Employer’s TDS Obligation Under New ‘Default’ Personal Tax Regime: CBDT Issues Clarifications

The Central Board of Direct Taxes (CBDT) has issued clarification regarding the deduction of TDS under Section 192 read with sub-section (IA) of Section 115 BAC of the Income-tax Act.

Section 115 BAC of the Income-tax Act, 1961, has been amended by the Finance Act of 2023 to include a sub-section (lA), which establishes a new tax structure that will take effect for assessment years starting on or after April 1st, 2024. The regime is applicable to an individual, a Hindu undivided family, an association of people (other than a cooperative society), or a group of people, whether they are legal entities or not.

Under the new system, if a person meets certain requirements, such as not taking advantage of certain exemptions and deductions, income tax on that person's total income will be computed at the rates specified in sub-section (1A) of Section 115 BAC.

The new tax regime is the default tax regime applicable to all individuals. However, under Section 115 BAC (6) a person may exercise an option to opt out of the new tax regime. A person who does not have income from a business or profession can exercise this option every year.

Representations have been received expressing concerns regarding tax to be deducted at source (TDS) on the salary income of a person under Section 192 as the deductor, being an employer, would not know if the person, being an employee, would opt out from taxation under sub-section (1 A) of Section 115 BAC of the Act or not.

The Board directed that a deductor, being an employer, shall seek information from each of its employees having income under Section 192 regarding their intended tax regime. The employee shall intimate it 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.

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. 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 115 BAC of the Act.

It is also clarified that the intimation would not amount to exercising an option in terms of sub-section (6) of section 115 BAC of the Act, and the person shall be required to do so separately in accordance with the provisions of the sub-section.

Circular No. 04 of 2023

Date: 05/04/2023

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