CBDT directs employers to seek employees' preferred tax regime for TDS deduction
3 min read . Updated: 06 Apr 2023, 06:30 AM IST
Premium- Individual taxpayers can choose between the old tax regime that provides deductions and exemptions or the new tax regime that offers lower tax rates but without exemptions.
The Income Tax Department has announced that employers must request their employees to provide information about their preferred tax regime for the current fiscal year, and subsequently, deduct tax deducted at source (TDS) accordingly.
According to PTI, in the event that an employee fails to inform their employer about their preferred tax regime, the employer must deduct TDS from the employee's salary income in accordance with the revised tax regime introduced in Budget 2023-24.
Individual taxpayers can choose between the old tax regime that provides deductions and exemptions or the new tax regime that offers lower tax rates but without exemptions.
The optional exemption-free tax regime under section 115BAC of the I-T Act has been revised in Budget 2023-24, and the revamped concessional tax regime has been made the default regime for individual taxpayers to encourage salaried-class taxpayers to switch to the new tax regime.
Therefore, taxpayers who do not make any selection would automatically be enrolled in the new tax regime.
The Central Board of Direct Taxes (CBDT) on Wednesday issued a clarification about Tax Deducted at Source (TDS) deduction by employers in the current fiscal.
"...a deductor, being an employer, shall seek information from each of its employees...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," the CBDT said.
If intimation is not made by the employee, it shall be presumed that the employee continues to be in the default new tax regime, it added.
Under the new tax regime, as announced in the Budget, there will be no tax for those with an annual income of up to ₹7 lakh. A standard deduction of ₹50,000 has also been allowed and the basic exemption limit hiked to ₹3 lakh.
Income between ₹3-6 lakh would be taxed at 5 per cent; ₹6-9 lakh at 10 per cent, ₹9-12 lakh at 15 per cent, ₹12-15 lakh at 20 per cent and income of ₹15 lakh and above will be taxed at 30 per cent.
The old tax regime, which allows for exemptions and deductions, has a basic exemption limit of ₹2.5 lakh. Also, those having an annual income of ₹5 lakh do not have to pay any tax.
Income between ₹2.5 lakh and ₹5 lakh attracts a 5 per cent tax, while that between ₹5 lakh and ₹10 lakh is levied with a 20 per cent tax. Income above ₹10 lakh is taxed at 30 per cent.
The CBDT said it had representations expressing concerns regarding tax to be deducted at source (TDS) on the 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 section 115BAC of the Act or not.
AMRG & Associates Joint partner (Corporate & International tax) Om Rajpurohit said even after intimating employers, employees can choose the tax regime they want to be in later on at the time of filing of return.
"Another clarification is that the default mode will be used if the employee doesn't provide any information regarding the regime option. This will significantly safeguard the employer from TDS default litigation," he added.