For TDS from salary, you will have to choose your tax regime now, says CBDT circular

This was clarified by the Central Board of Direct Taxes (CBDT) in a circular. The circular addressed the issue of tax deduction at source from an employee's salary in case the employee opts for new tax regime in FY 2020-21.

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The clarification has come after many tax experts and chartered accountants had raised queries regarding how TDS was to be deducted from the salaries of employees as they could choose between two tax regimes.
The finance ministry has clarified that an employer will have to deduct TDS for FY2020-21, from an employee's salary on the basis of the new lower tax regime if the employee opts for it and informs the employer of the same. It is further clarified that once the regime is opted by an individual at the start of the financial year, then such option cannot be changed during the financial year as far as TDS by the employer is concerned. However, the option can be changed at the time of filing of income tax return.

This was clarified by the Central Board of Direct Taxes (CBDT) in a circular issued on April 13, 2020. The circular addressed the issue of tax deduction at source from an employee's salary in case the employee opts for new tax regime in FY 2020-21.

As per the circular, an employee having income other than the business income (such as salary income etc.) will have to inform his/her employer of his/her choice of tax regime for the ongoing FY 2020-21. The employer will have to deduct taxes from the employee's salary accordingly.





As per the circular, "An employee, having income other than the income under the head "profit and gains of business or profession" and intending to opt for the concessional rate under section 115BAC of the Act, may intimate the deductor, being his employer, of such intention for each previous year and upon such intimation, the deductor shall compute his total income, and make TDS thereon in accordance with the provisions of section 115BAC of the Act."

This would mean that if an employee opts for the new tax regime then TDS on salary will be deducted as per the estimated total tax calculated as per the new lower tax rate regime instead of as per the estimated tax calculated as per old tax regime.

The circular clarifies that once the regime is opted by an individual at the start of the financial year, then such option cannot be changed during the financial year. However, as per the circular, the option can be changed at the time of filing of income tax return.

"The intimation so made to the deductor shall be only for the purposes of TDS during the previous year and cannot be modified during that year. However, the intimation would not amount to exercising option in terms of sub-section (5) of section 115BAC of the Act and the person shall be required to do so along with the return to be furnished under sub-section (1) of section 139 of the Act for that previous year. Thus, option at the time of filing of return of income under sub-section (1) of section 139 of the Act could be different from the intimation made by such cmployee to the employer for that previous year", said the circular.

Further, once an employee having business income opts for a particular tax regime at the time of filing income tax return, then such an employee cannot change the tax regime in the future. Therefore, the tax regime once opted by an employee at the filing of ITR, then in the future years, such tax regime must be communicated to the employer, for the purpose of deduction of tax.

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As per the circular, "Further, in case of a person who has income under the head "profit 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 incomc under sub-section (1) of section 139 of the Act cannot be changed for subsequcnt 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."

The clarification has come after many tax experts and chartered accountants had raised queries regarding how TDS was to be deducted from the salaries of employees as they could choose between two tax regimes.
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