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Benefit of New Tax Rates and TDS by Employer

New Tax Rates under 115BAC should be opted while filing the Income Tax Return. If so, how can employer deduct tax at new lower rates before such option is availed ? Is intimation by employee sufficient for employer and if so can employee change his option once intimated to employer ?

The Finance Act 2020 has inserted section 115BAC which provides that an individual may opt to pay taxes at rates prescribed in this section. In order to avail the benefit of lower income tax rates prescribed in this section the individual will have to forego various exemptions and deductions available to him under namely, under Chapter VIA, House property loss, standard deduction from salary income etc..


In some cases it maybe beneficial to pay tax at normal rates after availing deductions and exemptions and in other cases to pay tax at reduced rates under 115BAC without availing deductions and exemptions. This will have to be worked out at the year end by looking at the eligible deductions and exemptions


Such an option will have to be specifically availed by the individual at the time of furnishing his return. For salaried individuals, they can exercise the option every year which ever way is beneficial to them.


Now the conundrum was relating to Tax Deduction at Source by employers. How can the employer pass on the benefit of sec 115BAC if that has to be exercised by the individual at the time of filing of their IT Return ?


If so, how can employer deduct tax at new lower rates before such option is availed ?

Employers estimate the annual tax liability of their employees at the beginning of the year and start deducting TDS from monthly salary. CBDT has vide circular C1 of 2020 dtd 13.04.2020 clarified that employees can intimate their employer whether they intend to avail benefit of lower rates under Section 115BAC. If such intimation is not made, employer can continue to deduct tax at normal rates.


Can employee change his option once intimated to employer ?

Yes, as per the circular, intimation to employer would be for the limited purpose of deducting TDS. Exercising the option under 115BAC would continue to be made at the time of filing his IT Return. Thus employee is fee to change his option while filing IT Return.



(Contributed by Roshan Thomas, FCA)






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