TDS deduction: Workers should inform employers of the intention to choose a new tax system, CBDT says


New Delhi: The income tax department said on Monday (April 13) that workers must inform their employers of their intention to opt for the new optional tax system so that the latter can deduct TDS when paying salaries. The new income tax system announced in the budget offers individuals and undivided Hindu families (HUFs) the opportunity to be taxed at lower rates if they do not take advantage of certain exemptions and deductions such as house rent (HRA), home loan interest. Investments in accordance with sections 80C, 80D and 80CCD. Below that, total income up to Rs 2.5 lakh is tax free.

A 5 percent tax is levied on total income between Rs 2.5 lakh and Rs 5 lakh, 10 percent on Rs 5 lakh to Rs 7.5 lakh, 15 percent on Rs 7.5 lakh to Rs 10 lakh, 20 percent Rs 10 lakh to Rs 12.5 lakh, 25 percent to Rs 12.5 lakh to Rs 15 lakh and 30 percent to over Rs 15 lakh.

In a circular, the Central Board of Direct Taxes (CBDT) announced that an employee who intends to opt for reduced income tax rates under the 2020 budget can notify the puller or his employer of such intent. “The deductor calculates his total income and then makes TDS (withholding tax) in accordance with the provisions of section 115 BAC of the (Income Tax) Act. If the employee does not make such a suggestion, the employer will make TDS without the provision of section 115 BAC to take into account the law, “it said.

However, the CBDT has stated that the employee can change the option of the tax structure at the time of filing the income tax return and the amount of the TDS payment will be adjusted accordingly.

Shailesh Kumar, Nangia Andersen’s advisory director, said there is no clarity for employers as to whether they should withdraw TDS under the new option or continue to withdraw TDS under the old regime as there was no corresponding change in TDS provisions that allowed them to subtract TDS under the new option.

This circular will remove the confusion among employers and ensure that the TDS and the ITR (income tax return) of the employees show a minimum of discrepancies when they have a consistent position in making a statement to the employer and in relation to their ITR option (new or old) chosen by them.

Amit Maheshwari, AKM ‘s Global Partner, said: “It is now clear that the employee (only those who have no business or professional income) cannot change the option once exercised to subtract TDS, but at the time of submission of the TDS Application can change tax return at any time. “

Under the old tax system, income up to Rs 2.5 lakh is exempt from income tax. Income between 2.5 lakh and 5 lakh is taxed at 5 percent, while income between 5 lakh and 10 lakh is taxed at 20 percent. Income over 10 lakh is taxed at 30 percent.