Income Tax 2025

Appearance

New tax regime for individuals, Hindu undivided family and others. ​

202(1) ​

Irrespective of anything contained in this Act but subject to the provisions of Parts A, B and this Part the income-tax payable by a person, being— (a) an individual; or (b) a Hindu undivided family; or (c) an association of persons (other than a co-operative society); or (d) a body of individuals, whether incorporated or not; or (e) an artificial juridical person referred to in section 2(77)(g), in respect of the total income for a tax year, shall, unless the person exercises the option in the manner provided under sub-section (4), be computed at the rate of tax given in the following Table:—

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202(2) ​

For the purposes of sub-section (1), the total income of the assessee shall be computed—

  • (a) without any exemption or deduction under the provisions of or in–– (i) Schedule III (Table: Sl. No. 5 or 6 or 7 or 8 or 11 or 17); (ii) Schedule III (Table: Sl. No. 12 or 13) (other than those as prescribed for this purpose); (iii) section 144; (iv) section 19(1) (Table: Sl. No. 1); (v) section 22(1)(b), in respect of properties referred to in section 21(6); (vi) section 33(8); (vii) section 48; (viii) section 49; (ix) section 45(3)(a) or (b) or (c); (x) section 46; (xi) section 47(1)(a); (xii) of Chapter VIII other than the provisions of sections 124(1), 125(3) and 146; and
  • (b) without set off of— (i) any loss carried forward or depreciation from any earlier tax year, if such loss or depreciation is attributable to any of the deductions referred to in clause (a); or (ii) any loss under the head “Income from house property” with any other head of income; and
  • (c) without any exemption or deduction for allowances or perquisite, called by any name, provided under any other law in force.

202(3) ​

The loss and depreciation referred to in sub-section (2)(b) 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.

202(4) ​

Nothing contained in sub-section (1) shall apply to a person, where an option is exercised by such person under this section, in such manner as prescribed, for any tax year, and such option is exercised,––

  • (a) in case of a person having income from business or profession,–– (i) on or before the due date specified under section 263(1) for furnishing the returns of income for such tax year; (ii) such option, once exercised, shall apply to subsequent tax years; (iii) such option, once exercised, may be withdrawn only once for a tax year other than the tax year for which it was exercised; and (iv) after such withdrawal, the person shall never be eligible to exercise the option under this sub-section, except where such person ceases to have any income from business or profession, and in such a case the option under clause (b) shall be available;
  • (b) in case of a person not having income from business or profession, along with the return of income to be furnished under section 263(1) for the tax year.

202(5) ​

In case of a person, having a Unit in the International Financial Services Centre, who has exercised the option under sub-section (4) for any tax year from 2020-21 to 2023-24, the provisions of sub-section (2) shall be modified to the extent that deduction under the said section shall be available to such Unit subject to fulfilment of the conditions contained in that section.

Explanation

Section Summary: ​

This section introduces a new tax regime for individuals, Hindu Undivided Families (HUFs), associations of persons, bodies of individuals, and certain artificial juridical persons. It provides an alternative tax structure with lower tax rates but restricts the availability of most exemptions, deductions, and set-offs. Taxpayers can choose to opt for this new regime or continue with the old regime, subject to specific conditions.

Key Changes: ​

  1. Introduction of a New Tax Regime: The new regime offers lower tax rates but eliminates most exemptions, deductions, and set-offs, such as those under Sections 80C, 80D, and others.
  2. Mandatory Opt-In: Taxpayers must explicitly opt for the new regime. If they do not, the old regime will apply by default.
  3. Restrictions on Loss Set-Off: Losses from house property and carried-forward losses or depreciation attributable to deductions under the old regime cannot be set off under the new regime.
  4. Irrevocable Option for Business Income: Once the new regime is chosen for a business or profession, it applies to subsequent years and can only be withdrawn once, after which the taxpayer cannot opt for the new regime again unless they cease to have business income.
  5. Special Provisions for International Financial Services Centre (IFSC) Units: Units in IFSCs have modified provisions for deductions under this section for specific tax years.

Practical Implications: ​

  1. For Individuals and HUFs: Taxpayers must decide whether the lower tax rates under the new regime outweigh the benefits of exemptions and deductions available under the old regime. This decision depends on their income sources, investments, and eligibility for deductions.
  2. For Businesses: Businesses opting for the new regime must be cautious, as the choice is largely irreversible. They will lose the ability to claim many deductions and set-offs, which could impact their tax liability.
  3. Compliance Burden: Taxpayers must carefully evaluate their financial situation and make an informed choice before opting for the new regime, as switching back is limited.
  4. IFSC Units: Units in IFSCs have a temporary window to claim deductions under modified provisions, which could benefit them during the specified tax years.

Critical Concepts: ​

  1. Total Income Computation: Under the new regime, total income is computed without most exemptions, deductions, or set-offs. This includes:
    • No deductions under Sections 80C, 80D, etc.
    • No set-off of house property losses against other income.
    • No carry-forward of losses or depreciation attributable to deductions under the old regime.
  2. Irrevocable Option: For taxpayers with business income, the choice of the new regime is binding for future years, with limited withdrawal options.
  3. IFSC Units: These units can claim deductions under modified provisions for specific tax years, subject to conditions.

Compliance Steps: ​

  1. Evaluate Tax Regime Options: Compare tax liability under both regimes, considering available deductions and exemptions.
  2. Opt-In for New Regime: If choosing the new regime, ensure the option is exercised:
    • For business income: Before the due date for filing the return for the relevant tax year.
    • For non-business income: Along with the return of income.
  3. Maintain Documentation: Keep records of the option exercised and any calculations supporting the decision.
  4. Monitor Changes: For businesses, ensure compliance with the irrevocable nature of the option and plan for future tax years accordingly.

Examples: ​

  1. Individual Taxpayer:

    • An individual with a salary of ₹12 lakh and investments eligible for deductions under Section 80C (₹1.5 lakh) and Section 80D (₹25,000) must decide whether the lower tax rates under the new regime outweigh the loss of these deductions.
    • Under the old regime, taxable income would be ₹10.25 lakh (₹12 lakh - ₹1.75 lakh). Under the new regime, taxable income remains ₹12 lakh, but the tax rates are lower.

  2. Business Taxpayer:

    • A business with ₹20 lakh income and ₹2 lakh in eligible deductions under the old regime must decide whether to opt for the new regime. Once chosen, the business cannot revert to the old regime in subsequent years, except under specific conditions.

  3. IFSC Unit:

    • An IFSC unit with income of ₹50 lakh can claim deductions under modified provisions for tax years 2020-21 to 2023-24, reducing its taxable income under the new regime.

This section provides a simplified tax structure but requires careful consideration of long-term implications, especially for businesses and those with significant deductions.