CBDT Clarification in respect of New Tax Regime under section 115BAC
Introduction
The Government introduced a new simple tax regime under section 115BAC by the Finance Act, 2020. Under this, the individuals or HUFs can opt for lower tax slab rates as compared to existing tax slabs. But the taxpayer who opts for the new tax regime will have to forego various exemptions & deductions available under the Income Tax Act. Thus, there are two tax schemes available for taxpayers: one with tax deductions & another without tax deductions but with lower tax rates.
In the case of the salaried employees, the new tax regime created confusion regarding the manner of deduction of TDS by the employer. Representations were made to the CBDT for clarifying the manner for deduction of TDS in case of salaried employees whether as per old regime or new tax regime as the employer will not be able to know the intention of the employee about new vs. old tax regime at the time of ITR filing. To answer the doubts of the industry, the CBDT issued Circular C1 of 2020 dated April 13th, 2020. This article discusses the information contained in this circular.
CBDT Clarification
The CBDT clarified that the employee having no business or profession income may intimate the employer about his intention to opt for the new tax regime or not for the relevant financial year. In this case, the employer shall deduct TDS in accordance with the new tax regime under section 115BAC of the Act.
So, a question arises…
What will be the TDS rates where the employee fails to make intimation to the employer about the new tax regime?
The CBDT answered that if no such intimation is made by the employee, the employer shall make TDS without considering the provisions of section 115BAC of the Act. It means that the employer shall deduct TDS as per the existing provisions of the Income Tax (Old Tax Regime).
Can intimation made by the employee to his employer be modified later?
CBDT clarified that the intimation made to the deductor (employer) shall be only for the purposes of TDS during the relevant financial year and cannot be modified during that year. Once, the employee intimates the employer about his choice of the new tax regime, the employer shall deduct TDS as per intimation for that year without any subsequent modification.
Can an employee change option later during income tax return filing?
CBDT clarified that the intimation given by an employee to the employer would not amount to exercising the option under section 115BAC of the IT Act. The employee shall be required to opt for the new tax regime along with the return to be furnished under section 139(1). Therefore, it is possible that the employee intimates the employer about opting new tax regime and later files his/her ITR online as per the old tax regime or vice versa.
Can a person having income from business or profession who opts for the new tax regime change his option later?
CBDT clarified that in the case of a person who has income under the head “profits and gains of business or profession” also, the option for taxation under section 115BAC of the Act once exercised for a previous year at the time of filing of return of income u/s 139(1) of the Act cannot be changed for the subsequent previous years except in certain circumstances.
Accordingly, the above clarification would apply to such person with a modification that the intimation to the employer in his case for subsequent previous years must not deviate from the option under section 115BAC of the Act once exercised in a previous year.
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Form 10IE- Option to Choose New Tax Regime
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