Section 202: the default new tax regime rate schedule

Introduction

Section 202 is the default tax regime for eligible individuals, HUFs and other listed persons, with its own slab table and limits on exemptions, deductions and loss set-off.

The option to leave the default regime depends on whether the person has business or professional income and the statutory timing conditions.

Key takeaways

Who this section applies to

Section 202(1) applies to a person who is:

• an individual; or
• a Hindu undivided family; or
• an association of persons (other than a co-operative society); or
• a body of individuals, whether incorporated or not; or
• an artificial juridical person referred to in section 2(77)(g).

The default rate table (Section 202(1))

Unless the person exercises the opt-out option under sub-section (4), the income-tax payable on total income for a tax year is computed at these rates:

Exemptions and deductions not available under this regime

For the purposes of the sub-section (1) rate table, total income is computed without a long list of exemptions and deductions that would otherwise be available, including:

• Several Schedule III exemption entries (Sl. No. 5, 6, 7, 8, 11, 17, and most of Sl. No. 12 and 13);
• Section 19(1) (Table Sl. No. 1) - tax on employment under Article 276(2) of the Constitution;
• Section 22(1)(b), for properties referred to in section 21(6);
• Section 33(8), section 48 and section 49;
• Section 45(3)(a), (b) or (c), and section 46;
• Section 47(1)(a); and
• Chapter VIII, other than the provisions of section 124(1) and 124(2), section 125(2), or section 146.

Loss set-off restrictions and other conditions

Total income under this regime is also computed without setting off any loss carried forward or depreciation from an earlier tax year that is attributable to the disallowed deductions above, and without setting off any loss under the head "Income from house property" against any other head of income.

No exemption or deduction is allowed for any allowance or perquisite, by whatever name called, provided under any other law in force.

A loss or depreciation that cannot be set off for these reasons is deemed to have been given full effect to, so no further deduction for it is allowed in any subsequent year.

Opting out of the default regime (Section 202(4))

A person may choose not to be governed by the sub-section (1) rate table for a tax year, by exercising an option in the prescribed manner:

• A person having income from business or profession: must exercise the option on or before the due date under section 263(1) for furnishing the return of income for that tax year; once exercised, it applies to subsequent tax years; it can be withdrawn only once, for a tax year other than the one in which it was first exercised; and after such withdrawal, the person can never exercise this opt-out option again, except where the person ceases to have business or profession income (in which case the year-by-year opt-out below becomes available).
• A person not having income from business or profession: may exercise the option for a tax year simply by declaring it along with the return of income furnished under section 263(1) for that year.

IFSC units

Under Section 202(5), for a person having a Unit in an International Financial Services Centre, the exemption/deduction restrictions in sub-section (2) are modified so that the deduction under section 147 remains available to that Unit, subject to that section's conditions.

Step-by-step flow for applying Section 202

1. 1

   Is the person an individual, HUF, AOP (not a co-operative society), BOI or artificial juridical person?

   • No: Section 202 does not apply.
   • Yes: Section 202 is the default regime. Go to the next step.
2. 2

   Does the person have income from business or profession?

   • Yes: To opt out, exercise the option on or before the Section 263(1) due date; it then applies to later years and can be withdrawn only once.
   • No: The option can be exercised year by year along with the return under Section 263(1).
3. 3

   If staying in the default regime, remove the excluded exemptions and deductions

   Section 202(2) removes specified Schedule III items, several business deductions, and most Chapter VIII deductions (other than those it saves), and blocks set-off of house property losses against other heads.

4. 4

   Apply the Section 202(1) slab table to total income

Practical checklist

Glossary

Default regime

The Section 202(1) rate table that applies automatically to covered persons unless they opt out under Section 202(4).

Option under Section 202(4)

The election to be taxed outside the default regime; timing and repeat rules differ depending on whether the person has business or professional income.

Artificial juridical person

A person referred to in Section 2(77)(g), which is also covered by the default regime.

Frequently asked questions