Things employer should keep in mind while deducting TDS from salary for FY 2020-21 – Section 115BAC
The new Financial year has started and along with it many people are now doing work from home because of the current scenario, which is new in our country. However, salary needs to be paid to them and for paying salary TDS also needs to be deducted from it.
Now the question before the employer is at which rate one is required to deduct TDS because our Finance Budget speech for 2020 has announced a new slab rate for the individual and HUF which has now increased the confusion before the individuals as to which tax rate they should choose. However we have tried to solve this issue by providing a calculation sheet where they can mention their various income and get an answer whether the new rate would be beneficial or not.
In the Budget speech Hon’ble Finance Minister had said that “this budget will introduce further reforms to stimulate growth, simplify tax structure, bring ease of compliance, and reduce litigations.” However, the situation is completely opposite as compared to what was repeatedly said by our Finance Minister and people are not finding it easy to choose between the slab rates because they will have to let go house rent allowance (HRA), Leave travel allowance, deduction of interest on housing loan etc.
Also, one more confusion is on part of employer wherein they are not able to make out that whether they need to deduct TDS at old slab rates or they need to take declaration from employees that they would shift to new slab rates. If the employee deducts TDS at old slab rates and employee shifts to new slab rates if he/ she finds it more beneficial at the time of filing return of income this would result in refund and then employee will have to wait for it’s refund and this won’t make the life of employee easy as was mentioned in Budget speech.
On going through the Finance Bill, 2020 one would find that on page 80 of Finance Act, 2020, the rates mentioned for deduction of TDS u/s 192 are normal slab rates and nowhere it has been mentioned that one can choose to deduct TDS at this rates or rates mentioned in section 115BAC based on declaration provided by employee. On going further in that table you would find that while calculating surcharge they have mentioned section 115BAC along with other special slab rates.
A counter argument could be that reading of the I-T Act should not be made so complicated. As the new tax regime is part of the Finance Act, 2020, these rates can apply for the purpose of TDS.
Thus, if an employee self declares that she or he is opting for the new concessional regime, tax should accordingly be deducted at source using the new slab rates. The employer should not be treated as an ‘assessee in default’ and penalised for short deduction of tax (merely because he has not adopted the normal tax rates).
However on reading sub section 5 of section 115BAC it says that “Nothing contained in this section shall apply unless option is exercised in the prescribed manner by the person” i.e. one would be eligible for benefit of section 115BAC only when he exercises such option at the time of filing return of income and not before.
Thus, on reading this it feels that TDS should be deducted at normal slab rates and then let the employee decide at the time of filing his return of income whether he wish to go into the new scheme or not.
Now a CIRCULAR has been release by CBDT wherein it has been mentioned that the employee for the purpose of deduction of TDS has to intimate his employer if he wishes to opt new tax rate u/s 115BAC and this needs to be done every year and employer can deduct TDS accordingly. Also declaration given by employee won’t restrict/ stop him from choosing different option at the time of filing his return of income u/s 139(1).
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