Section 115BAC, the optional regime for individuals and Hindu undivided families, with a computation (as set, 1961 Act, AY 2021-22)

The statement

Section 115BAC was inserted by the Finance Act, 2020, section 53, with effect from 1 April 2021. Its sub-section (1) offers the option to individuals and Hindu undivided families alone, starting with the previous year of assessment year 2021-22, the first assessment year to begin on or after 1 April 2021. A firm, a company or any other person cannot use it. The option is a trade: lower slab rates, in exchange for giving up most exemptions and deductions. Where the person exercises it and meets the conditions of sub-section (2), the tax on total income is computed at the rates of the section's Table instead of the ordinary rates.

Rates under section 115BAC

The same Table applies at every age: there is no higher exemption limit for senior citizens. Surcharge and health and education cess are added as for other individuals (Finance Act, 2021, First Schedule, Part I, Paragraph A; Finance Act, 2021, section 2(11)). The section does not exclude the rebate of section 87A, and incomes taxed at special rates under Chapter XII (short-term and long-term capital gains, lottery winnings) keep those rates.

Exemptions and deductions given up

Total income is computed without the following, all named in section 115BAC(2)(i):

1. the exemptions for leave travel concession and house rent allowance, the special allowances other than those prescribed, the allowances of members of Parliament and legislators, and the exemption of ₹1,500 on a minor's clubbed income (clauses (5), (13A), (14), (17) and (32) of section 10);
2. the deduction for units in special economic zones;
3. the deductions from salary (the standard deduction, entertainment allowance and professional tax);
4. interest on borrowed capital for a self-occupied house;
5. additional depreciation, and the deductions for investment in plant in backward areas, tea, coffee and rubber development, site restoration, scientific research of the specified kinds, specified businesses and agricultural extension projects;
6. the deduction for family pension; and
7. every Chapter VI-A deduction (such as those for life insurance and provident fund, health insurance, donations and savings interest), except the employer's contribution to the pension scheme and the deduction for new employment.

Nor is any exemption allowed for an allowance or perquisite given under any other law (section 115BAC(2)(iv)).

Losses and depreciation

1. A loss or unabsorbed depreciation brought forward from an earlier year cannot be set off if it is attributable to any of the deductions given up (section 115BAC(2)(ii)(a)); it is treated as having been given full effect, and is lost (section 115BAC(3)).
2. A loss under the head Income from house property cannot be set off against any other head (section 115BAC(2)(ii)(b)).
3. Depreciation under section 32 is claimed, except additional depreciation (section 115BAC(2)(iii)).

Exercising the option

1. A person with income from business or profession must exercise the option, in the prescribed manner, on or before the due date under section 139(1). Once exercised it applies to later years too. It can be withdrawn only once, for a year other than the year in which it was first exercised; after that he can never exercise it again, unless he ceases to have business income (section 115BAC(5)(i) and its proviso).
2. Any other person (for example a salaried employee or a person with only house property income) chooses each year, with the return under section 139(1) for that year (section 115BAC(5)(ii)).
3. If the conditions of sub-section (2) are not met in a year, the option is invalid for that year; for a person with business income it is invalid for later years as well (provisos to section 115BAC(1)).

Tax liability of Mr. Vikrant

Mr. Vikrant has opted for section 115BAC. His total income is his income from house property; the ₹1,50,000 put into the public provident fund is a deduction under section 80C, which the option gives up.

No surcharge: total income does not exceed ₹50 lakh. No rebate: total income exceeds ₹5,00,000.

Under the ordinary provisions

Without the option he could deduct the ₹1,50,000 under section 80C: total income ₹18,50,000, tax ₹1,12,500 + 30% of ₹8,50,000 = ₹3,67,500 (he is below 60: Finance Act, 2021, First Schedule, Part I, Paragraph A, item (I)), with cess ₹3,82,200. The option saves him ₹31,200, so it is the right choice for him.