From the financial year (FY) 2020-21, an individual can choose between the new tax regime proposed in Budget 2020 and the existing one at the time of filing of income tax return (ITR) as per his/her convenience. The proposed new tax regime offers lower income tax rates without the benefit of 70 tax exemptions and deductions.

According to chartered accountants and tax experts, individuals opting for the new tax regime should keep in mind that their tax liability will be calculated according to the proposed new tax rates if the tax return is filed before the normal deadline for filing of ITRs, i.e., July 31, unless extended by the government.

According to the Finance Bill, 2020, if an individual opts for the new tax regime for FY 2020-21, but files ITR after the deadline (i.e., after July 31), then the individual’s tax liability will be calculated as per the existing tax regime. The tax liability calculated as per the existing tax regime will be higher as compared to that payable under new proposed tax regime if tax benefits such HRA, section 80C etc. claimed under existing regime is not sufficient for the tax liability to be less than under the proposed new tax regime.

Ashok Shah, Senior Partner, NA Shah Associates LLP says, “Individuals not having any business income (i.e., salaried individuals and pensioners) must file their tax return before the due date prescribed under section 139(1) of the Act (i.e., 31 July) to take benefit of lower tax rates in the new tax regime. If a tax return is filed belatedly, income tax rates under the new tax regime will not apply for that financial year.”

However, tax experts also hold that more clarity is needed from the government on this regard.

Shalini Jain, Partner, People Advisory services, EY India says, “On a plain reading of the proposed section, it seems the option to avail concessional tax rates can be exercised for tax return filed as per timelines provided under Section 139(1) of the Income Tax Act 1961. It may not be exercisable for belated returns filed under Section 139(4) of the Act. This is because the law itself requires exercising the option in tax returns filed on time under Section 139(1). In case of belated return filing, one may need to approach CBDT under Section 119(2)(b) of the ITA for condonation of delay. More clarity from the government would be welcome in this regard as there may be genuine reasons where a taxpayer is unable to file tax return on time.”

The view that clarity is needed on this aspect is echoed by Abhishek Soni, CEO and founder of Tax2win.in, an ITR filing website.

Soni says, “The newly proposed law in the Finance Bill 2020 is silent regarding the applicability of new tax regime for salaried individuals having no business income if a belated ITR is filed by them. Further, the law requires government to prescribe the manner in which such option will be exercised. The question arises as to how this option will be exercised or what will be the manner of exercising this option and applicability of such option in the filing of belated ITR. As of now, there is no clarity on this from the tax department which is required.”

If you have business income

Both Shah and Soni agree that individuals who have business income and want to avail the benefit of new tax regime should file their return before the due date for their tax returns.

Both Shah and Soni agree that individuals who have business income and want to avail the benefit of new tax regime should file their return before the due date for their tax returns.

Soni says, “As per the requirement of new Section 115BAC, persons having business income shall exercise the option of the new tax regime in the prescribed manner on or before the due date for furnishing of return under section 139(1). In case a belated ITR is filed, then such individuals will be liable to pay tax under the existing tax regime”

Shah says, “For individuals having business income, the option of opting new tax regime shall be exercised on or before due date specified under section 139(1) of the Act (Usually July 31). The option will be exercised via a form which will be prescribed for the same. Further, once an individual having business income opts for new tax regime then the new tax rates will be applicable for the future financial years as well.”

Source : PTI