CBDT clarifies that the option at the time of filing of ITR could be different from the intimation made by such employee to the employer.
ITR Filing: The New Tax Regime will apply for income earned during the financial year 2020-21 or assessment year 2021-22, for those opting for it. As there is an incidence of tax deducted at source (TDS), the concern with many taxpayers and TDS deductors was about the timing of exercising of this option by the taxpayers. When should the employee inform his or her employer and what if one changes the option while filing the ITR?
There may be an instance when the employee declares to the employer that he will stick with Old New Tax Regime but at the time of filing ITR, he or she chooses to go with New Tax Regime. The employers were unsure as to how the TDS will be deducted.
In order to avoid the genuine hardship in such cases, the CBDT has clarified that 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 115 BAC 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 accordingly.
However, the option at the time of filing of ITR return of income under sub-section (1) of section 139 of the Act could be different from the intimation made by such employee to the employer. This means, one may inform the employer about the option – New Tax Regime or Old Tax Regime – and still choose to file ITR no matter what option has been provided to the employer. Effectively, you can switch between new and old tax regime at the time of filing ITR.
As an employee, if you do not make any such intimation, the employer shall make TDS without considering the provision of Section 115 BAC of the Act. It means, in that case, the Old Tax Regime will apply. The employees may still furnish their investment declaration to the employer wherein section 80 C and other tax savings can be done.
CBDT also clarifies that even if one opts for New Tax Regime and the same intimation is made to employer or Deductor, it shall be only for the purposes of TDS during the previous year and cannot be modified during that year.
In doing so, the tax liability has to be kept in mind, as there could be a big tax outgo for many taxpayers. Therefore, it is better to estimate the tax liability under both regimes and then intimate the employer and stick to it.
The New Tax Regime has been inserted in the Income Tax Act under Section 115 BAC and the new tax slabs, new rates will be available under it. Section 115 BAC as inserted by the Finance Act 2020 provides that a person, being an individual or a Hindu undivided family having income other than ‘Income from Business or Profession’, may opt to pay tax in respect of a previous year while filing the income tax return (ITR) under sub-section (I) of section 139 of the Act. On April 13th, the Ministry of Finance has come out with clarification in respect of option under section 115 BAC of the Income-tax Act, 1961.
There will not be most of the popular tax exemptions and deductions available in the new tax regime. However, the Old Tax Regime will continue as it is with no change in its tax rates or income slabs.