Finance Act has provided New concessional Income Tax rate without availing certain deductions and exemptions .Persons Individual/HUF having income other than income from business or profession", may exercise option to avail New concessional Income Tax rates in respect of a previous year in his Income tax return for each year.But there is doubt that whether such option can be availed by employees and TDS can also be deducted under this option.
New Concessional Tax rates
New & Simplified Taxation Regime has been introduced in the Finance Act, 2020 for individual and HUFs with the following optional taxation rates subject to non-availment of exemption benefits
Income Tax Bracket
Tax Rate (%)
Less than 5 Lakhs
5 Lakhs - 7.5 Lakhs
10% (Presently 20%)
7.5 Lakhs - 10 Lakhs
15% (Presently 20%)
10 Lakhs - 12.5 Lakhs
20% (Presently 30%)
12.5 Lakhs - 15 Lakhs
25% (Presently 30%)
More than 15 Lakhs
Now CBDT has clarified as under
- that employee may intimate his option for new concessional Rate of Income tax to employer at the start of the year.
- If Option has been given by employee then Employer shall deduct tax on salary income at new concessional rate without giving certain exemption and deductions as defined in Act .
- No action is required by employees who wants to remain under Old regime of Normal Tax rates.
- This option once exercised can not be taken back by employee during that respective year , however he may change his option in Next year.
- This option is applicable for TDS on salary purpose.
- It is clarified that even if Employee has opted for TDS under concessional rate/Normal rate , he may choose/change his option at the time of Filing of return
- Suppose : You have given option to employer to deduct tax at New concessional rate and employer has deducted the tax accordingly but at the time of filing of your return , you have noticed that Normal tax rate regime is beneficial for you. In that case you can opt normal tax rates at the time of filing of return and can claim refund of tax.
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 wef 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 alongwith 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, setoff of loss and additional depreciation.
2. 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.
3. 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 "profit and gains of business or profession" 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 provisions 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.
4. 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 alongwith the return to be furnished under sub-section (1) of section 139 of the Act for that 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.
5. Further, in case of a person who has income under the head "profit and gains of business or profession" 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 years except in certain circumstances.
Accordingly, the above clarification would apply to such person with a modification that the intimation to the employer in his case for subsequent previous years must not deviate from the option under section 115BAC of the Act once exercised in a previous year.