Form 10-IE not to be filed by people earning income from salary, capital gain but not from business for taking benefit of section 115BAC

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Section 115BAC was introduced by Finance Act, 2020 which prescribed lower tax rates for Individual and HUF wherein various benefits and exemptions were taken away if an individual or HUF opts for this new section.

Later, Form 10-IE was also introduced by Income tax department wherein any person opting to or withdrawing from section 115BAC needs to file this Form.

Let’s first understand the law behind filing of Form 10-IE to opt for benefits of section 115BAC. Sub-section 5 of section 115BAC lays down the requirement of notifies rule for taking benefit of section 115BAC and states as under:

“(5) Nothing contained in this section shall apply unless option is exercised in the prescribed manner by the person,—

(i) having income from business or profession, on or before the due date specified under sub-section (1) of section 139 for furnishing the returns of income for any previous year relevant to the assessment year commencing on or after the 1st day of April, 2021, and such option once exercised shall apply to subsequent assessment years;

(ii) having income other than the income referred to in clause (i), alongwith the return of income to be furnished under sub-section (1) of section 139 for a previous year relevant to the assessment year:

Provided that the option under clause (i), once exercised for any previous year can be withdrawn only once for a previous year other than the year in which it was exercised and thereafter, the person shall never be eligible to exercise option under this section, except where such person ceases to have any income from business or profession in which case, option under clause (ii) shall be available.”

Section 115BAC(5) prescribes that the option needs to be exercised by all taxpayers as per prescribed manner which have been provided under rule 21AG of the Income tax rules as under:

“(1) The option to be exercised in accordance with the provisions of sub-section (5) of section 115BAC by a person, being an individual or Hindu undivided family, for any previous year relevant to the assessment year beginning on or after the 1st day of April, 2021, shall be in Form No. 10-IE.

(2) The option in Form No. 10-IE shall be furnished electronically either under digital signature or electronic verification code.

(3) The Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems), as the case may be, shall, –

(i) specify the procedure for filing of Form No. 10-IE;
(ii) specify the data structure, standards and manner of generation of electronic verification code, referred to in sub-rule (2), for verification of the person furnishing the said Form; and
(iii) be responsible for formulating and implementing appropriate security, archival and retrieval policies in relation to the Form so furnished.”

Thus, even based on the above rules it can be derived that any person who is claiming benefit under section 115BAC(5) needs to file Form 10-IE.

However, recently there were some news that a person having income from salary or capital gain and not having income from business or profession is not required to file Form 10-IE to take benefit of section 115BAC and he can take benefit of section 115BAC just by choosing the option in Income tax return form.

Now, when a question was asked to a representative from Income tax department that by which circular/ notification are people earning income from salary exempted from filing Form 10-IE to claim benefit of section 115BAC, it was told that Form 10-IE only covers people covered under clause (i) of sub-section 5 of section 115BAC i.e. People earning income from business and profession.

The heading of Form 10-IE read as under: “Application for exercise/ withdrawal of option under clause (i) of sub-section (5) of section 115BAC of the Income-tax Act, 1961”

Thus, because of this it is being said that such individuals and HUF are not required to file Form 10-IE to take benefit of section 115ABC.

Is this legal?

However, if we look at the Income tax section and rules it has nowhere been mentioned and neither any notification has been issued to prescribe that Individual or HUF earning income from sources other than business are not required to file Form 10-IE.

So the question is that, is it valid that where the rules prescribes to file Form 10-IE but there is no requirement of filing in the actual form.

Although this will ease the work for taxpayers as the salaried taxpayers are allowed to change their preference every year and hence just pressing a radio button in ITR would be easy as compared to filing a Form every year but the question still remains that should the Income tax department do this by way of notification as lately government has done many things which are not as per the law.

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