CBDT issues Notification to Allow Exemptions for Section 115BAC: CBDT has issued Notification No. 38/2020 dated 26.06.2020 under section 115BAC(2) of the Income Tax Act, 1961 to allow certain exemptions under section 14 and to disallow certain exemptions from the valuation of perquisites to a salaried individual who has opted the option under section 115BAC(5).
Finance Act, 2020 has inserted a new section 115BAC in the Income Tax Act, 1961 to provide for an option of the lower tax regime in line with the options provided to domestic companies under the Taxation Laws (Amendment) Act, 2019. However, the new tax regime as stipulated in section 115BAC disallows certain exemptions and deductions and also does not allow to carry forward and set-off of losses.
To avail the benefit of the concessional tax regime, the assessee has to forego many exemptions and deductions and further cannot set-off and carry forward losses while computing the total income under the new tax regime.
Section 115BAC is applicable to an individual and a HUF only. Further, there is no different slab rates prescribed for senior or very senior citizens and hence all categories of individuals are subject to the basic exemption limit of Rs. 2,50,000 only.
This new tax scheme is optional which means the taxpayer may or may not opt the new tax regime. In case the taxpayer opts for the old tax regime, then he shall be allowed all the eligible exemptions and deductions.
Further, the option can be exercised every year and can be changed or switched every or in any year. It is not necessary that once the option is exercised, it does not remain fixed and can be changed every year based on the total income and tax liability of the taxpayer. If in any one year, the taxpayer finds that his total tax liability is lower in the new tax regime he may opt for the new tax regime and in the next year, if he finds that the tax liability in the old tax regime is lower, he may opt for the old tax regime.
However, this facility is available if the taxpayer has no income from business or profession. In case, the individual or HUF has income from business or profession then the option once exercised cannot be withdrawn and has to continue with the new tax regime.
Hence, a salaried individual has to do the necessary homework under both the options every year to find out which tax regime is more beneficial to him.
There are certain exemptions and deductions exclusively provided in Section 115BAC itself which are not allowed in computing the total income under the new tax regime for a salaried individual taxpayer. These are-
It is further provided that the total income is required to be computed without set-off of any loss under the head “Income from house property” with any other head of income.
Read more:
Understanding Set-off of Loss from House Property
Interest on Housing Loan under section 115BAC
Since most of the exemptions are notified by Notifications and are contained in the Income Tax Rules, 1962, therefore section 115BAC(2) empowers the Central Government to notify which exemptions will be allowed in computing the total income for the purpose of section 115BAC.
Section 115BAC(2) inter alia states that for the purposes of section 115BAC(1), the total income of the individual or Hindu undivided family shall be computed without any exemption or deduction under the provisions of clause (14) (other than those as may be prescribed for this purpose) of section 10 of the Income Tax Act, 1961.
Hence at the first instance all the exemptions mentioned in section 10(14) is disallowed. However, relaxation is given for certain exemptions which will be notified by the CBDT. Rule 2BB contains the list of allowances which will be exempt under section 10(14)(i).
Hence, by exercising the powers given under section 115BAC(2), CBDT vide Notification No. 38/2020 dated 26.06.2020 specifies the followings-
I. A new sub-rule (3) is inserted in Rule 2BB to allow the following exemptions to a salaried individual who has exercised option under sub-section (5) of section 115BAC under Rule 2BB-
“(3) Notwithstanding anything contained in sub-rule (1) and (2), 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 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.”;
1. Exemptions mentioned in Rule 2BB(1)(a), (b) (c) -
(a) any allowance granted to meet the cost of travel on tour or on 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.
Provided that free conveyance is not provided by the employer.
2. Exemption mentioned in Rule 2BB(2)-
Transport allowance granted to an employee, who is blind or deaf and dumb or orthopaedically 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.
This exemption is applicable to the whole of India and is restricted to Rs. 3,200 p.m.
II. A new second proviso is inserted in Rule 3(7)(iii) to disallow the following exemption to a salaried individual who has exercised option under sub-section (5) of section 115BAC-
In rule 3, in sub-rule (7), in clause (iii), after the proviso, the following proviso shall be inserted, namely:—
“Provided further that the exemption provided in the first proviso in respect of free food and nonalcoholic beverage provided by such employer through paid voucher shall not apply to an employee, being an assessee, who has exercised option under sub-section (5) of section 115BAC.”.
3. No exemption for free food and non-alcoholic beverage provided by such employer through paid voucher
Rule 3 deals with valuation of perquisites. Rule 3(7)(iii) provides for valuation of perquisites for free food and non-alcoholic beverages provided by the employer to an employee. The value of such perquisite shall be the amount of expenditure incurred by such employer and shall be reduced by the amount, if any, paid or recovered from the employee for such benefit or amenity.
An exception is provided by way of a proviso to exclude the value of free food and non-alcoholic beverages provided by such employer during working hours at office or business premises or through paid vouchers which are not transferable and usable only at eating joints, to the extent the value thereof in either case does not exceed Rs. 50 per meal or to tea or snacks provided during working hours or to free food and non-alcoholic beverages during working hours provided in a remote area or an off-shore installation.
This exception is withdrawn in case the new tax regime is opted. Thus free food and non-alcoholic beverages provided by the employer even during working hours at office or business premises shall be fully taxable in the hands of those employees who have opted for the new tax regime.
It should be noted that CBDT has already clarified how the employer shall consider the deduction of tax from the salary income of the employees under the new tax regime. Read the circular here.
It should be noted that the new Form 16 is more dynamic and versatile to capture the income and section-wise exemption. In case the employer has considered the old tax regime for the purpose of deduction of tax from salary income of the employee but the employee exercises the option under section 115BAC, the ITR processing will itself disallow the ineligible or restricted deductions and exemptions to the employee concerned.
Read the full text of the notification here.
MINISTRY OF FINANCE
(Department of Revenue)
(CENTRAL BOARD OF DIRECT TAXES)
NOTIFICATION
New Delhi, the 26th June, 2020
INCOME-TAX
G.S.R. 415(E).—In exercise of the powers conferred by sub-section (2) of section 115BAC read with section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules,1962, namely:‒
1. Short title and commencement: - (1) These rules may be called the Income-tax (13th Amendment) Rules, 2020.
(2) They shall come into force from the 1st day of April, 2021 and shall accordingly apply in relation to the assessment year 2021-22 and subsequent assessment years.
2. In the Income-tax Rules, 1962,-
(a) in rule 2BB, after sub-rule (2), the following sub-rule shall be inserted, namely:—
“(3) Notwithstanding anything contained in sub-rule (1) and (2), 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 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.”;
(b) in rule 3, in sub-rule (7), in clause (iii), after the proviso, the following proviso shall be inserted, namely:—
“Provided further that the exemption provided in the first proviso in respect of free food and nonalcoholic beverage provided by such employer through paid voucher shall not apply to an employee, being an assessee, who has exercised option under sub-section (5) of section 115BAC.”.
[Notification No. 38/2020/F. No.370142/15/2020-TPL]
GUDRUN NEHAR, Director (Tax Policy and Legislation)
Download Copy of Notification No. 38/2020 dated 26.06.2020 on Section 115BAC
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