax Scheme
Other Factors
Introduction

▪ The primary reason for introduction of New Taxation Scheme was
for simplification of tax laws.
▪ Also, such a taxation scheme hints at propelling the economy
towards a consumption-driven one.
▪ However, during the transition phase, it may become complicated
for the taxpayers to determine as to which of the options shall be
beneficial for the respective taxpayers.
▪ Therefore, to ease the complications associated with the option to
be exercised to optimize the payment of taxes, we have
performed a Break-Even Analysis to assist the taxpayers in
opting the optimum tax regime.
▪ It is assumed that the individual/HUF has a fair idea about his
prospective income range or level for the year. So, at a particular
income level, the decision has to be made whether to avail the
‘Specified Deductions’ by making investments etc. under various
sections like 80C, 80CCC, 80CCD in Chapter VIA, under the old tax
scheme or to forgo the specified deductions, to avail the benefit of
reduced tax rates u/s 115BAC under the new scheme.
ANALYSIS OF BOTH TAX SCHEMES

Analysis of New Taxation Scheme vis-à-vis Existing Tax Scheme
Table-1 [For Income Range of ₹ 5 Lakh to ₹ 7.50 Lakh]
Income (₹) Tax Liability
under New
Scheme
(₹)
Amount of Deductions at Break-Even Point
Nil 25,000 50,000 75,000 1,00,000 1,25,000
Tax Liability under the Old Scheme
Upto 5 Lac - - - - - - -
5.50 Lacs 18,200 23,400 18,200 - - - -
6.00 Lacs 23,400 33,800 28,600 23,400 - - -
6.50 Lacs 28,600 44,200 39,000 33,800 28,600 - -
7.00 Lacs 33,800 54,600 49,400 44,200 39,000 33,800 28,600
7.50 Lacs 39,000 65,000 59,800 54,600 49,400 44,200 39,000

Analysis of Table-1
▪ As can be seen from the table, that an individual or HUF having an
annual income of up to ₹ 5 lakhs, will be at par in both the
schemes.
▪ An individual/HUF having an annual income of ₹ 5.5 lakhs will
benefit from the new scheme of reduced personal tax rates only if
he is availing the “Specified Deductions” of less than ₹ 25,000/-, in a
financial year. However, if the amount of the “Specified Deductions”
available to him is in excess of ₹ 25,000/-, then the assessee will
benefit more by continuing with the old personal tax scheme, as his
tax outflows will be less as compared to the new scheme.
▪ So, an individual/HUF assessee, having an annual income of ₹ 5.5
lakhs, will ‘break-even’ or will be ‘at par’ between the new and old
personal tax scheme, if he is availing ‘specified deductions’ of ₹
25,000/- in a financial year.
▪ Similarly, an individual/HUF, having an annual income of ₹
6/6.5/7/7.5 lakhs respectively, will benefit from the new scheme of
reduced personal tax rates only if he is availing the “specified
deductions” of less than ₹ 50,000/75,000/1 Lac/1.25 lacs,
respectively/-.

Table-2 [For Income Range of ₹ 8 Lakh to ₹ 10 Lakh]
Income (₹)
Tax Liability
under New
Scheme
(₹)
1,37,500 1,50,000 1,62,500 1,75,000 1,87,500
Tax Liability under the Existing Scheme
8.00 Lacs 46,800 46,800 44,200 41,600 39,000 36,400
8.50 Lacs 54,600 57,200 54,600 52,000 49,400 46,800
9.00 Lacs 62,400 67,600 65,000 62,400 59,800 57,200
9.50 Lacs 70,200 78,000 75,400 72,800 70,200 67,600
10.00 Lacs 78,000 88,400 85,800 83,200 80,600 78,000
A taxpayer having an annual income of ₹ 8 lakhs will benefit from the new scheme of reduced personal tax rates
only if he is availing the “specified deductions” of less than or equal to ₹ 1,37,500/-, in a financial year. However, if
the amount of the “Specified Deductions” available to him is in excess of ₹ 1,37,500/-, then the assessee will
benefit more by continuing with the existing personal tax scheme, as his tax outflows will be less as compared to
the new scheme.

Table-3 [For Income Range of ₹ 10.50 Lakh to ₹ 12.50 Lakh]
Income (₹) Tax Liability under
New Scheme
(₹)
1,87,500 1,91,670 2,08,332 2,16,665
10.50 Lacs 88,400 88,400 87,533 84,067 82,334
11.00 Lacs 98,800 98,800 97,933 94,467 92,734
11.50 Lacs 1,09,200 1,09,200 1,08,333 1,04,867 1,03,134
12.00 Lacs 1,19,600 1,20,900 1,19,600 1,15,267 1,13,534
12.50 Lacs 1,30,000 1,36,500 1,35,199 1,30,000 1,27,401
A taxpayer having an annual income of ₹ 10.50 lakh will benefit from the new scheme of reduced tax rates only if
he is availing the “specified deductions” of less than or equal to ₹ 1,87,500/-, in a financial year. However, if the
amount of the “Specified Deductions” available to him is in excess of ₹ 1,87,500/-, then the assessee will benefit
more by continuing with the existing tax scheme, as his tax outflows will be less as compared to the new scheme.

Table-4 [For Income Range of ₹ 13 Lakh to ₹ 15 Lakh ]
Income (₹)
Tax Liability
under New
Scheme
(₹)
2,16,665 2,25,000 2,33,330 2,41,670 2,50,000
13.00 Lacs 1,43,000 1,43,000 1,40,400 1,37,801 1,35,199 1,32,600
13.50 Lacs 1,56,000 1,58,600 1,56,000 1,53,401 1,50,799 1,48,200
14.00 Lacs 1,69,000 1,74,200 1,71,600 1,69,000 1,66,399 1,63,800
14.50 Lacs 1,82,000 1,89,800 1,87,200 1,84,601 1,82,000 1,79,400
15.00 Lacs 1,95,000 2,05,400 2,02,800 2,00,201 1,97,599 1,95,000
A taxpayer having an annual income of ₹ 13 lakh will benefit from the new scheme of reduced tax rates only if he
is availing the “Specified Deductions” of less than ₹ 2,16,665/-, in a financial year. However, if the amount of the
“Specified Deductions” available to him is in excess of ₹ 2,16,665 /-, then the assessee will benefit more by
continuing with the existing tax scheme, as his tax outflows will be less as compared to the new scheme.

Table-5 [For Income Range of ₹ 16 Lakh & above]
Income (₹) Tax Liability under New
Regime
(₹)
2,50,000 3,00,000 3,50,000
Tax Liability under the Old Regime
16.00 Lacs 2,26,200 2,26,200 2,10,600 1,95,000
17.00 Lacs 2,57,400 2,57,400 2,41,800 2,26,200
18.00 Lacs 2,88,600 2,88,600 2,73,000 2,57,400
19.00 Lacs 3,19,800 3,19,800 3,04,200 2,88,600
20.00 Lacs 3,51,000 3,51,000 3,35,400 3,19,800
A taxpayer having an annual income of ₹ 16 lakh will benefit from the new scheme of reduced tax rates only if he
is availing the “specified deductions” of less than or equal to ₹ 2,50,000/-, in a financial year. However, if the
amount of the “Specified Deductions” available to him is in excess of ₹ 2,50,000 /-, then the assessee will benefit
more by continuing with the existing tax scheme, as his tax outflows will be less as compared to the new scheme.

Analysis of New Optional Tax Scheme vis-à-vis Existing Tax Scheme
▪ The Analysis of break-even point in terms of ‘specified
deductions’, at different levels of ‘income’ have been
tabulated in Master Table [in next slide], based on detailed
computations in Tables 1, 2, 3, 4 & 5, already made.
▪ As a thumb rule, the taxpayers, having the undermentioned
annual incomes will benefit from the new tax scheme of
reduced tax rates u/s 115BAC, only if they are availing
‘specified deductions’ either less than or equal to the
‘specified deductions’ at the ‘highlighted break-even point’ in
the below Tables.
▪ However, if the assesses are availing more ‘specified
deductions’, than those at the break-even point, then they
will benefit more in the old scheme, of increased tax rates, in
terms of their net tax outflows.

Analysis of New Personal Taxation Regime vis-à-vis Old Regime
Master Table [Conclusion]
Income (₹)
Break-Even
Point for
Specified
Deductions (₹)
When is New Tax
Regime Beneficial?
When is Old Tax
Regime Beneficial?
Upto 5 Lac - At Par At Par
5.50 Lacs 25,000 Deductions < 25,000/- Deductions > 25,000/-
7.00 Lacs 1,00,000 Deductions < 1,00,000/- Deductions > 1,00,000/-

Income (₹) Break-Even
Point for
Specified
Deductions (₹)
When is New Tax
Regime Beneficial?
When is Old Tax
Regime Beneficial?

Income (₹) Break-Even
Point for
Specified
Deductions
(₹)
When is New Tax
Regime Beneficial?
When is Old Tax
Regime Beneficial?
15.00 Lacs
& Above
2,50,000 Deductions < 2,50,000/- Deductions >
2,50,000/-
Note : Income tax department has also come up with an easy to use calculator on
its portal by which anyone can check which scheme would be beneficial. Line of
the same is https://www.incometaxindiaefiling.gov.in/Tax_Calculator/

Existing Tax Scheme
Introduction

Existing Tax Scheme New Optional Tax Scheme
Positives
System of incentivising long term savings/
investments in specified modes e.g. PPF/
Insurance/ ELSS etc have inculcated the
habit of saving & also provided funds to
economy for long term investment
It will result in reduction of compliances
and higher disposable income in the
hands of Individuals.
It will also lead to a consumption driven
economy (like USA)
Aforesaid long term investments have helped
the Individuals to beat inflationary pressure
It will provide the freedom to Individual
to make his long term investments in the
funds of its choice.
OTHER FACTORS
Negatives
It has resulted in lower disposable income in the
hands of Individuals and left with lower liquidity
Tax deductions would not be available
however that shall be partly compensated by
lower slab rates
It is very difficult for certain class of persons to
make these mandatory savings for claiming
deductions
There might be a dip in ELSS/ Insurance/ PPF
investments in the short term.

Locations
Delhi
Email : snr@snr.company Website : www.snr.company
A-15, Second Floor, Hauz Khas,
New Delhi- 110016
Tel. +91 11 26856421, 41655801, 26855884
Fax: +91 11 26567540
No. 5A, Second Floor, 6th Main, KHB
Colony, Basaveshwaranagar,
Bangalore - 560079
Tel. +91 80 42064178
Bangalore
Pune
2A, Gangotri Complex,
927, Synagague Street,
Camp, Pune - 411001 (India)
Tel. +91 20 25435788

Snr presentation on old scheme vs. new scheme

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Snr presentation on old scheme vs. new scheme