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.”
1/2) CBDT issues Circular C1 of 2020 dated 13.04.2020 clarifying the process of exercising of option by a taxpayer with regard to deduction of tax at source if he/she opts for the concessional rates of tax as per section 115BAC of IT Act,1961#StaySafe#StayAtHome #WeCare pic.twitter.com/uFAQ7Figkp
— Income Tax India (@IncomeTaxIndia) April 13, 2020
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.