Concessional Income Tax Rates – What if Return is Filed Belatedly

Concessional Income Tax Rates- What if Return is Filed Belatedly

The Finance Bill, 2020 has proposed to introduce w.e.f. 01.04.2021 the concessional (optional) rates of income tax for individuals, HUFs and cooperative societies by inserting two new sections 115BAD (for cooperative societies) and 115BAC (for individuals and HUFs).

It is an issue that whether these concessional tax rates will be available in cases where the Income Tax return is filed belatedly under Section 139(4) or for the first time u/s. 148, 142(1) etc. In this article, an attempt has been made to discuss the above issue along with an in-depth analysis of various other aspects of these new sections.

Budget 2020- No Change In Basic Tax Rates:

In budget 2020, there is no change in basic tax rates for the assessment year 2021-22 (the financial year 2020-21). They are the same as they were for the assessment year 2020-21 (the financial year 2019-20).

Levy Of Tax At Special Rates Will Not Be Affected:

The new sections 115BAC and 115BAD are inserted in Chapter XII. This Chapter contains various cases where tax is to be charged at special rates / in a special manner / as special cases. Subsection (1) of section 115BAC and 115BAD specifically says that the concessional rates are subject to the provisions of Chapter XII. It means the concessional tax rates will not be applicable to that income for which the tax is to be charged at special rates etc.

Concessional Rates Are Optional: 

The concessional tax rates are optional. They will be applicable only when the option for adopting them will be exercised in a given time and given manner. If the option is not exercised or exercised but not in a given time and given manner then the basic tax rates will automatically become applicable.

Concessional Rates Are Conditional: 

The concessional tax rates are conditional. They will be applicable only if the conditions prescribed for them will be followed. Basically, the conditions are that various deductions, claim, set off of losses, etc. allowable under the Income Tax Act in computing the total income will have to be forgone. All the deductions, claims, etc. are not to be forgone. Only the prescribed deductions etc. are to be foregone.

Concessional Rates Are Not Different For Different Type Of Individuals: 

The basic slab tax rates are different for a different type of individual taxpayers based on their age i.e., different tax rates (a) for resident senior citizens (b) for resident super senior citizens and (c) for all other resident individuals up to age of 59 years + non-resident individuals of all age. But the concessional tax rates are common for both resident and non-resident individuals of all the age.

Concessional Rates Not Applicable For BOI And AOP Etc.: 

Since long the basic tax rates have remained common for individuals (nonsenior citizens), HUFs, AOPs, BOIs, and artificial judicial persons. However, the new concessional rates will be applicable only in respect of individuals and HUFs. The income of AOP, BOI and artificial judicial persons will continue to be charged at basic tax rates.

Rebate Under Section 87A May Be Available From Concessional Rates:

On the insertion of new section 115BAC, there is no consequential amendment in section 87A. Further, section 115BAC also does not contains any provision that the rebate under section 87A will not be allowable in case of opting for concessional rates. Thus, the rebate may be available from concessional rates also. (Note – in case of resident individuals, having total income up to Rs. 5 lakhs, the rebate of 100% of tax up to Rs. 12,500/- is allowable.)

Switching Between Basic Rates And Concessional Rates:

In this regard, the position is different for persons having business income and those having no business income.

Persons not having business income: They are free to switch every year, between the basic tax rates and concessional tax rates as per their convenience and benefit. For example, they may pay tax in one year on concessional rates and then may pay tax in next year on basic tax rates and again in the next year on concessional rates, etc.

Persons having business income: They are not entitled to switching between different options from year to year. Once the option is exercised validly, they are bound to follow the same for subsequent years also. However, they are given only one time chance for withdrawal from the concessional rate scheme. But after that, they will not be entitled to re-entry in the concessional rate scheme.