CHOOSE YOUR TAX REGIME FROM TDS TO SALARY: CBDT3 min read

-Shreeya Shukla




The finance ministry said that the employer will have to deduct TDS for the financial year 2020-21, from employee’s salary based on the new lower tax regime if the employee opts for it and informs the employer about it. Further, it clarified that once the regime is opted by an individual at the beginning of the financial year, then it cannot be changed during the financial year so long as TDS by the employer is concerned. The following option can be changed at the time of filing of the income tax return.

It was clarified by the Central Board of Direct Taxes in the circular which was issued on Monday. Issue of a tax deduction was been mentioned in the circular at source from an employee’s salary only in the matter employee opts for new tax regime in the financial year of 2020-21.

According to the circular, an employee who has income which is other than the business income will have to inform his/her employer about his/her choice of tax regime for the Financial year of 2020-21. Hence, the employer will be deducting taxes from the employee’s salary in accordance.

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According to the circular, ” employees, with income other than the income which is mentioned under the head “profit/gains of business/profession” and intention to opt for the concessional rate under the section 115BAC of the Act, can make an intimation to the deductor, being his employer, about such intention for every previous year and on such intimation, the deductor shall calculate his total income, and make TDS accordingly following the provisions of section 115BAC of the Act.”

This means that in case an employee opts for the new tax regime then TDS on salary will be deducted accordingly as per the estimated total tax calculated according to the new lower tax rate regime instead of the old tax regime.

Hence it is clarified from the circular that once the regime is opted by an individual at the beginning of the financial year, then the option cannot be changed during the ongoing financial year. However, according to the circular, the option can be changed at the time during the filing of the income tax return.

” However the intimation made to the deductor shall be for the purposes only of TDS during the previous year and cannot be modified during that year. But, this intimation should not amount to exercising of option in terms of sub-section (5) of section 115BAC of the Act and the person is required to do so along with the return to be furnished under the sub-section (1) of section 139 of Act for that previous year. Therefore, the option at the time of filing of the return of income under the section of section 139(1) of the Act could be different from the intimation made by such employee to the employer for that previous year”, is what is mentioned in the circular. 

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