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April 13, 2020

Employer to take declaration form employee on TDS to be deducted FY 2020-21 in new rate or old rate – Know FAQ section 115BAC

The Ministry of Finance has came with clarification on which Income Tax Slab Rate TDS needs to be deducted by employer on Salary of Employees – Old Slab Rate or New Rate Frequently Asked Questions – FAQ 115BAC Section

What Slab Rate Employer Need to deduct TDS on Employees from April 2020 onward for FY 2020-21?

Employer has to take declaration from Employee. An employee, having income other than the income under the head “profits and gains of business or professions” and intending to opt for the concessional rate under section 115BAC of the act, may intimate the deductor, being his employer, of such intention for each previous year and upon such intimation, the deductor shall compute his total income and make TDS thereon in accordance with the provision of section 115BAC of the act.

What if No Intimation is received from Employee?

If such intimation is not made by the employee, the employer shall make TDS without considering the provision of section 115BAC of the act.

Can Employee Change Declaration to change method?

No once declaration is given Employee cannot change, It is also clarified that the intimation so made to the deductor shall be only for the purposes of TDS during the previous year and cannot be modified during that year

Can Employee Change Method at the time of filing Returns?

Yes an option is given to employee to chose any method at the time of filing returns of income for FY 2020-21

The intimation would not amount to exercising option in terms of sub section (5) of section 115BAC of the act and the person shall be required to do so along with the return to be furnished under sub-section (1) of section 139 of the Act for the previous  year. Thus, option at the time of filing of return of income under sub-section (1) of section 139 of the act could be different from the intimation made by such employee to the employer for that previous year.

What if No Declaration is given by Employee?

Employer has to deduct TDS considering in Old Slab Rates

What is the Rate of TDS on Salary for FY 2020-21 AY 21-22?

Download Latest TDS Rate Chart for Financial Year 2020-21 and Assessment Year 2021-22

Read Circular

Clarification in respect of option under section 115BAC of the Income tax act, 1961

Section 115BAC of the Income tax Act, 1961 (the act), inserted by the Finance act, 2020 w.e.f. the assessment year 2021-22, inter alia, provides that a person, being an individual or a Hindu undivided family having income other than Income from business or profession”, may exercise option in respect of a previous year to be taxed under the said section 115BAC along with his return of income to be furnished under sub-section (1) of section 139 of the act for each year. The concessional rate provided under section 115BAC of the Act is subject to the condition that the total Income shall be computed without specified exemption or deduction, set-off or loss and additional depreciation.

Representations expressing concern regarding tax to be deducted at source (TDS) has been received stating that as the option is required to be exercised at the time of filing of return, the deductor, being an employer, would not know if the person, being an employee, would opt for taxation under section 115BAC of the act or not. Hence, there is lack of clarity regarding whether the provisions of section 115BAC of the act are to be considered at the time of deducting tax.

In order to avoid the genuine hardship in such cases, the board in exercise of powers conferred under section 119 of the Act, hereby clarifies that an employee, having income other than the income under the head “profits and gains of business or professions” and intending to opt for the concessional rate under section 115BAC of the act, may intimate the deductor, being his employer, of such intention for each previous year and upon such intimation, the deductor shall compute his total income and make TDS thereon in accordance with the provision of section 115BAC of the act. If such intimation is not made by the employee, the employer shall make TDS without considering the provision of section 115BAC of the act.

It is also clarified that the intimation so made to the deductor shall be only for the purposes of TDS during the previous year and cannot be modified during that year. However, the intimation would not amount to exercising option in terms of sub section (5) of section 115BAC of the act and the person shall be required to do so along with the return to be furnished under sub-section (1) of section 139 of the Act for the previous  year. Thus, option at the time of filing of return of income under sub-section (1) of section 139 of the act could be different from the intimation made by such employee to the employer for that previous year.

Further in case of a person who has income under the head “profit and gains from business and professions’’ also, the option for taxation under section 115BAC of the act once exercised for a previous year at the time of filing of return of income under sub section (1) of section 139 of the act cannot be changed for subsequent previous year except in certain circumstances.