The Central Board of Direct Taxes (CBDT) has issued Circular 4/2023 dated 5th April, 2023 to provide clarification on the deduction of Tax Deducted at Source (TDS) under Section 192 of the Income-tax Act, 1961, read with sub-section (IA) of Section 115BAC of the same act. This circular supersedes Circular No. C1 of 2020 dated 13th April, 2020 and shall be applicable for TDS during the financial year 2023-24 and subsequent years.
CBDT Income Tax Circular 4/2023 dated 05/04/2023: Clarification on Salary TDS u/s 192 and New Tax Regime u/s 115BAC
Introduction to the New Tax Regime under Section 115BAC of the Income-tax Act, 1961
The Finance Act, 2023 has introduced a new tax regime with effect from the assessment year beginning on or after 1st April, 2024. This regime applies to individuals, Hindu undivided families, associations of persons (other than cooperative societies), bodies of individuals (incorporated or unincorporated), and artificial juridical persons. Under this regime, the total income of the person will be taxed at the rates provided in sub-section (1A) of Section 115BAC, subject to certain conditions, including the non-availment of specified exemptions and deductions.
Opting Out of the New Tax Regime
The new tax regime is the default regime applicable to all the persons mentioned above. However, a person (not having income from business or profession) may opt out of this tax regime by exercising the option provided under sub-section (6) of Section 115BAC of the Act.
Concerns regarding TDS on Salary Income
Representations have been received regarding the TDS on salary income of a person under Section 192 of the Act, as the employer (deductor) would not be aware of the employee’s intention to opt out of the taxation under sub-section (1A) of Section 115BAC of the Act.
Intimation of Intended Tax Regime by Employees
To avoid any genuine hardship in such cases, the Board has directed that the employer shall seek information from each of its employees regarding their intended tax regime. The employees are required to intimate their intended tax regime to their employers for each year. Upon receipt of this information, the employer shall compute the employee’s total income and deduct TDS according to the option exercised.
Presumption in Case of No Intimation
If the employee does not make any 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. In such a case, the employer shall deduct TDS on the employee’s income under Section 192 of the Act, according to the rates provided under sub-section (1A) of Section 115BAC of the Act.
It is important to note that the intimation of intended tax regime by the employee would not amount to exercising the option in terms of sub-section (6) of Section 115BAC of the Act. The person shall be required to do so separately as per the provisions of the sub-section.
In conclusion, the CBDT Income Tax Circular 4/2023 provides clarity on the deduction of TDS under Section 192 and 115BAC of the Income-tax Act, 1961 and aims to resolve the concerns regarding TDS on salary income. Employers and employees are advised to follow the guidelines provided in the circular for a smooth and compliant TDS process.
This is new requirement for employers to comply with. They have to ask empoyees to intimate their preferred tax regime, otherwise default tax regime (new) to be followed. For employees this is not end of the story. They have to choose their preferred tax regime at the time of filing ITR. Looks simple but many people are going to complicate it, speciall those who are indecisive about choosing the new or old regime.
In response to the post, I gather the following points:
i) According to the CBDT Circular, employers are required to obtain information from each salaried employee about their chosen tax regime annually for TDS purposes;
ii) After receiving this information, employers should calculate the employee’s total income and deduct tax based on their chosen tax regime (old/new);
iii) In the absence of any employee intimation, employers must assume the employee prefers the default new tax regime for TDS purposes;
iv) Importantly, an employee’s intimation to their employer does not solidify their choice under section 115BAC(6) of the IT Act. Employees maintain the flexibility to select a different tax regime (from what they informed their employer) when filing their return.
Employee has given option along with calculation of tax amount to be deducted per month. However, employer deducts excess TDS without informing to employee. What to do if such is the case?