CBDT Issues Clarifications: Employer’s Deductions of TDS under New ‘Default’ Personal Tax Regime

CBDT Issues Clarifications: Employer’s Deductions of TDS under New ‘Default’ Personal Tax Regime

The Ministry of Finance, Government of India through its Central Board of Direct Taxes (CBDT) vide its circular has issued clarifications regarding the deduction of TDS under Section 192 read with sub-section (IA) of Section 115 BAC of the Income Tax Act, 1961.

The Section 115 BAC of the Income Tax Act, 1961, has been amended vide Finance Act, 2023 sub-section (1A) to provide for a new tax regime with effect from the assessment year beginning on or after the 1st day of April, 2024. The regime is applicable to an individual, a Hindu undivided family, an association of people (other than a cooperative society), or a group of people, whether they are legal entities or not.

Under the new regime, the income-tax in respect of the total income of the person shall be computed at the rates provided in sub-section (1 A) of section 115BAC, subject to certain conditions, including the condition that the person does not avail of specified exemptions and deductions.

The new tax regime is the default tax regime applicable to all persons mentioned above. However, under sub-section (6) of section 115BAC of the Act, a person may exercise an option to opt out of this tax regime. A person not having income from business or profession can exercise this option every year.

Further, representations were received by the Board, expressing concerns regarding tax to be deducted at source (TDS) on salary income of a person under section 192 of the Act as the deductor, being an employer, would not know if the person, being an employee, would opt out from taxation under sub-section (1A) of section 115BAC of the Act or not.

In order to avoid the genuine hardship in such cases, thereafter, the Board directed that a deductor, being an employer, shall seek information from each of its employees having income under section 192 of the Act regarding their intended tax regime and each such employee shall intimate the same to the deductor, being his employer, regarding his intended tax regime for each year and upon intimation, the deductor shall compute his total income, and deduct tax at source thereon according to the option exercised.

In case, intimation is not made by the employee, it shall be presumed that the employee continues to be in the default tax regime and has not exercised the option to opt out of the new tax regime.

Accordingly, in such a case, the employer shall deduct tax at source, on income under section 192 of the Act, in accordance with the rates provided under sub-section (1A) of section 115BAC of the Act.

The Board further clarified that the intimation would not amount to exercising option in terms of sub-section (6) of section 115BAC of the Act and the person shall be required to do so separately in accordance with the provisions of the sub-section.