The 2020 Union budget has offered the taxpayers an option to choose between the newly proposed income tax structure or the existing one. The proposed tax regime comes with lower rates but with no deductions. On the other hand, the existing tax regime comes with higher rates but one can claim exemptions or deductions. But is it possible for the taxpayers to choose between the two slabs each financial year according to their income?
What the experts say
According to Archit Gupta, founder and CEO, ClearTax, as long as the taxpayers does not have any business income, they have the choice of opting between the old and new regime each financial year.
As per the new section, the tax slab has been bifurcated into two categories, one is for those who are earning business income and the second for those who are not. Business income is a type of income realised as a result of an entity's operations.
"One who is not earning business income can do the calculation every year and see which scheme is more beneficial," said Naveen Wadhwa, deputy general manager, Taxmann, a tax advisory firm.
The best way to determine which regime is better is by calculating the tax liability.
"If an individual has not opted for any deductions, he/she should instantly shift to the newer tax structure. On the other hand, if somebody is availing the exemptions, he/she is required to calculate taxes and see which scheme is beneficial," Wadhwa explained.
Sandeep Sehgal, director - tax and regulatory, Ashok Maheshwary & Associates LLP states, “Those who do have business income can opt for the new one and once opted, they need to follow the same for all the subsequent years and then can withdraw only once. However, if the business is discontinued for any reason, they can choose between the two options as per their convenience.”
What budget memorandum states
According to the Budget memorandum, the option to choose between the two slabs should be exercised for every previous year where the individual or the Hindu undivided family (HUF) has no business income, and in other cases the option once exercised for a previous year should be valid for that previous year and all subsequent years.
"The option will become invalid for a previous year or previous years, as the case may be, if the Individual or HUF fails to satisfy the conditions and other provisions of the Act will apply," it reads.