Understanding Income Tax Regime Changes for FY 2020-21 and Beyond

Overview of Income Tax Regime Changes for FY 2020-21 and Beyond

Beginning with the Financial Year 2020-21, a new income tax regime was introduced under Section 115BAC of the Income Tax Act. The Finance Minister, Shrimati Nirmala Sitharaman, announced this option in the Budget 2020, allowing taxpayers the choice between the new regime and the old regime.

Income Tax Rates for Individuals and Entities

The tax rates for Individuals, Hindu Undivided Families (HUF), Associations of Persons (AOP), or Bodies of Individuals (BOI) for the assessment years 2023-24 and 2024-25 are outlined as follows:

Total Income (Rs.)	Assessment Year	Regular Rate	New Regime Rate
Up to 2,50,000	2023-24 / 2024-25	Zero	Zero
2,50,001 to 5,00,000	2023-24 / 2024-25	5%	5%
5,00,001 to 7,50,000	2023-24 / 2024-25	20%	10%
7,50,001 to 10,00,000	2023-24 / 2024-25	20%	15%
10,00,001 to 12,50,000	2023-24 / 2024-25	30%	20%
12,50,001 to 15,00,000	2023-24 / 2024-25	30%	25%
More than 15,00,000	2023-24 / 2024-25	30%	30%

Surcharge and Education Cess

• Surcharge applicable:

  • 10% for total income between Rs. 50 lakh and Rs. 1 crore
  • 15% for total income between Rs. 1 crore and Rs. 2 crore
  • 25% for total income between Rs. 2 crore and Rs. 5 crore
  • 37% for total income exceeding Rs. 5 crore

• Education Cess: 4% on the total tax and surcharge.

Basic Deductions for Senior Citizens

For the assessment years 2023-24 and 2024-25, the basic deduction limits for resident taxpayers are as follows:

• Super Senior Citizens (above 80 years): Rs. 5,00,000 (New Regime: Rs. 2,50,000)
• Senior Citizens (above 60 years): Rs. 3,00,000 (New Regime: Rs. 2,50,000)

Provisions under Section 115BAC

Section 115BAC ensures that individual taxpayers and HUFs may opt for a concessional rate of tax on their income starting from the assessment year 2021-22. However, those who choose to benefit from this regime will forfeit certain deductions, specifically:

• Exclusion of deductions under sections: 10AA, 32(1)(iia), 32AD, 33AB, 33ABA, 35(1)(ii), 35(1)(iia), 35(iii), 35(2AA), 35AD, and 35CCC.

• Corporations opting for this regime will also lose the benefits under Chapter VIA, with exceptions for:

  • Section 80CCD(2) related to NPS contributions
  • Section 80JJAA
  • Section 80LA(IA)

• Additionally, the benefits of Sections 10(5), 10(13A), 10(14), 10(17), 10(32), and Section 16 will not be allowed, although taxpayers will benefit from Section 24(b) of the Act.

Carry Forward and Set-off of Losses

Deduction or reliefs opted under this regime mean that if there is a loss, it cannot be carried forward. Notably, a loss incurred under the head "Income from House Property" cannot be set off against other incomes.

Transition to the New Regime

From the assessment year 2024-25 onwards, the new tax regime is considered default. Taxpayers who wish to continue with the old regime must file a declaration in Form 10IEA before the income tax return due date. Once the regime is selected, changes in either direction are not permitted.

In cases where income is derived from a business or profession that has ceased, taxpayers may switch regimes if there is no income under this category.