ALTERNATIVE TAX REGIME BY - PowerPoint Presentation

1. ALTERNATIVE TAX REGIMEBYCMA S VENKANNACOST ACCOUNTANT18/05/2021ICMAIBehind Every Successful Business Decision, There Is Always A CMA

2. IntroductionA progressive tax is a tax system that increases rates as the taxable income goes up. It is divided into tax brackets that progress to successively higher rates. For example, a progressive tax rate may move from the lowest and highest brackets, as the taxable amount increases.In a progressive tax system, a taxpayer’s marginal tax rate is higher than their average tax rate. 18/05/2021ICMAI

3. MethodsVarious tax methods that governments may use include progressive, regressive, digressive, or proportional. The Progressive Tax System is one where the tax burden increases as taxable income increases. In some cases, there is a minimum tax-free income where individuals earning less than the stated minimum taxable amount are not liable for any payments to tax authorities.The opposite of the progressive system is the regressive tax rateHere tax liability reduces as the taxable amount increases. Regardless of the rate used, the government aims to collect money from citizens.18/05/2021ICMAI

4. Economist’s ViewProgressive tax imposes a higher percentage rate on taxpayers who have higher incomes. The U.S. income tax system is an example.A regressive tax imposes the same rate on all taxpayers, regardless of ability to pay. GST is an example.18/05/2021ICMAI

5. Alternative Tax RegimeAt present available to bothCorporate Sector - from the year AY 2017-18Required Corporate Tax PlanningSec.115BASec.115BAASection BABNon corporate sectorFrom AY 201-22Tax Planning to Non Corporate SectorSec.115BACSec.115BAD18/05/2021ICMAI

6. Maximum Marginal Rate of TaxAll assesses30% Plus Applicable Surcharge Plus HEC at 4%18/05/2021ICMAI

7. Corporate Sector – Part ISection 115BA - ConditionsApplicable to Domestic CompanyCompany in the manufacturing or production of articles or thingsCompany Registered or afte lst March 2016First Assessment Year - from the Assessment Year 2017-18Gross Receipts or Turnover should not exceed Rs.400 crores in in the year 2017-28 (Rs.250 crores for the year 2016-17)However MAT under section 115JB ApplicableCompanie does not opt for section 115BAA then it shall be chargeable to tax at the rate of 25% plus applicable surcharge and health & education cess. The surcharge in such a case shall be 7% or 12% when the total income of the company exceeds Rs. 1 crores or Rs. 10 crores, respectively.18/05/2021ICMAI

8. Sec.115 BA ConditionsTotal Income is computed without claiming the following:Section 10AA – 100% profit exemption for an undertaking in SEZSec.32AC – Additional deduction of 15% Investment Allowance on investment in new Plant and Machinery Investment more than Rs.25 crores) This section is not applicable from the 2018-19.Sec.32AD- 15% deduction in backward states in AP, Bihar, Telengarana and West Bengal.Sec.33AB – Deduction upto 40% on deposit of profit in a special account at NABARD – Applicable to Companies, in Coffee, Tea and Rubber Development18/05/2021ICMAI

9. Sec.33ABA – deduction upto 20% of the profit in special account at SBI – Site Restorate Fund. (Miners Oil extraction)Sec.35(1)(ii) (iia) (iii) – 100% deduction of payment made to approved Scientific ResearchSec.35(2AA) and (2AB) – payment made to National Laboratory or University or Indian Institute of Technology.Sec.35AC – deduction on payment to another public company for eligible project or scheme.Sec.35AD- deduction available towards any capital expenditure, wholly and exclusively, incurred for carrying on a specified business18/05/2021ICMAI

10. Sec.35CCC – Deduction for Expenditure incurred on Notified Agricultural Extension ProjectSec.35CCD – provides deduction towards expenditure incurred on the skill development projectHowever Deduction under section 80JJAA available regarding deduction of salaries paid to newly recruited employees.Losses: Brought Forward losses not available for deductionsOption cannot be withdrawn. But can be shifted to Sec.115BAA18/05/2021ICMAI

11. Section 80H : Deduction in case of new industrial undertakings employing displaced persons, etc.Section 80HH : Deduction in respect of profits and gains from newly established industrial undertakings or hotel business in backward areasSection 80HHA : Deduction in respect of profits and gains from newly established small-scale industrial undertakings in certain areasSection 80HHB : Deduction in respect of profits and gains from projects outside IndiaSection 80HHBA : Deduction in respect of profits and gains from housing projects in certain casesSection 80HHC : Deduction in respect of profits retained for export businessSection 80HHD : Deduction in respect of earnings in convertible foreign exchangeSection 80HHE : Deduction in respect of profits from export of computer software, etc.Section 80HHF : Deduction in respect of profits and gains from export or transfer of film software, etc.Section 80I : Deduction in respect of profits and gains from industrial undertakings after a certain date, etSection 80IA : Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc.Section 80IAB : Deductions in respect of profits and gains by an undertaking or enterprise engaged in development of Special Economic ZoneSection 80IAC : Special provision in respect of specified business.Section 80IB : Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakingsSection 80IBA : Deductions in respect of profits and gains from housing projects.Section 80IC : Special provisions in respect of certain undertakings or enterprises in certain special category of statesSection 80ID : Deduction in respect of profits and gains from business of hotels and convention centres in specified area18/05/2021ICMAI

12. Section 80IE : Special provisions in respect of certain undertakings in North-Eastern StatesSection 80JJA : Deduction in respect of profits and gains from business of collecting and processing of bio-degradable wasteSection 80JJAA : Deduction in respect of employment of new employeesSection 80LA : Deductions in respect of certain incomes of Offshore Banking Units and International Financial Services CentreSection 80O : Deduction in respect of royalties, etc., from certain foreign enterprisesSection 80P : Deduction in respect of income of co-operative societiesSection 80Q : Deduction in respect of profits and gains from the business of publication of booksSection 80QQA : Deduction in respect of professional income of authors of text books in Indian languagesSection 80QQB : Deduction in respect of royalty income, etc., of authors of certain books other than text-booksSection 80R : Deduction in respect of remuneration from certain foreign sources in the case of professors, teachers, etc.Section 80RR : Deduction in respect of professional income from foreign sources in certain casesSection 80RRA : Deduction in respect of remuneration received for services rendered outside IndiaSection 80RRB : Deduction in respect of royalty on patents18/05/2021ICMAI

13. Example – Sec.115BA18/05/2021ICMAI

14. Sec.115BAAAssessee: Domestic Company – Public or Private Applicable from AY 2020-21Tax Rate = 22%Surcharge = 10% applicable (irrespective of the income)HEC = 4%Shareholders may be Non ResidentsDeductions = Not available like 115BAAdjustment of B/F Losses = Not available (including unabsorbed depreciation)MAT Provisions u/s.115JB not applicable18/05/2021ICMAI

15. ConditionsSuch companies should not avail any exemptions/incentives under different provisions of income tax. Therefore, the total income of such company shall be computed without:Claiming any deduction especially available for units established in special economic zones under section 10AAClaiming additional depreciation under section 32 and investment allowance under section 32AD towards new plant and machinery made in notified backward areas in the states of Andhra Pradesh, Bihar, Telangana, and West BengalClaiming deduction under section 33AB for tea, coffee and rubber manufacturing companiesClaiming deduction towards deposits made towards site restoration fund under section 33ABA by companies engaged in extraction or production of petroleum or natural gas or both in IndiaClaiming a deduction under Section 35 for expenditure on scientific research, or an amount paid to a university or research association or National Laboratory or IIT.Claiming a deduction for the capital expenditure incurred by any specified business under section 35ADClaiming a deduction for the expenditure incurred on an agriculture extension project under section 35CCC or on skill development project under section 35CCD18/05/2021ICMAI

16. Claiming deduction under chapter VI-A in respect to certain incomes, which are allowed under section 80IA, 80IAB, 80IAC, 80IB and so on, except deduction under section 80JJAA and 80M.Claiming deduction under chapter VI-A in respect to certain incomes, which are allowed under section 80IA, 80IAB, 80IAC, 80IB and so on, except deduction under section 80JJAAClaiming a set-off of any loss carried forward or depreciation from earlier years, if such losses were incurred in respect of the aforementioned deductionsA claim by an amalgamated company for set-off of carried forward loss or unabsorbed depreciation belonging to an amalgamating company if such loss or unabsorbed depreciation is on account of the above deductions; claiming a deduction for additional/accelerated depreciation. The normal depreciation can however be claimed.18/05/2021ICMAI

17. Carry forward of lossesThe above losses shall be deemed to have been allowed and shall not be eligible for carry forward and set off in subsequent years this means that if the company opts for 115BAA then the opportunity for claiming set off is lost forever;There is no restriction on turnover and the company need not be a new company, any existing company can migrate into this section at any point.18/05/2021ICMAI

18. Opting outThe domestic companies who do not wish to avail this concessional rate immediately can opt for the same after the expiry of their tax holiday period or exemptions/incentives.However, once such a company opts for the concessional tax rate under section 115BAA of the Income Tax Act,1961, it cannot be subsequently withdrawn.18/05/2021ICMAI

19. Example18/05/2021ICMAI

20. Sec.115BABTax Rate = 15% on income from manufacturing activityTax Rate = Non manufacturing Activity = 22%STCG = non depreciable assets = 22%STCG = Depreciable Asset = 15%Any other Income = 30%Surcharge at 10% plus HECApplicable to Domestic Company Registered after 1.10.2019Manufacturing Company only (new Company only)(not formed under Reconstruction Scheme)Does not use old plant and machinery (but imported second machinery allowed)Manufacture does not includeSoftwareMiningMarbleGas bottlingPrintingAny other notifiedNo adjustment for B/F losses18/05/2021ICMAI

21. OthersIf the Company does not opt in the first yearIneligible in the next yearOption cannot be withdrawnIf there is a default in the conditions, no option in subsequent year18/05/2021ICMAI

22. Example – Sec.115BAB18/05/2021ICMAI

23. Non Corporate Sector – Part IISec.115BACApplicable to Individuals and HUFFrom Assessment year 2021-22Sec.115BADApplicable to Co-Operative SocietiesFrom Assessment Year 2021-2218/05/2021ICMAI

24. Sec.115BAC – Income from Individuals and HUFNormal Tax RateUpto Rs.2,50,000 = NilUpto Rs.5,00,000 = 5%%Upto Rs.10,00,000 = 20%Tax Rebate = 87A (if the income is less than Rs.5,00,000) 100% Rs.12,500Surcharge upto income of Rs.50 lakhs = NilSurcharge at 10% above Income of Rs.50.00 upto Rs.1.00 CroreSurcharge at 15% From Rs.1 crore to Rs.2.00 croreSurcharge at 25% from Rs.2 crores to 5 CroresSurcharge at 37% if the income exceeds Rs.5,00,000 (u/s.115BAC)Health and Education at 4% Exemption to Resident Senior Citizen = Rs.3,00,000 and Resident Super Citizen Rs.5,00,000 available.18/05/2021ICMAI

25. Alternative Tax RegimeIncome RangeTax RaeUpto Rs.2,50,000NilFrom Rs.2,50,000 to Rs.5,00,000 (Rebate Available u/s.87A5%From Rs.5,00,000 to Rs.7,50,00010%From Rs.7,50,000 to Rs.10,00,00015%From Rs.10,00,000 to Rs.12,50,00020%From Rs.12,50,000 to Rs.15,00,00025%Above Rs.15,00,00030%18/05/2021ICMAI

26. Deductions not allowedLeave Travel Allowance (LTA)House Rent Allowance (HRA)Conveyance allowanceDaily expenses in the course of employmentRelocation allowanceHelper allowanceChildren education allowanceOther special allowances [Section 10(14)]Standard deduction on salaryProfessional taxInterest on housing loan (Section 24)Deduction under Chapter VI-A deduction (80C,80D, 80E and so on) (Except Section 80CCD(2))Any things covered under section 80C18/05/2021ICMAI

27. Other Exemptions and Deductions18/05/2021ICMAIExemptionsDeductionsPublic Provident FundELSS (Equity Linked Saving Scheme)Mobile and Internet ReimbursementEmployee Provident FundFood Coupons or VouchersLife Insurance PremiumCompany Leased CarPrincipal and Interest component of Home LoanChildren Tuition FeesUniform AllowanceHealth Insurance PremiumsInvestment in NPSInterest on SB Account

28. Analysis of New Tax RegimeThe new tax regime can largely benefit middle class taxpayers who have a taxable income upto Rs 15 lakh. Old regime is a better option for high-income earners.The new income tax regime is beneficial for people who make low investments. As the new regime offers seven lower income tax slabs, anyone paying taxes without claiming tax deductions can benefit from paying a lower rate of tax under the new tax regime. For instance, assessee having total income before deduction up-to Rs 12 lakh will have higher tax liability under the old system if they have investments less than Rs 1.91 lakh. Therefore, if invest less in tax-saving schemes, new regime good.18/05/2021ICMAI

29. Time of SelectionEmployeesAn employee can opt the new tax regime and intimate their employer in the beginning of FY 2020-21 . Employees can change the option of selecting the tax regime every yearHowever if new tax slab regime is opted at the begning of the year, it cannot be changed anytime during the year for TDS purpose.However the option can be changed at the time of filing of Income-tax return.Assessees with business or professionthe option to choose between the new tax regimes is available only once for a particular business.18/05/2021ICMAI

30. Which one is betterNo one AnswerCalculate all the exemptions that you are availing: Claiming HRA is the important salary exemption.Apart from that, other tax-free components include LTA, Food Bill, Phone Bills, etc. All these will become taxable if you choose to shift to the new tax regime.Look at the deductions that you claim: A salaried employee, two deductions that you automatically get areStandard deduction of Rs 50,000 andContribution towards your Employee Provident Fund (EPF). In the new regime, cannot claim these deductions.Cannot claim deductions against home loan or insurance policies, which till now has helped to reduce your taxable income.18/05/2021ICMAI

31. New RegimeThe new tax regime is only useful for those who have liquidity problem and are not able to avail full benefits of Section 80 C and who do not have any health insurance as well as do not have any home loan running. The new regime may be suitable for only a handful of self-employed or an HUF. The self-employed do not have the choice to come back to old tax regime once the new one is opted unless they stop having business income. Hence the person with business income has to be very careful while migrating to new regime as it is only one way.18/05/2021ICMAI

32. Person with business incomeThe new tax regime is optional for tax payers, they can evaluate their tax liability under both regime and can choose more beneficial regime from A.Y.2021-22 or any subsequent year. However, for the taxpayers having income from business or profession cannot switch between the new tax regime and regular tax regimes every year. If the taxpayer having income from business or profession opts for the new tax regime, such taxpayers get only one chance in their lifetime to come back to the regular tax regime and will not be eligible for opting new tax regime again, unless the taxpayer’s business income ceases to exist.18/05/2021ICMAI

33. Assessment proceedingsTax payers are now free to formulate better investment and insurance strategies rather than depending on tax saving instruments for the purpose of saving taxes.In case of assessment proceedings before the tax authorities, documentation and proof of investments is required to be retained in the old regime, which may not be required in the new regime.18/05/2021ICMAI

34. Example-General18/05/2021ICMAI

35. SeniorsPlease note that the tax rates in the New tax regime is the same for all categories of Individuals, i.e Individuals & HUF upto 60 years of age, Senior citizens above 60 years upto 80 years , and Super senior citizens above 80 years. Hence no increased basic exemption limit benefit will be available to senior and super senior citizens in the New Tax regime.Individuals with Net taxable income less than or equal to Rs 5 lakh will be eligible for tax rebate u/s 87A i.e tax liability will be nil of such individual in both – New and old/existing tax regimes.18/05/2021ICMAI

36. Example – Senior CitizenFY 2020-21 (AY 2021-22) - Senior CitizenParticularsOld Tax RegimeNew Tax Regime   Total Income 10,00,000 10,00,000 Deductions  Sec.80C - Savings 1,50,000 NA Sec.80D - Medical Insurance 50,000 NA Sec.80TTB - Interest 50,000 NA Total Deductions 2,50,000 - Total Income 7,50,000 10,00,000 Less: Basic Exemption 3,00,000 2,50,000 Net Taxable Income 4,50,000 7,50,000 Tax Liability 12,500 37,500 Less: Rebate Sec.87A 12,500 - Add: Education Cess at 4% - 1,500 Total Tax Payable nil 39,000 18/05/2021ICMAI

37. Another Example18/05/2021ICMAI

38. House Property in New Tax Regime In case of a self-occupied property, does not allow to claim a deduction on interest for a housing loan. The deduction of Rs 2 lakh allowed in the existing system is not available in the new tax regime.Also, the set-off of the loss of Rs 2 lakh from house property from salary income is not allowed.In case of let-out a house property, the deductions on municipal tax, standard deduction of 30% and interest paid on housing loan is restricted till the rental income. Hence, the excess interest paid on housing loan will result in loss under the head income from house property. However, this loss cannot be set-off against any other head of income. Also, cannot carry forward the loss from house property to future years for set off.18/05/2021ICMAI

39. Sec.115BAD – Co-operative SocietiesCurrently, the co-operative societies are taxed at the slab rates  and the highest slab rate is 30% which applies when income  exceeds Rs. 20,000.To bring parity between the  co-operative societies and domestic companies, section  115BAD has been proposed to be inserted in Income-tax Act to  provide an option to the co-operative societies to get taxed at  the rate of 22% plus 10% surcharge and 4% cess.18/05/2021ICMAI

40. Provisions in briefwithout providing for specified exemption, deduction or incentive available under the Act. The societies opting for this section have been kept out of the  purview of Alternate Minimum Tax (AMT).Further, the provision  relating to computation, carry forward and set-off of AMT credit  shall not apply to these assessees.Where a co-operative society exercises option for availing benefit  of lower tax rate under section 115BAD, it shall not be allowed  to claim set-off of any brought forward losses or depreciation  attributable to any restricted exemption or deduction in the  Assessment Year for which the option has been exercised and  for any subsequent Assessment Year.18/05/2021ICMAI

41. Filing Filing of Form no. 10-IF The Resident Co-Operative Society exercising the option to apply section 115BAD in computing its income is required to furnish in Form no. 10-IF. Such form shall be furnished electronically using the digital signature or Electronic Verification Code(EVC).**************************************************************************Behind Every Successful Business Decision, There Is Always A CMA