Process to apply for the New Tax Regime in 2020-21

The process to apply for the New Tax Regime in 2020-21

Income-tax is a direct tax that is imposed by the Government of India, the rate of which varies depending on the income earned by individuals or entities. The Income-tax structure in India is said to be complex with more than a hundred ways to reduce tax by deductions and exemptions of various nature. In order to simplify this tax structure, the Government of India has introduced the New Concessional Income Tax Regime in the Union Budget 2020. The New Tax Regime is introduced under Section 115BAC of the Income Tax Act, 1961. This new regime is applicable for individual and HUF (Hindu Undivided Family) taxpayers. The major highlight of the New Income-tax Regime is to offer lower Income tax rates with seven income slabs. Though the rates are lower, taxpayers need to forgo all the major deductions and exemptions under the new tax regime. However, individual and HUF taxpayers have an option to choose between a New tax regime and the Old tax regime.

Tax rates applicable under the New Tax Regime

The following are the tax rates applicable for different income slabs under the New Tax Regime

Depending on the suitability and the tax planning, individuals and HUFs can choose between the old tax regime and the new tax regime for filing their Income-tax Returns for the relevant assessment year. It is important to note that they need to forgo most of the deductions and exemptions available under the old tax regime to reduce the tax if they choose to go with the new tax regime for the concessional rates. Choosing the tax regime (old tax regime or new tax regime) has to be done at the time of filing the income tax return for the relevant assessment year. 

Form for filing the Income-tax return under the New Tax Regime

Filing for an Income-tax return is an obligation for everyone who earns income, specifically when the income for the financial year exceeds the basic exemption limit. Though the filing of Income-tax returns is now digital and simple, there are certain guidelines to be followed. Every year, the Central Board of Direct Taxes (CBDT), the income tax department notifies ITR forms for various categories of taxpayers. And, the taxpayers are required to follow the guideline by filing the Income-tax return with the relevant Income-tax return (ITR) forms notified by the Income-tax Department. Now, as there is an option for taxpayers to choose between the old tax regime and the new tax regime, the chosen option can be exercised by choosing the relevant forms and disclosures notified by the Central Board of Direct Taxes (CBDT).

If you are not willing to avail of the tax deductions and exemptions and opt for the new concessional tax regime for the financial year 2020-21, then the Central Board of Direct Taxes (CBDT) has notified that you need to file your Income-tax return by filing a new form, called Form 10-IE. Filling and filing an Income-tax return with Form 10-IE (additional form) informs the government that you have chosen a new Income-tax regime for the financial year 2020-21.

It is important to note that salaried individuals can choose between the old tax regime and the new tax regime every financial year starting from 2020-21 onwards. That means, they can switch between the old tax regime and the new tax regime every financial year by choosing the relevant ITR form notified by the Income-tax Department. However, for individuals with business income, switching between the old tax regime and the new tax regime is not allowed. That means, if you choose a new tax regime for this financial year, you cannot switch back to the old tax regime in the coming financial years.

Filing Form 10-IE for the New Tax Regime

As notified by the Income-tax Department, you need to file the income tax returns using the additional form, i.e., Form 10-IE, if you choose the new tax regime. Form 10-IE, an application for exercise/withdrawal of option under clause (i) of sub-section (5) of section 115BAC of the Income Tax Act, 1961 requires you to fill in the following information:

• Name of the individual or HUF
• PAN details
• If the individual or HUF has income under the head profit or gains from business or profession
• Address
• Date of birth/incorporation
• Nature of business

If the individual or HUF has any Unit in International Financial Services Centre (IFSC) and the details of the same (name, address and activities undertaken in Unit)

Salaried individuals who can switch between both the old tax regime and the new tax regime, need to fill out this form not just at the time of opting for the new tax regime, but also at the time of withdrawal from the new tax regime. At the time of withdrawal, the taxpayer needs to provide information on the date on which the option is exercised. The Form 10-IE for exercise the option needs to be submitted on or before the due date or filing the Income-tax return for the relevant assessment year.

Form 10-IE needs to be submitted along with the relevant ITR form notified by the Income-tax Department for your category to complete the income tax return filing process for the relevant financial year. 

The process of filing the Income-tax return for the financial year depends on which tax regime you choose. It is important to follow the process properly to ensure there are no delays and hassles in filing the Income-tax return. It is equally important to file the Income-tax return on time to avoid any penalties.