Section 202 New tax regime for individuals, Hindu undivided family and others.

Income-tax Act, 2025

At a Glance

Clause 202 of the Income Tax Bill, 2025 - (Old Version) proposes a new, optional tax regime for specified persons (individuals, HUFs, AOPs, BOIs and certain juridical persons) prescribing slab rates and limiting specified exemptions and deductions. It matters to taxpayers choosing between regimes, tax administrators and sectors with deductions under enumerated provisions. Effective date or decision date: Not stated in the document.

Background & Scope

Statutory hooks: Clause 202 of the Income Tax Bill, 2025 (a provision within the Bill titled "New tax regime for individuals, Hindu undivided family and others"). The provision aims to create an alternative tax computation regime for persons listed in subsection (1). Coverage: the persons enumerated in subsection (1)(a)-(e). Definitions or explanations: Not stated in the document beyond the enumerated categories; references to "this Part" and "Parts A, B" indicate linkage to other Parts of the Bill but the contents of those Parts are Not stated in the document.

Statutory Provision Mode

Text & Scope

The clause creates, by default, a tax computation regime whereby income-tax for a tax year "shall" be computed at specified slab rates (nil up to Rs. 4,00,000; 5% up to Rs. 8,00,000; 10% up to Rs. 12,00,000; 15% up to Rs. 16,00,000; 20% up to Rs. 20,00,000; 25% up to Rs. 24,00,000; 30% above Rs. 24,00,000). This applies "Irrespective of anything contained in this Act" but subject to Parts A, B and this Part. The default applies unless the person exercises an option as provided in subsection (4). The clause applies to specified persons: individuals; HUFs; AOPs (other than co-operative societies); bodies of individuals; and artificial juridical persons as per section 2(77)(g).

Interpretation

The text indicates legislative intent to introduce a simplified, optional regime with specific rate slabs and concomitant limitation on a list of exemptions/deductions. Interpretive principles indicated by the text: (i) the new regime is prima facie overriding of other provisions ("Irrespective of anything contained in this Act") save those Parts; (ii) because the provision enumerates specific exclusions from deductions/exemptions, the clause is to be read as a self-contained regime requiring affirmative opt-in/opt-out mechanics per subsection (4); (iii) specified carve-outs and modifications (e.g., Chapter VIII carve-outs and IFSC special rule) are deliberate limits to the general non-allowance rule. Legislative intent beyond the text is Not stated in the document.

Exceptions/Provisos

Key carve-outs: subsection (2) prescribes that "total income" for the regime shall be computed without any exemption or deduction under the listed provisions-Schedule III entries (specified table items), sections 144, 19(1) (Table: Sl. No.1), 22(1)(b) (re properties in section 21(6)), 33(8), 48, 49, 45(3)(a)/(b)/(c), 46, 47(1)(a), and "of Chapter VIII other than the provisions of sections 124(1), 125(3) and 146." Further, subsection (2)(b) excludes set-off of certain carried forward losses or depreciation attributable to the exclusions, and disallows set-off of house property loss against other heads. Subsection (2)(c) excludes any exemption or deduction for allowances/perquisites provided under any other law. Subsection (3) deems such loss and depreciation as already given full effect-no further deduction later. Opt-in/opt-out rules in subsection (4) provide procedural timings and restrictions (see below). Subsection (5) provides a modification for IFSC units (subject to conditions) - specific temporal scope is included in the Act but in the Bill the provision is limited to certain tax years (see Background & Scope comparison above).

Illustrations

• Example 1: An individual with total income Rs. 9,00,000 under the new regime would be taxed at 5% on income from Rs.4,00,001-8,00,000 and 10% on Rs.8,00,001-9,00,000. Not stated: interaction with surcharge/cess or rebate-Not stated in the document.
• Example 2: An HUF claiming deductions under Schedule III (Table Sl. No. 5) would not be permitted that deduction when computing total income under this regime. Not stated: whether Schedule III entries have alternative relief mechanisms-Not stated in the document.

Interplay

The clause expressly attempts to sit alongside other provisions by overriding them save where otherwise provided ("Irrespective... but subject to Parts A, B and this Part"), and by listing specific provisions whose exemptions/deductions are not allowed. It further contemplates exceptions (Chapter VIII carve-outs) and special treatment for IFSC units. Interaction with Rules/Notifications/Circulars: Not stated in the document. Interaction with Chapter XVII-B (if any) or Parts E: Not stated in the document.

Differences between Section 202 of the Income-tax Act, 2025 and Clause 202 of the Income Tax Bill, 2025 - (Old Version) and Practical Impact

• Scope vis-`a-vis other parts of the Act: Act version (Document 1) qualifies subsection (1) with "Irrespective of anything contained in this Act other than Chapter XVII-B but subject to Parts A, B, E and this Part of this Chapter," whereas the Bill version (Document 2) states "Irrespective of anything contained in this Act but subject to the provisions of Parts A, B and this Part."
  • Practical impact: The Act excludes Chapter XVII-B explicitly and adds Part E in the list; the Bill does not refer to Chapter XVII-B or Part E and omits an explicit carve-out. This may change which other provisions (for instance, Chapter XVII-B matters) override or interact with the new regime. Practically, taxpayers and practitioners must check whether Chapter XVII-B or Part E contain provisions intended to operate alongside or override the new regime; the Act clarifies that Chapter XVII-B is not overridden, reducing uncertainty.
• Drafting differences in subsection (2)(a)(xii): The Act (Document 1) refers to "Chapter VIII other than the provisions of sections 124(1) and 124(2), or 125(2) or 146;" the Bill (Document 2) refers to "of Chapter VIII other than the provisions of sections 124(1), 125(3) and 146;"
  • Practical impact: Different cross-references to provisions of Chapter VIII are carved out from the exclusions. The Act permits sections 124(1) and 124(2), 125(2) and 146 to remain applicable (i.e., they are exceptions to the general non-allowance rule), while the Bill's exceptions include 124(1), 125(3) and 146 - notably listing 125(3) instead of 125(2). This change affects which specific provisions of Chapter VIII yield deductions/exemptions under the new regime. Practitioners must verify which subsection of section 125 is intended to remain effective; the Act's selection may be broader or narrower depending on content of those subsections (document does not state substantive content of those sections).
• Modification for IFSC units in subsection (5): Act (Document 1) provides: "the provisions of sub-section (2) shall be modified to the extent that deduction u/s 147 shall be available to such Unit subject to fulfilment of the conditions contained in that section." Bill (Document 2) refers to: "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."
  • Practical impact: The Bill limits the special rule to units which exercised the option for 2020-21 to 2023-24; the Act removes that temporal restriction and frames it generally (no reference to specific tax years). Practically, the Act broadens availability of deduction u/s 147 for IFSC units without the historical exercise requirement, benefiting more IFSC taxpayers; the Bill's limitation would have constrained relief to a subset who opted in that historic window.
• Minor drafting and punctuation variances: There are small differences in punctuation (commas, full stops) and phrasing ("in such manner as may be prescribed" vs. "in such manner as prescribed" in sub-section (4));
  • Practical impact: Largely drafting, but may influence interpretation of prescription of procedure. The Act's phrasing "in such manner as may be prescribed" follows common statutory formulation permitting subordinate legislation; the Bill's wording is slightly less conventional but substance appears same. Document does not state legislative debate or intent behind wording changes.

Practical Implications

• Compliance and risk areas grounded in the text: Taxpayers must decide to opt out of the default simplified regime by exercising the option in the prescribed manner; those with business/professional income must exercise option on or before the due date for furnishing returns u/s 263(1) (as referenced). Failure to follow the procedure may lock a taxpayer into the default tax computation with limited deductions.
• Record-keeping/evidence: Given the enumerated disallowances and the deeming in subsection (3) that losses/depreciation are fully given effect to, taxpayers should retain documentation showing prior loss/ depreciation origins and any correspondence or filings demonstrating exercise/withdrawal of the option and timing. The document does not specify forms, formats or filing codes-Not stated in the document.

Key Takeaways

• The clause establishes a default simplified tax slab regime for specified persons, with detailed slab rates.
• The regime disallows a range of specified exemptions and deductions when computing "total income", and restricts set-off of certain losses.
• Taxpayers can opt out/opt in subject to timing and one-time withdrawal rules; business/profession taxpayers have a specified due date for option exercise.
• There is a deemed finality for certain losses/depreciation-no further deduction in later years.
• Special modification exists for IFSC units regarding deduction u/s 147, but the Bill limits this to certain tax years (2020-21 to 2023-24) in the Old Version.
• Several cross-references to Parts and Chapters indicate this clause's operation is contingent on other Bill provisions; those other provisions are Not stated in the document.
• Practical compliance requires careful timing and documentation; procedural details and administrative rules are Not stated in the document.

Full Text:

Section 202 New tax regime for individuals, Hindu undivided family and others.