The Finance Act, 2020 had introduced a new Concessional Tax Rate (CTR) regime for individuals and Hindu Undivided Families (HUFs) wherein they were allowed to offer their total income at lower slab rates prescribed under the CTR regime provided they forgo certain specified deductions, exemptions, brought forward losses and unabsorbed depreciation.

It may be noted that the New CTR regime is optional for taxpayers and the option can be exercised in every tax year where the taxpayer does not have business or professional income. Such taxpayers need to exercise the option along with the return of income to be filed on or before the due date provided under the provisions of the Income-Tax Act, 1961.

In other cases, the option, once exercised by a taxpayer, is irrevocable until business/profession ceases and if opted out in any year, such taxpayer cannot opt in again till the business/ profession ceases. For such taxpayers, the CBDT will prescribe the form and manner of exercise of option under the new CTR regime. In case of salaried taxpayers, the CBDT permitted the employers to consider CTR for salary withholding tax purposes on the employee furnishing an intimation to that effect to the employer, as per an EY tax alert.

The Concessional Tax Rate regime permits the CBDT to notify the allowances which shall continue to be exempt in the hands of the salaried taxpayers opting for CTR.

CBDT Notification

1. In exercise of authority granted by the Concessional Tax Rate regime, the CBDT has prescribed the following allowances which shall continue to be exempt in the hands of salaried taxpayers opting for CTR, to the extent and subject to the conditions specified for availing exemption for such allowances in normal course:

a. Any allowance granted to meet the cost of travel on tour or on transfer

b. Any allowance, whether granted on tour or for the period of journey in connection with transfer, to meet the ordinary daily charges incurred by an employee on account of absence from his/her normal place of duty

c. Any allowance granted to meet the expenditure incurred on conveyance in performance of duties of an office or employment of profit (except where free conveyance is provided by the employer)

d. Transport allowance granted to an employee, who is blind or deaf and dumb or orthopaedically handicapped with disability of lower extremities, to meet his/her expenditure for the purpose of commuting between the place of his/her residence and the place of his/her duty in India, up to Rs 3,200 per month

2. It must be noted that the conditions to be fulfilled for availing exemption in normal course for above referred allowances will continue to apply. For instance, the first three allowances specified above are exempt only if they are specifically granted to meet the expenses wholly, necessarily and exclusively incurred in the performance of duties of an office or employment of profit to the extent to which such expenses are actually incurred for that purpose.

3. Furthermore, the Notification has removed the exemption in respect of free food and non-alcoholic beverage provided by employer through paid vouchers to the extent the value thereof does not exceed Rs 50 per meal and, consequently, such exemption will not apply to salaried taxpayer opting for the Concessional Tax Rate regime. It will continue to apply for salaried taxpayer not opting for CTR.

4. The above referred amendments will come into effect from 1 April 2021 and shall apply to the tax year 2020-21 (assessment year 2021-22) and subsequent years.

Commenting on the same, the EY tax alert says, “The CBDT Notification is in line with scheme of CTR explained in the Explanatory Memorandum to Finance Bill 2020 and, thus, implements the announcement made as part of Union Budget on February 1, 2020. Employers will need to consider the above referred amendments while doing salary withholding for the rest of the current tax year 2020-21 after making appropriate adjustments for excess or shortfall of tax, if any, arising due to non-cognizance of the above changes in salary withholding for April and May 2020 pending the issue of a formal notification by the CBDT in line with Explanatory Memorandum.”