FAQ’s on Budget FY 2020-21:

1. When will the new scheme be applicable?

The new scheme will be applicable from the Assessment Year 2021-22 (i.e., Financial Year 2020-
21).

2. Please let me know the changes in the Income Tax slabs considering the Budget proposal FY
2020-21.

A new section 115BAC is inserted in the Income Tax Act by Finance Bill 2020 which provides that
on satisfaction of certain conditions, an individual or HUF shall, from F.Y. 2020-21, A.Y. 2021-22
onwards, have the option to pay tax in respect of the total income at following rates:

Slab Rates Existing Tax Rate Optional Scheme - Tax

Rates (New Regime)
(Old Regime)

Up to 2,50,000 Nil Nil

2,50,000 - 5,00,000 5% 5%

5,00,000 - 7,50,000 20% 10%

7,50,000-10,00,000 20% 15%

10,00,000-12,50,000 30% 20%

12,50,000-15,00,000 30% 25%

Above 15,00,000 30% 30%

• This section is optional for individual and HUF. In other words, an individual or HUF may either
opt for existing income tax slab rate applicable to them or go for new income tax slab rates as
mentioned above.
• In the new regime, a taxpayer will have to forgo all the commonly available tax breaks such as
those available under section 80C, 80D, LTA exemption, HRA exemption, Professional Tax,
Standard Deduction, Housing Loan Interest etc. except for section 80CCD (2), i.e., Employer’s
Contribution to NPS.

▪ Under the old and new tax regime, income up to INR 500,000 will attract 0% tax, as one can
claim a tax rebate of INR 12500 under Section 87A.

▪ Health and Education Cess and Surcharge on income tax payable in the new proposed regime
remains the same as in the existing tax regime.

▪ Health and Education Cess at the rate of 4 percent is levied on the Income Tax plus surcharge
wherever applicable. Surcharge on Income Tax will also be added as per the income slab
applicable to the individual.

3. Who can opt for new Scheme?

The New Scheme is available to Individual or HUF only.

4. What is the slab rate that employer need to deduct TDS on employee’s taxable income from
April 2020 onwards for FY 2020-21?

Employer must take declaration from Employee. An employee, having income other than the
income under the head “profits and gains of business or professions” and intending to opt for the
concessional rate under section 115BAC of the act, may intimate the deductor, being his
employer, of such intention for each previous year and upon such intimation, the deductor shall
compute his total income and make TDS thereon in accordance with the provision of Section
115BAC of the Act.

5. What if no intimation is provided by the Employee?

If no such intimation is made by the employee, then employer shall make TDS without considering
the provisions of Section 115BAC of the Act. Employer must deduct TDS considering in old slab
rates as per FY 2019-20.
6. How many times that employee can intimate the employer about the change in the regime that
he wanted to opt for?

Once the declaration is provided by the employee to the employer cannot change further or
multiple times. It is also clarified that the intimation so made to the deductor shall be only for the
purposes of TDS during the previous year and cannot be modified during that year.

In other words, the employee (only those not having income from business or profession) cannot
change the option once exercised for the purpose of getting TDS deducted but can always change
it at the time of filing the tax return.

7. Can employee change the regime at the time of filing his individual Annual Returns?

Yes. Option has been given to employee to choose any method at the time of filing returns of
income for the FY 2020-21.

The intimation to the employer about the exercise of the new option shall not be regarded as an
exercise of the option under section 115BAC (5). It means the employee must exercise the option
at the time of filing of return which will be considered final by the income-tax authority under the
law. Since the intimation to the employer is given at the beginning of the financial year and the
option is required to be exercised after the end of the financial year, the Circular clarifies that
option at the time of filing of return of income under sub-section (1) of section 139 of the Income
Tax Act could be different from the intimation made by such employee to the employer for that
previous year

8. Is there any declaration form format to collect the regime data?

No. The Circular did not prescribe any format of intimation. Every employer has to draft
intimation/declaration as per their choice but the declaration must include the fact the employee
has no income from business or profession or that he has exercised the new regime tax option in
the preceding year’s ITR.

9. Whether there will be changes in ETDS reporting?

There is no such clarity about ETDS changes has been provided in the circular.
10. What are the conditions for opting the new scheme?

Conditions under the Scheme are as follows:

a) Deductions/ Exemptions shall not be allowed in computing Taxable Income.

b) Setoff of Carried forward loss or depreciation shall not be allowed, if it is attributable to
such Deductions/ Exemptions.
c) Additional Depreciation shall not be allowed.
d) Deduction of Interest paid on Self Occupied Property shall also not be allowed.
e) No Deduction/Exemption for any Allowance or Perquisite shall be allowed.
f) Standard Deduction and Professional Tax on Salary shall also not be allowed.

11. What type of Deductions/ Exemptions shall not be allowed?

Following Deductions/ Exemptions shall not be allowed:

a) Leave Travel Concession

b) House Rent Allowance
c) Standard Deduction/ Entertainment Allowance/ Professional Tax
d) Deduction from family pension
e) Deductions u/s 80C, 80CCC, 80E, 80D, 80DD, 80G, etc.,

12. Whether all Sec 10 Exemptions will not be provided under New Regime? Please provide the
breakup of Sec 10 details which are included for exemption even under New Regime.

Only few of the allowances as contained in clause (14) of section 10 will be allowed like:

● Transport Allowance granted to a divyang (specially abled) employee.

● Conveyance Allowance granted to meet the expenditure on conveyance.
● Any Allowance granted to meet the cost of travel on tour or on transfer.
● Daily Allowance to meet the ordinary daily charges incurred by an employee on account of
absence from his normal place of duty.
● Gratuity under Sec 10(10)
● Leave Encashment at the time of separation under Sec 10(10AA)
● Voluntary Retirement Scheme under Sec 10 (10C)
● Retrenchment Compensation under Sec 10(10B)
13. What are the Deductions/ Exemptions that can be claimed under the Scheme?

Following Deductions/ Exemptions that can be claimed:

a) Deduction under sub-section (2) of section 80CCD (employer contribution on account of
employee in notified pension scheme).
b) Deduction u/s 80JJAA (for new employment).
c) Transport Allowance granted to Divyang Employee for commute between place of residence
and duty.
d) Conveyance Allowance for expenditure in performance of duties of office.
e) Allowance granted to meet cost of travel on tour /transfer.
f) Daily Allowance to meet charges incurred by employee on account of absence from normal
place of duty.
g) Death cum Retirement Gratuity (Govt employees no limit, others INR 20 lakhs).
h) Leave Encashment on retirement (Govt employees no limit, others INR 3 lakhs).
i) Commutation of Pension.
j) Standard Deduction of 30% of Rental Income, under House Property head.
 Please refer the following table for more details.

TAX BENEFITS OLD REGIME NEW REGIME

Sec 10 Exemptions
Leave Travel Allowance under Sec 10(5) Allowed Not Allowed
Gratuity under Sec 10(10) Allowed Allowed
Leave Encashment at the time of separation under Sec 10(10AA) Allowed Allowed
Retrenchment Compensation under Sec 10(10B) Allowed Allowed
Voluntary Retirement Scheme under Sec 10 (10C) Allowed Allowed
House Rent Allowance under Sec 10(13A) Allowed Not Allowed
Conveyance under Section 10(14) for disabled (divyang) employees
Allowed Allowed
Exemptions of certain Allowances under section 10(14) like Children
Education Allowance, Hostel Allowance, Uniform Allowance etc.,
Allowed Not Allowed

Sec 16 Deductions
Standard Deduction, Tax on Employment under Sec 16 Allowed Not Allowed

Chapter VIA Deductions

Chap VI Deductions - 80C, 80CCC, 80CCD (1), 80CCD(1B), 80D, 80DD,
80DDB, 80E, 80EE, 80EEA, 80EEB, 80U, 80TTA, 80TTB, 80G etc., Allowed Not Allowed
Employer Contribution towards NPS u/s 80CCD (2) Allowed Allowed

Sec 24(b) Benefits

Interest on borrowed Housing Loan for a Self-occupied Property Allowed Not Allowed
Set off any loss from House Property to any other head Allowed Not Allowed

Interest paid towards Housing loan - For Income from Let-out property
**(Intra-head Set-off of losses allowed in case of income from Let-out
property, but loss cannot be set-off with the other head of Income in
new regime)
Allowed **Allowed
14. How can the option to opt for the new scheme be exercised? Whether the option must be
exercised every year? Can one opt out of the Scheme and pay Tax at regular rates?

The taxpayers under the scheme have been divided in two ways:
a) Persons having Business Income
b) Persons not having any Business Income.

In case of Individual/HUF not having any Business Income:

a) Option must be exercised every year.

b) The employee must intimate to the employer his intention of getting covered under the old
or New Tax regime (as the case may be) every year and employer will deduct TDS accordingly.
c) The option can be exercised while filing Return of Income also.

In case of Individual/HUF having Business Income:

a) Option must be exercised once, and it will be valid for that year and subsequent years.

b) For the first Financial Year 2020-2021, the employee must intimate to the employer his
intention of getting covered under the old or New Tax regime (as the case may be) every year
and employer will deduct TDS accordingly.

c) From the second Financial Year onwards - The option chosen in the last ITR must be
consistently followed and accordingly and same must be intimated to the employer for the
subsequent Financial Years also.

15. Whether the reimbursements like telephone, fuel, driver, books & periodicals can be claimed?

Reimbursements which will not form part of part of Income Tax Computation Sheet are available.

16. Whether Housing Loan interest (loss) related to both Self & Let Out properties not to be
considered? Whether Income from let out property to be added to taxable income or is there
any change to this?

Any loss under house property (self-occupied or let-out property) is not allowed to set off against
any other head of income. However, intra head set off is allowed, which means loss under self -
occupied property can set off against income from let out property.

The income from house property will become part of the total income (no changes to this rule).
17. What happens to employee’s contribution to PF?

No, employee’s contribution to PF will not be considered under Sec 80C.

18. Whether NSC Interest, Savings Bank Interest, Interest on Deposits for senior citizens will be
considered as only the income in new regime as there will be no tax benefit under Sec 80C,
80TTA, 80TTB respectively?

Yes. The income from bank interest and NSC will continue to be added to the total income (no
changes to this rule). However, no benefit of deduction is available other than 80CCD (2).

19. Whether extension of the period to March 2021 about investment on affordable houses under
80EEA is only for old regime?

Yes, the benefit of 80EEA is available only in the old regime.

20. If NPS is part of CTC, whether Sec 80CCD (2) deduction will be considered in the new regime?

Yes. The deduction u/s 80CCD (2) will be considered for tax benefit.

21. Employee is under old regime till Sep 2020, and joins a new company in Oct 2020 and opts for
new regime. What is the treatment to PF, PT amounts which were already deducted in previous
organization? Whether employee’s tax calculation must continue in the old regime only?

The option to opt for the new regime or old regime is available to the taxpayer at the time of filing
the income tax return. For the compliance purposes and basis, the CBDT circular dated 13th April
2020 from the employer’s perspective, employee is expected to opt for the same regime that
he/she had opted in his/her earlier company.

22. If the employee has filed the Returns for the FY 20-21 basis one of the regimes, then whether
he will be unable to change the regime option in future?

For the taxpayer having no business income can opt in and opt out. However, in case of the
taxpayer having business income, once he opts into new regime and opts out at a later stage
during his individual returns filing, then he/she cannot come back to the new regime again.
23. Whether the contributions exceeding INR 7,50,000 made by employer to an employee’s account
in a recognized provident fund, notified pension scheme or approved superannuation fund
would be taxable perquisite in the hands of the employees as perquisite?

Yes. As per the Budget proposal, combined cap of INR 750000 per annum has been introduced in
respect of the Employer’s Contribution to the Employee Provident Fund, National Pension
Scheme, and Approved Superannuation Fund schemes and amount more than INR 750000 will be
taxed as perquisite in the hands of the employees.

24. As per the Budget proposals, around 70 of the existing exemption and deduction Sections will
be removed in the new simplified regime. Kindly specify those Sections.

The following are the list of the exemptions and deductions shall not be allowed under the new
regime.

a) Leave travel concession as contained in clause (5) of section 10.

b) House rent allowance as contained in clause (13A) of section 10.
c) Some of the allowance as contained in clause (14) of section 10; the following are the only
allowed exemptions in relation to salary:
- Transport Allowance granted to a divyang employee.
- Conveyance Allowance granted in performance of duties of an office.
- Any Allowance granted to meet the cost of travel on tour or on transfer.
- Daily Allowance to meet the ordinary daily charges
d) Allowances to MPs/MLAs as contained in clause (17) of section 10.
e) Allowance for income of minor as contained in clause (32) of section 10.
f) Exemption for SEZ unit contained in section 10AA.
g) Standard Deduction, Deduction for Entertainment Allowance and Employment/Professional
Tax as contained in section 16.
h) Interest under section 24 in respect of self-occupied and loss under the head income from
house property for rented house.
i) Any deduction under chapter VIA (like Section 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E,
80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC. However, deduction under Section 80CCD(2)
(employer contribution on account of employee in notified pension scheme) and Section
80JJAA (for new employment) can be claimed.
j) Applicable for taxpayer having business income:
- Additional depreciation under clause (iia) of sub-section (1) of section 32.
- Deductions under section 32AD, 33AB, 33ABA.
- Various deduction for donation for or expenditure on scientific research contained in sub-
clause (ii) or sub-clause (iia) or sub-clause of sub-section (1) or sub-section (2AA) of
section 35.
- Deduction under section 35AD or section 35CCC.
- Deduction from family pension under clause (iia) of section 57.