Option u.s.115BAC in case of individuals and HUF – an analysis and discussion of various aspects.

[DEV KUMAR KOTHARI]

Option u.s.115BAC in case of individuals and HUF – an analysis and discussion of various aspects.

Though the provisions are aimed as  measure of simplification  by the honourable Finance Minister for small assesses who are individual and HUF, however these seems to be very complex and difficult to understand in entirety. Therefore utmost care is required while opting special provisions of S.115BAC as to exemptions and deductions to be forgone. In case of assesse having income from business and profession long-term aspects need to be considered.

 New provision of option u.s.115BAC is applicable in case of individuals and HUF. The provisions are very complex and extensive ( all provisions of Chapter XII are applicable. So one need to be very careful to decide whether to opt for option or not. In case of some incomes which can be considered as income from business and profession, more care is required because option once exercised will be applicable and cannot be changed in future.

Author feels that why such provisions are made so complex for general public segment of tax payers. Such provisions must be very simple and easy to understand and compliances.

Broader discussion:

Main concerns for general assesses (other than High net worth cases):

In case of individuals and HUF main concerns are deductions under section 10 and under chapter VIA which will be denied on exercise of option.

In case of  salaried individuals deduction  and exemption from salary for standard deduction, profession tax, some perquisites will also not be allowed.

In case of income from  Business and profession , including vocation as per practice of many assesses and their consultants , and as indirectly permitted in provisions for other sources, some income can be considered under head other sources.

 This was accepted by IT department, in summary assessment because there is no adverse impact on revenue. However, when S.115BAC is opted, there will be change in situation. In case of scrutiny assessment dispute as to head of income has been  common in past and on exercise of option there will be more reasons to dispute about head of income.

 Therefore to play safe, if any such income can fall under head business and profession, it is advisable to consider it as income from business and profession and to plan for long-term perspective and act accordingly while exercising option.

Example of some of such income are income from business and profession of limited sources without much organised activity and casual type, some rental incomes of plant , machinery, furniture, some speculative gains in securities and commodities, some capital gains etc. which have been accepted as income from other sources are likely to be  considered as business income based on data available with department like from information in form 26AS and in case of scrutiny, based on opinion of AO.

In case Other Source, is considered, it can be considered wrong declaration and relief will be doubtful for first year and subsequent years.

So one need to closely examine S.115BAC with provisions for business and profession with long term perspective of business income, exemptions and deductions.

For decision making a calculation sheet for deduction, exemptions and benefits to be forgone need to be made.

Computation as per normal provisions and other provisions both need to be made.

Future possibilities also need to be considered in case assesse has income from business and profession.

Other provisions of Chapter XII ( sections from 110 to 115BBG)  also need to  closely be examined in addition to S.115BAC to find out if any inconsistency causing unfavourable provision to apply.

Request to learned readers:

Author request learned readers, particularly who specialise and do lot of work for individual and HUF to send their feedback, and suggestions and point out any missing points and mistakes in understanding of author.

Broad discussion of provisions of S. 115BAC

In the table below provisions are reproduced with highlights added for easy understanding and some remarks are place in another column.

From provisions with highlights added for analysis and easy understanding and catch words.	Remarks , popular wordings etc.
1[Tax on income of individuals and Hindu undivided family.
115BAC. (1) Notwithstanding anything contained in this Act but subject to the provisions of this Chapter, the income-tax payable in respect of the total income of a person, being an individual or a Hindu undivided family, for any previous year relevant to the assessment year beginning on or after the 1st day of April, 2021, shall, at the option of such person, be computed at the rate of tax given in the following Table, if the conditions contained in sub-section (2) are satisfied, namely:-	Provisions are subject to provisions of Chapter XII relating to determination of tax in certain special cases. This chapter consists of S. 110 to 115BBG Therefore care is to be taken for all these  provisions.
TABLE (1) (2) (3) 1. Up to ₹ 2,50,000 Nil 2. From ₹ 2,50,001 to ₹ 5,00,000 5 per cent. 3. From ₹ 5,00,001 to ₹ 7,50,000 10 per cent. 4. From ₹ 7,50,001 to ₹ 10,00,000 15 per cent. 5. From ₹ 10,00,001 to ₹ 12,50,000 20 per cent. 6. From ₹ 12,50,001 to ₹ 15,00,000 25 per cent. 7. Above ₹ 15,00,000 30 per cent.:	In each case comparative computation need to be  made after considering deductions which are to be forgone in that case and total income is to be computed accordingly. Provisions of options to be exercised and provision for lapse of such option are also required careful consideration.
Provided that where the person fails to satisfy the conditions contained in sub-section (2) in any previous year, the option shall become invalid in respect of the assessment year relevant to that previous year and other provisions of this Act shall apply, as if the option had not been exercised for the assessment year relevant to that previous year:	All conditions are mandatory. IF no business or professional  income every year is independent for exercise of option.
Provided further that where the option is exercised under clause (i) of sub-section (5), in the event of failure to satisfy the conditions contained in sub-section (2), it shall become invalid for subsequent assessment years also and other provisions of this Act shall apply for those years accordingly.	All conditions are mandatory. In case of income from BP effect  of failure will be on all subsequent years also
(2) For the purposes of sub-section (1), the total income of the individual or Hindu undivided family shall be computed,-
(i) without any exemption or deduction under the provisions of clause (5) or clause (13A) or prescribed under clause (14) (other than those as may be prescribed for this purpose) or clause (17) or clause (32), of section 10 or section 10AA or section 16 or clause (b) of section 24 (in respect of the property referred to in sub-section (2) of section 23) or clause (iia) of sub-section (1) of section 32 or section 32AD or section 33AB or section 33ABA or sub-clause (ii) or sub-clause (iia) or sub-clause (iii) of sub-section (1) or sub-section (2AA) of section 35 or section 35AD or section 35CCC or clause (iia) of section 57 or under any of the provisions of Chapter VI-A other than the provisions of sub-section (2) of section 80CCD or section 80JJAA;	S. 10.5 LTA  LTC S. 10.13A HRA S. 10.14 perquisites actually incurred S. 10.17 allowances of MLA, MP, Constituency allowance S.10.32 – minors income of ₹ 1500 10AA – SEZ units S.16- deductions from salary , standard deduction. , P.Tax and others Self-occupied property Incentive deduction for new eligible plant and machinery 32AD – investment in Plant and machinery in notified area 33AB Tea/ coffee rubber / development account Site restoration fund Scientific research Some specified deductions for expenses of specified businesses Agricultural extension project expenses Family pension regular payment  1/3 or 15K Chapter VI- A as per S.80A to 80U except S. 80CCD and 80JJA These relates to certain investment , expenses and incomes popularly   like LIP, NSC, tax saver FDR, PPF, PF…. Etc. u/s 80C ,donations us/ 80G and many other deductions for payments and income as per specifications and conditions prescribed fro each such deduction will be denied. Only S. 80CCD relating to contribution to the pension scheme of Central Government  and deduction for additional new employments u/s  80JJAA will continue.
(ii) without set off of any loss,- (a) carried forward or depreciation from any earlier assessment year, if such loss or depreciation is attributable to any of the deductions referred to in clause (i); (b) under the head “Income from house property” with any other head of income;	Restrictions on CF and set off of some losses.
(iii) by claiming the depreciation, if any, under any provision of section 32, except clause (iia) of sub-section (1) of the said section, determined in such manner as may be prescribed; and	Normal depreciation shall be allowed as may be prescribed.
(iv) without any exemption or deduction for allowances or perquisite, by whatever name called, provided under any other law for the time being in force.	Exemptions or deduction vide any other law shall also not be allowed.

 (3) The loss and depreciation referred to in clause (ii) of sub-section (2) shall be deemed to have been given full effect to and no further deduction for such loss or depreciation shall be allowed for any subsequent year:

Provided that where there is a depreciation allowance in respect of a block of assets which has not been given full effect to prior to the assessment year beginning on the 1st day of April, 2021, corresponding adjustment shall be made to the written down value of such block of assets as on the 1st day of April, 2020 in the prescribed manner, if the option under sub-section (5) is exercised for a previous year relevant to the assessment year beginning on the 1st day of April, 2021.

(4) In case of a person, having a Unit in the International Financial Services Centre, as referred to in sub-section (1A) of section 80LA, which has exercised option under sub-section (5), the conditions contained in sub-section (2) shall be modified to the extent that the deduction under section 80LA shall be available to such Unit subject to fulfilment of the conditions contained in the said section.

Explanation.-For the purposes of this sub-section, the term “Unit” shall have the meaning assigned to it in clause (zc) of section 2 of the Special Economic Zones Act, 2005. (28 of 2005.)

(5) Nothing contained in this section shall apply unless option is exercised in the prescribed manner by the person,-

(i) having income from business or profession, on or before the due date specified under sub-section (1) of section 139 for furnishing the returns of income for any previous year relevant to the assessment year commencing on or after the 1st day of April, 2021, and such option once exercised shall apply to subsequent assessment years;

(ii) having income other than the income referred to in clause (i), alongwith the return of income to be furnished under sub-section (1) of section 139 for a previous year relevant to the assessment year:

Provided that the option under clause (i), once exercised for any previous year can be withdrawn only once for a previous year other than the year in which it was exercised and thereafter, the person shall never be eligible to exercise option under this section, except where such person ceases to have any income from business or profession in which case, option under clause (ii) shall be available.]

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NOTES:-

1. Inserted vide Finance Act, 2020 dated 27-03-2020 w.e.f. 01-04-2021

Provisions of Chapter XII which may apply to an individual and HUF who opt for S.115BAC

S. 110.  [Determination of tax where total income includes income on which no tax is payable

 This relates to income which are exempt but included for rate purposes e.g. agricultural income

S.111 Tax on accumulated balance of recognised provident fund.

S.111A Tax on short term capital gains in certain cases.

S.112 .Tax on long-term capital gains

S.112A . Tax on long-term capital gains in certain cases.

S.113. Tax in the case of block assessment of search cases

S.114, 115  NA  - have been omitted.

S.115A- not applicable to individuals and HUF as it apply to foreign companies

S.115AB- Not likely to apply as it apply to individual and HUF as it apply to an overseas financial organization / Offshore Fund. If an individual or HUF owns such organization then this  only will apply.

^{S.115ACA 1}[Tax on income from bonds or Global Depository Receipts purchased in foreign currency or capital gains arising from their transfer.

115AC. tax on income from bonds or Global Depository Receipts purchased in foreign currency or capital gains arising from their transfer

(1) Where the total income of an assessee, being a non-resident, includes-….

S.115BB .Tax on winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or gambling or betting of any form or nature whatsoever.

115BBA.  Tax on non-resident sportsmen or sports associations.

115BBB.  [Tax on income from units of an open-ended equity oriented fund of the Unit Trust of India or of Mutual Funds.

S.115BBC. ¹[Anonymous donations to be taxed in certain cases.

115BBD.  Not applicable in case of individual and HUF - Tax on certain dividends received from foreign companies by a company.

S.115BBE. Tax on income referred to in section 68 or section 69 or section 69A or section 69B or section 69C or section 69D

115BBF. (1)  Tax on income from patent.

S.115BBG. [Tax on income from transfer of carbon credits.

Other provisions of Chapter XII are not likely to apply in case of individuals and HUF.