Employer to Deduct Tax as per New Tax Regime if Employee didn’t intimate about Opting of Old Regime: CBDT

Circular no 4 of 2023, dated 05-04-2023

Section 115BAC of the Income-tax Act, 1961 provides concessional tax rates for eligible assessees subject to the condition that their total income shall be computed without specified exemption or deduction, setoff of loss and additional depreciation.

Section 115BAC has been amended by the Finance Act 2023 to give more incentives in the new tax scheme so that the taxpayers unhesitatingly move from the old to the new tax scheme.

The Finance Act 2023 has also inserted a new sub-section (6) to Section 115BAC to make the new tax scheme a default scheme for eligible assesses. If the eligible assessee wants to pay tax as per the normal regime, he will have to opt out of the new tax scheme in a prescribed manner.

The Central Board of Direct Taxes (CBDT) has received representations expressing concerns regarding tax to be deducted at source (TDS) on salary income as the employer would not know if the employee would opt-out from taxation under section 115BAC or not.

To avoid genuine hardship, the CBDT has issued the following directions for the employers:

(a) The employer shall seek information from each employee regarding his intended tax regime. Each employee shall intimate the employer regarding his intended tax regime for each year. Upon receiving such intimation, the employer shall compute the employee’s total income and deduct tax at source thereon according to the option exercised.

(b) If the employee does not make an intimation, 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. Thus, the employer shall deduct tax in accordance with the rates provided under section 115BAC.

(c) The intimation made to the employer would not amount to exercising the option in sub-section (6) of section 115BAC for opting out of the new tax regime. The employee shall be required to do so separately on, before or along with filing the income-tax return under section 139(1).

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