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New Tax Regime & Deductions for business expenditure not allowed under the new regime
Income Tax Return for the FY 2020-21 (AY 2021-22) has to be filed by the individual taxpayers by choosing the optional tax regime. Finance Act-2020 has introduced a dual tax regime whereby taxpayers are given a choice to opt for new regime of concessional tax rate without any deduction & exemptions or old tax regime of higher tax rate albeit with deductions & exemptions. Taxpayers are given freedom & flexibility to make the choice for better tax optimization.
Taxpayers without any business income will have a free entry & exit option in the new regime. However, it is not so for a person having business income wherein option once exercised cannot be withdrawn except on one subsequent occasion. In such cases, the option has to be exercised not only considering the income of the FY 2020-21 but also considering the planning & impact for succeeding years.
Let us know about the Deductions and exemptions not allowed for business
under the new tax regime.
- Additional depreciation under section 32.
- Investment allowance under section 32AD
- Sector-specific business deductions under section 33AB and 33ABA
- Expenditure on scientific research under section 35
- Capital expenditure under section 35AD
- Exemption under section 10AA for SEZ units
Section 115BAC which provides for the new tax regime options reads as under:
Tax on income of individuals and Hindu undivided family.
115BAC. (1) Notwithstanding anything contained in this 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 1st day of April, 2021, shall, at the option of such person, be computed at the rate of tax given in the following Table, if the conditions contained in sub-section (2) are satisfied, namely:—
||Rate of tax
||Upto Rs. 2,50,000
||From Rs. 2,50,001 to Rs. 5,00,000
||5 per cent
||From Rs. 5,00,001 to Rs. 7,50,000
||10 per cent
||From Rs. 7,50,001 to Rs. 10,00,000
||15 per cent
||From Rs. 10,00,001 to Rs. 12,50,000
||20 per cent
||From Rs. 12,50,001 to Rs. 15,00,000
||25 per cent
||Above Rs. 15,00,000
||30 per cent:
Provided that 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:
Provided further that 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.
(2) For the purposes of sub-section (1), the total income of the individual or Hindu undivided family shall be computed,—
(i) without any exemption or deduction under the provisions of clause (5) or clause (13A) or prescribed under clause (14) (other than those as may be prescribed for this purpose) or clause (17) or clause (32), of section 10 or section 10AA or section 16 or clause (b) of section 24 (in respect of the property referred to in sub-section (2) of section 23) or clause (iia) of sub-section (1) of section 32 or section 32AD or section 33AB or section 33ABA or sub-clause (ii) or sub-clause (iia) or sub-clause (iii) of sub-section (1) or sub-section (2AA) of section 35 or section 35AD or section 35CCC or clause (iia) of section 57 or under any of the provisions of Chapter VI-A other than the provisions of sub-section (2) of section 80CCD or section 80JJAA;
(ii) without set off of any loss,—
(a) 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);
(b) under the head “Income from house property” with any other head of income;
(iii) 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
(iv) without any exemption or deduction for allowances or perquisite, by whatever name called, provided under any other law for the time being in force.
(3) 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:
Provided that 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.
(4) 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 fulfilment of the conditions contained in the said section.
Explanation.—For the purposes of this sub-section, the term “Unit” shall have the meaning assigned to it in clause (zc) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005).
(5) Nothing contained in this section shall apply unless option is exercised in the prescribed manner by the person,—
(i) having income from business or profession, on or before the due date specified under sub-section (1) of section 139 for furnishing the returns of income for any previous year relevant to the assessment year commencing on or after the 1st day of April, 2021, and such option once exercised shall apply to subsequent assessment years;
(ii) having income other than the income referred to in clause (i), alongwith the return of income to be furnished under sub-section (1) of section 139 for a previous year relevant to the assessment year:
Provided that 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.
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