CBDT clarifies how employers should deduct TDS in FY 2020-21

The income tax department clarified that employees will have to inform their employers about their intention to opt for the new optional tax regime to enable the latter to deduct TDS while paying salaries.

The new income tax regime, announced in Budget, provide an option to individuals and Hindu  Undivided Families (HUFs) to be taxed at lower rates if they do not avail specified exemptions and deductions, like house rent allowance (HRA), interest on home loan, investments made under Section 80C, 80D and 80CCD. Under this, total income up to Rs 2.5 lakh will be tax exempt.

 

Under the old regime— there’s no tax for income up to 2.5 lakh, 5% for income between 2.5 lakh and 5 lakh, 20% for income between 5 lakh and 10 lakh, 30% for income above 10 lakh.

Whereas, new regime has seven tax slabs—there’s no tax for income up to 2.5 lakh, 5% for income between 2.5 lakh and 5 lakh, 10% for income between 5 lakh and 7.5 lakh, 15% for income between 7.5 lakh and 10 lakh, 20% for income between 10 lakh and 12.5 lakh, 25% for income between 12.5 lakh and 15 lakh, and 30% for income above 15 lakh. Cess and surcharge continue to remain the same. It’s important to note that given the tax rebate of 12,500 individuals with taxable income upto 5 lakh don’t have any tax liability under both the tax regimes.

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.”

However, CBDT circular stated that employee’s declaration is independent of which tax slab (old or new) he or she chooses while filing the return. So, even if you make a declaration to your employer to deduct the TDS as per the new slab rates, you can still opt to file income tax return as per old tax regime.

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