Taxation under Section 115BAC of Income Tax Act

 

Taxation for Individual/HUF (Resident or Non-resident) Opting for taxation under Section 115BAC

 

a)      Concessional Tax rates

Total Income	Tax rate
Upto Rs. 2,50,000	NIL
From Rs 2,50,001 to Rs 5,00,000	5%
From Rs 5,00,001 to Rs 7,50,000	10%
From Rs 7,50,001 to Rs 10,00,000	15%
From Rs 10,00,001 to Rs 12,50,000	20%
From Rs 12,50,001 to Rs 15,00,000	25%
Above 15,00,000	30%

 

b)      Conditions to be full-filled for availing option u/s 115BAC

 

Particulars	Individual, not having income from business or profession. (Employee)	Individual or HUF,  having income from Business or Profession
How to avail Option  u/s 115BAC	In order to avail option for any assessment year, Assessee needs to file FORM 10-IE, before due date of filing ITR.	i.     In order to avail option for any assessment year, Assessee needs to file FORM 10-IE, before due date of filing ITR.  ii.     Option once exercised for any AY, will continue to apply for subsequent AY mandatorily. iii.     Assessee can withdraw the option and once he do it, then this option cannot be avail again. He can avail the option again, if he ceased to carry on the business.
Deductions/  exemption not Allowed	i.     Leave travel concession/allowance ii.     House Rent Allowance iii.     Allowances specified u/s 10(14). However Travel allowance, transfer allowance and Conveyance allowance is allowed as a deduction. iv.     Free food provided by an employer through paid voucher, having value upto Rs. 50/meal. v.     Daily allowance /constituency allowance received by MP/MLA vi.     Standard Deduction from Salary and deduction on account of Entertainment allowance and Professional tax. vii.     Interest on Housing loan on self-occupied Property viii.     No standard deduction from Family pension. ix.     Deduction under chapter VIA, other than employer contribution to NPS x.     Exemption of Rs. 1500 on account of clubbing of Minor Income	i.     Interest on Housing loan on self-occupied Property  ii.     Exemption to units in SEZ iii.     Additional Depreciation. iv.     The depreciation on any block of assets, where depreciation rate is more than 40%, will be restricted to 40% only.  v.     Investment in new plant or machinery in notified backward areas in certain States (Section 32AD) vi.     Tea /Coffee/ Rubber Development account Section 33AB vii.     Specific expenditure on scientific expenditure- Section 35 viii.     Deduction in respect of expenditure on specified business- Section 35AD ix.     No standard deduction from family pension  x.     Deduction under chapter VIA, other than deduction in respect of new employee u/s 80JJAA xi.     Exemption of Rs. 1500 on account of clubbing of Minor Income
Losses Set-off Provisions , when option u/s 115BAC is exercised	a)  Bought forward Loss under the head  “PGBP” and “Capital Gain”, if attributable to deductions not allowable u/s 115BAC, will NOT be set-off  and will lapse forever b)  Other Bought forward loss under the head  “PGBP” and “Capital Gain”, can be set-off, if any and can be further carried forward, if any c)   Bought forward unabsorbed ADDITIONAL depreciation CANNOT be set-off and will lapse forever. d)  Bought forward unabsorbed depreciation (NORMAL),  can be set-off and further carried forward, if any. e)  Loss under the head “Income from House property” i) Bought forward loss on account of self-occupied property, CANNOT be set-off against income from house property and such loss will lapse forever. ii)      Bought forward loss on account of Let out property, CAN be set-off against income from house property and such loss can be carried forward, if not set-off. iii)    Current Year Loss CANNOT be set-off against any other income and such loss will lapse forever. Refer Example below
Others		If option for section 115BAC is availed for AY 2021-22, the WDV of block of Assets as at 1-4-2020, shall be increased by bought forward unabsorbed ADDITIONAL DEPRECIATION disallowed as above If Option is exercised after AY 2021-22, then above benefit of increasing WDV of Block of Assets is not available.

 

 

c)       Other Points- The following special income will continue to be taxable at special rates mentioned in respective sections

i)                    Short Term Capital Gains u/s 111A

ii)                   Long term Capital Gains u/s 112

iii)                 Long term capital gains u/s 112A

iv)                 Tax on winning from lotteries etc. us/ 115BB

v)                  Tax on unexplained credit, unexplained investment etc. u/s 115BBE

vi)                 Tax on income from patent u/s 115BBF

 

 

Example

1.       Mr. A is working as an employee in PY 20-21 and as at 31/3/2020, he was entitled to carried forward the following Losses from business, which was stopped in FY 19-20.

a)      Business Loss (Not due to deductions not allowed u/s 115BAC) – Rs. 5,00,000

b)      Bought forward unabsorbed Additional Depreciation – Rs. 3,00,000

c)       Bought forward unabsorbed Normal Depreciation – Rs. 1,00,000

 

If Mr. A avail option for taxation u/s 115BAC, the following consequences will prevail

i)                    He can continue to carry business loss of Rs. 5 lacs and can set-off such business loss , if starts business in future  within the time frame within which such loss is allowed to set-off.

ii)                   Bought forward unabsorbed Additional depreciation of Rs. 3 lacs will lapse forever.

iii)                 He can continue to carry unabsorbed Normal Depreciation of Rs. 1 lakh and can set-off such depreciation, if starts business in future.

 

2.       Mr. A is having bought forward loss under the head ‘Income from House Property”  ,on account of self-occupied property ,to the extent of Rs. 1,60,000 as at 31-03-2020. He has Income from house property in PY 20-21 – Rs.1,70,000. If Mr. A opts for taxation u/s 115BAC in PY 20-21, he cannot set-off of Rs. 1,60,000 against income of Rs. 1,70,000 and such loss will lapse forever, even if he does not opt for taxation in subsequent PY 21-22.

 

 

Surcharge on Dividend Income of Resident Individual-AY 21-22

 

Surcharge on Dividend Income of Resident Individual-AY 21-22

 

Finance Act 2019 introduced the enhanced surcharge on Individuals (Resident or Non-resident), ranges from 10% to 37%, and through other amendments, the surcharge on Capital Gains taxable u/s 111A and 112A was restricted to 15%. In view of distinct rate of taxation of capital gains taxable u/s 111A and 112A, the separate surcharge amount can be computed on

a)      Capital gains taxable u/s 111A & 112A and

b)      Income, other than such Capital Gains.

Finance Act 2020, inter-alia, makes following amendments, as applicable for Assessment year 2021-22:-

a)      Dividend is made fully taxable in the hands of shareholders,

b)      Surcharge on Dividend income received by an Individual shareholders (Resident or Non-resident) is restricted to 15%.

c)       The taxation rate of dividend on Non-resident Individual will be 20%, as per section 115A

d)      In case of Resident Individual, the dividend income will be part of total Income and will be taxable as per applicable slabs

 The Surcharge mechanism as applicable to Individual (Resident or Non-resident) is summarized as under:-

Total Income	Total Income level –Nature		Surcharge Rate on Tax.
	Income other than Capital Gain (Taxable u/s 111A & 112A) or Dividend	Capital Gain (Taxable u/s 111A & 112A) or Dividend	Tax on Income other than Capital Gain (Taxable u/s 111A & 112A) or Dividend	Tax on Capital Gain (Taxable u/s 111A & 112A) or Dividend
Exceeding 50 lacs but up to Rs. 1 Cr	Any Nature or level of Income		10%	10%
Exceeding 1 Cr but up to Rs. 2 Cr	Any Nature or level of Income		15%	15%
Exceeding 2 Cr but up to Rs. 5 Cr	Exceeding Rs 2 Cr but upto 5 Cr	NIL	25%
	Exceeding Rs 2 Cr but upto 5 Cr	2 Cr or less/ Exceeding Rs 2 Cr but upto 5 Cr	25%	15%
	2 Cr or less	Exceeding Rs 2 Cr but upto 5 Cr	15%	15%
Exceeding Rs 5 Cr	Exceeding Rs. 5 Cr	NIL	37%
	Exceeding Rs. 5 Cr	5 Cr or less/ Exceeding Rs. 5 Cr	37%	15%
	5 Cr or less but more than 2 Cr	Exceeding Rs. 5 Cr	25%	15%
	2 Cr or less	Exceeding Rs. 5 Cr	15%	15%

 

Issue:- How to compute Surcharge on Dividend Income, taking following data as an example

a)      Other Income – 250 lacs

b)      Dividend Income – Rs. 10 lacs

c)       Total Income – Rs. 260 lacs

 

Non-Resident - No issue involved explained as under

S.No.	Particulars	Normal Tax	Surcharge
1.	Other Income (Assuming Individual has not opted for Section 115BAC) and applicable surcharge rate is 25%, as total income exceeds Rs. 2 Cr	73,12,500	18,28,125
2.	Dividend taxable @ 20% and surcharge @ 15%.	2,00,000	30,000
3.	TOTAL TAX	75,12,500	18,58,125

 

Resident – There is no clarification on how to compute separate tax on dividend, as for resident individual there is no special taxation rate, as in case of Non-resident

There could be following options to compute Tax on Dividend and surcharge thereon.

S.No.	Particulars	Normal Tax	Surcharge
1.	Total Income- Rs. 260 lacs (Assuming Individual has not opted for Section 115BAC)	76,12,500
2.	Less: Tax on Dividend (either of following options)
a)	Tax on Dividend on Average basis (10/260 * 76,12,500)	2,92,788	43,918
b)	Tax on Dividend @ 30%	3,00,000	45,000
c)	Tax on dividend (assuming that out total income of Rs. 260 lacs, First Rs. 10 lacs are dividend). Tax on 10 lacs income is Rs. 1,12,500.	1,12,500	16,875
3.	Surcharge on Income, other than dividend, will be @ 25% on tax amount, which  remains after excluding tax on dividend

 

Assessee will be most benefited when tax on dividend, in the instant case, is levied @ 30%. I hope Government will provide Clarification on above aspect in due course.