Clarification in respect of option under section 115BAC of the Income Tax Act,1961

Section 115BAC was inserted by the Finance act, 2020 with effect from assessment year 2021-22, providing an option to an individual or a HUF having income other than income from business or profession that his/her income shall be taxed at a concessional rate subject to such tax is computed without specified exemptions or deductions. However it was not clear how an employer has to deduct TDS on salary paid to employees. The same has been clarified now.

How Employer need to compute & deduct TDS on Employees salary from April 2020 on-wards for FY 2020-21?

The Employer has to take a declaration from the Employee who wishes to opt for Section 115BAC, i.e concessional rate of tax and upon such intimation, the deductor (employer) shall compute his total income and deduct TDS thereon in accordance with the provision of section 115BAC of the act.

What happens if no Intimation is received from the Employee?

If no such intimation is given by the employee, the employer shall by default compute & deduct TDS without considering the provision of section 115BAC of the act.

Whether an Employee can deviate/change the declaration made?

No, once the declaration is given by an employee to the employer he cannot change and the employer shall deduct TDS based on the declaration made for that whole financial year.

However, it is clarified that the intimation so made to the deductor(employer) shall be only for the purposes of computing TDS. Thus, option at the time of filing of return of income under section 139(1) could be different from the declaration made by such employee to the employer. This means an employee can change the method by which his tax is computed while furnishing return of income under section 139(1).

What if an employee has income from “business or profession”? 

In case of such employees/individuals/HUF, option for taxation under section 115BAC of the act once exercised for a previous year at the time of filing of return of income cannot be changed in any subsequent previous years.

Original copy of the circular issued by the ministry – Clarification on Employee TDS – Section 115BAC


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