In the 2020 budget, the Government introduced an alternative tax slab – a concessional tax slab rate for individuals. With two alternative slabs available for individuals, there was a lacuna on the deduction of Tax Deduction at Source (TDS) under section 192 on salaries paid to employees. This was because the rate at which an employer is required to deduct tax at source on salaries is at the prevailing individual slab rates, taking into consideration the Income projected for the whole year and giving effect to all the deductions and exemptions provided under the Income Tax Act, 1961.
Due to the introduction of the concessional tax rates, employers were in a fix as to decide which of the two alternatives should be used to deduct TDS under section 192 of the Income Tax Act, 1961.
In furtherance to this, the CBDT has issued a clarification about the tax rate to be considered by employers for the purpose of TDS Circular No. C1/2020, dated April 13, 2020.
On which tax slab rate should employer deduct TDS for FY 2020-21, which begins from April 2020?
If an employee having income other than the income under the head “Profits or gains of business or profession” and is intending to opt for the concessional rate, then he has to intimate the employer of such intention for each previous year and upon such intimation, the employer will compute his total income and deduct tax in accordance with the concessional tax rate. Actually, the employer could ask for a declaration from each employee at the beginning of every financial year for the purpose of TDS u/s 192.
What if the employee who wishes to opt for a concessional tax rate does not intimate to his employer?
If the declaration or intimation is not issued by the employee to his employer, then the employer has to deduct tax based on existing tax slab rates and not as per the new concessional tax slabs.
Is there an option given to an employee to change the declaration and consequently change the method?
No, once a declaration is given, the employee cannot change his declaration or intimation, and the CBDT also clarified that the intimation so made to the employer shall be valid only for the purposes of TDS during the previous year and cannot be modified during that year.
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
But, is there an option to change the method at the time of filing return?
Yes, the employee is given an option to choose either of the two alternatives at the time of filing his Income Tax Return for FY 2020-21 (AY 2021-22).
The intimation given to the employer would not amount to exercising option under concessional tax rate as the Assessee (the employee) at the time of filing his income tax return has to choose out of the two available alternatives. However, it is important to note that, to exercise the concessional tax rate, the employee has to file the Income Tax Return on or before the due date.