Exemptions Available For Section 115BAC Regarding Allowances & Perquisites

Exemptions Available For Section 115BAC Regarding Allowances & Perquisites

Finance Act 2020 had introduced Section 115BAC in the Income Tax, 1961 for Individuals and HUFs to allow an option for a lower tax regime. The section also provides that the benefit of the lower tax regime shall be subject to non-availment of certain deductions or exemptions and without set-off of losses. 

CBDT vide Notification 38/2020 dated 26th June 2020 has made certain amendments in the Income Tax Rules, 1962 to allow the exemption of certain allowances received by a salaried individual opting to pay tax under Section 115BAC and to disallow the exemption for perquisites relating to free food and non-alcoholic beverages provided by the employer through paid vouchers.

notification_38_2020

1. Sub-rule (3) has been inserted in the existing Rule 2BB to allow the exemption for certain allowances received by a salaried individual who opts to pay tax as per Section 115BAC

“Notwithstanding anything contained in sub-rule (1) and (2), an employee, being an assessee, who has exercised an option under sub-section (5) of section 115BAC shall be entitled to exemption only in respect of the allowances mentioned in sub-clauses (a) to (c) of sub-rule (1) and at serial no.11 of the Table below sub-rule (2) to the extent and subject to the conditions, if any, specified therein”.

This sub-rule states that if any person opts to pay tax as per Section 115BAC, then only the following allowances received by such person shall be eligible for exemption and other allowances prescribed under Rule 2BB shall not be eligible for the exemption:

  • Any allowance granted to meet the cost of travel on tour or on transfer;
  • Any allowance, whether, granted on tour or for the period of journey in connection with the transfer, to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty;
  • Any allowance granted to meet the expenditure incurred on conveyance in performance of duties of an office or employment of profit provided that free conveyance is not provided by the employer;
  • Transport allowance granted to an employee, who is blind [or deaf and dumb] or orthopaedically handicapped with disability of lower extremities, to meet his expenditure for the purpose of commuting between the place of his residence and the place of his duty. The exemption is limited to Rs. 3,200 p.m. and covers the whole of India.

Rule 2BB contains a list of allowances that shall be exempt under Section 10(14)(i). A salaried individual opting to pay tax in accordance with Section 115BAC can claim exemption only for the four allowances as prescribed above. No exemption can be claimed by such taxpayers for the other allowances received.

2. A second proviso has been inserted in clause (iii) of Rule 3(7) to disallow exemption for free food and non-alcoholic beverage provided by the employer through paid voucher to a salaried individual who opts to pay tax as per Section 115BAC

“Provided further that the exemption provided in the first proviso in respect of free food and nonalcoholic beverage provided by such employer through paid vouchers shall not apply to an employee, being an assessee, who has exercised option under sub-section (5) of section 115BAC”

Rule 3 provides guidance for the valuation of certain perquisites provided by the employer to its employees. Rule 3(7)(iii) suggests how the value of the perquisite being free food and non-alcoholic beverages provided by the employer shall be calculated. The sub-rule states that the value of the said perquisite shall be equal to the amount of expenditure that the employer incurs. This amount has to be reduced by any amount recovered by the employer from its employees. 

The first proviso to the rule states that the value of free food and non-alcoholic beverages provided by the employer shall be excluded from the value of perquisites so far it is provided for consumption during working hours at the office or the business premises or through paid vouchers that can be encashed only at eating joints. However, there is an upper limit of Rs. 50 per meal. Further, the exemption also applies for tea or snacks provided to the employees during working hours or free food or non-alcoholic beverages given during working areas in a remote area of an off-shore installation.

Through the insertion of the second proviso, the exemption provided in the first proviso for the value of free food and non-alcoholic beverages provided through a paid voucher shall not be applicable for an individual taxpayer who opts for taxation as per Section 115BAC.

Section 115BAC provides an option to individual taxpayers and HUFs to pay tax at the following rates provided certain deductions and exemptions are not claimed and losses are not set off.

Total IncomeTax Rate
Upto Rs. 2,50,000Nil
Rs. 2,50,001 to Rs. 5,00,000 5%
Rs. 5,00,001 to Rs. 7,50,00010%
Rs. 7,50,001 to Rs. 10,00,00015%
Rs. 10,00,001 to Rs. 12,50,00020%
Rs. 12,50,001 to Rs. 15,00,00025%
Above Rs. 15,00,00030%

The deductions and exemptions that are not allowed to be taken by a taxpayer who opts to pay tax as per Section 115BAC are as follows:

SectionDescription
Section 10(5)Exemption for Leave Travel Concession
Section 10(13A)Exemption for House Rent Allowance
Section 10(14)Exemption for certain allowances and benefits prescribed under Rule 2BB (Except 4 allowances prescribed in the notification)
Section 10(17)Exemption for allowances received to MPs and MLAs
Section 10(32)Exemption for the income of minor clubbed as per clubbing provisions up to Rs. 1,500 per child
Section 10AADeduction for newly established units in SEZs
Section 16Standard deduction of Rs. 50,000, a deduction for entertainment allowance, and professional tax
Section 24(b)Deduction for interest paid on funds borrowed for acquisition or construction of house property
Section 32(1)(iia)Deduction for additional depreciation
Section 32ADDeduction of Investment Allowance
Section 33ABDeduction for tea, coffee, and rubber development
Section 33ABADeduction for amounts deposited in Site Restoration Fund
Section 35 [Sub-clauses (ii), (iia) & (iii) of sub-section (1) and sub-section (2AA)] Certain Deductions for expenditure on scientific research
Section 35ADDeduction for expenditure incurred on specified businesses
Section 35CCCDeduction for expenditure incurred on an agriculture extension project
Section 57(iia)Deduction in case of family pension
Deductions under Chapter VI-AExcept for deduction under section 80CCD(2) regarding employer’s contribution to NPS and section 80JJAA regarding employment of new employees i.e. only these two deductions are allowed under Chapter VI-A

 

Post by Niti Gupta

Niti Gupta is a Chartered Accountant who has experience working with different industries. She loves to write about anything and everything, but majorly research and write about finance and taxation.