CBDT has issued Circular No. 04/2023 dated 05.04.2023 to clarify that the employer shall deduct income-tax or TDS from the salary of the employees under section 192 of the Income-tax Act, 1961 (‘Act’), after the amendment to section 115BAC which makes the provisions of this section as the default tax regime, in accordance with the option exercised by the employee and intimated to the employer.
It is further stated that in case the employee fails to intimate his option to the employer then the employer shall deduct income-tax from the salary income of the employee in accordance with the provisions of the new tax regime prescribed in section 155BAC.
Readers are aware that Finance Act, 2023 has inserted a new sub-section (lA) in section 115BAC of the Act to provide for a new tax regime with effect from the assessment year 2024-25.
This regime is expanded to apply to an individual or Hindu undivided family or association of persons (other than a cooperative society) or body of individuals, whether incorporated or not, or an artificial juridical person.
Under this new regime, the income-tax in respect of the total income of the person shall be computed at the rates provided in sub-section (1A) of section 115BAC, subject to certain conditions, including the condition that the person does not avail of specified exemptions and deductions. In other words, the new tax regime as per section 115BAC is made the default tax regime.
However, section 115BAC(6) of the Act provides a person to exercise the option to opt out of this tax regime. A person not having income from business or profession can exercise this option every year.
After receiving representations regarding TDS on salary income of a person under section 192 of the Act that the deductor, being an employer, would not know if the person, being an employee, would opt out from taxation under sub-section (1A) of section 115BAC of the Act or not.
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Section 115BAC and TDS from Salary Income-Guide for Employers
Hence, by exercising the powers conferred under section 119 of the Act, the CBDT has prescribed the following guidelines for the deduction of income-tax from salary income of the employees under section 192 of the Act by the employer-
1. The employee shall intimate the intended tax regime opted to the employee every year.
2. The employer shall compute the total income of the employee and tax thereon as per the option so intimated by the employee.
3. If the employee does not intimate his option to the employer, the employer shall deduct income-tax from his/her salary income as per the new tax regime in accordance with the rates of tax as prescribed in section 115BAC(1A) of the Act.
4. One should remember that an employee can change the option as intimated to the employer while filing his/her return of income. In other words, if the employee has intimated to the employer about opting out of the new tax regime, he can opt for the new tax regime while filing his return of income.
5. This Circular superseded the earlier Circular No. C1 of 2020 dated 13.04.2020 which was issued when the new tax regime as per section 115BAC was first introduced by the Finance Act, 2020.
No format for intimating the option to the employer is prescribed. Hence, the employer can collect those intimations from their employees as per their own procedure.
Read the full text of CBDT Circular No. 04/2023 dated 05.04.2023 on TDS from Salary u/s 192 by Employer under default new tax regime u/s 115BAC
Circular No. 04 of 2023
F. No.370142/06/2023-TPL
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
(TPL Division)
Dated: 5th April, 2023
Sub: Clarification regarding deduction of TDS under section 192 read with sub-section (IA) of section 115BAC of the Income-tax Act, 1961 - reg.
Vide Finance Act, 2023, sub-section (lA) has been inserted in section 115BAC of the Income-tax Act, 1961 (the Act) to provide for a new tax regime with effect from the assessment year beginning on or after the 1st day of April, 2024. This regime applies to an individual or Hindu undivided family or association of persons [other than a cooperative society] or body of individuals, whether incorporated or not, or an artificial juridical person. Under this new regime, the income-tax in respect of the total income of the person shall be computed at the rates provided in sub-section (1A) of section 115BAC, subject to certain conditions, including the condition that the person does not avail of specified exemptions and deductions.
2. The above mentioned new tax regime is the default tax regime applicable to all persons mentioned above. However, under sub-section (6) of section 115BAC of the Act, a person may exercise an option to opt out of this tax regime. A person not having income from business or profession can exercise this option every year.
3. Representations have been received expressing concerns regarding tax to be deducted at source (TDS) on 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 sub-section (1A) of section 115BAC of the Act or not.
4. In order to avoid the genuine hardship in such cases, the Board, in exercise of powers conferred under section 119 of the Act, hereby directs that a deductor, being an employer, shall seek information from each of its employees having income under section 192 of the Act 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.
5. If intimation is not made by the employee, 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. Accordingly, in such a case, the employer shall deduct tax at source, on income under section 192 of the Act, in accordance with the rates provided under sub-section (lA) of section 115BAC of the Act.
6. It is also clarified that the intimation would not amount to exercising option in terms of sub-section (6) of section 115BAC of the Act and the person shall be required to do so separately in accordance with the provisions of the sub-section.
7. This circular is in supersession of Circular No. C1 of 2020 dated 13.04.2020 and shall be applicable for TDS during the financial year 2023-24 and subsequent years.
Vipul Agarwal
Director(TPL-I)
Download CBDT Circular No. 04/2023 dated 05.04.2023 on TDS from Salary u/s 192 by Employer under default new tax regime u/s 115BAC in PDF format
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