Employees Can Opt For New Tax Regime by Giving Declaration to Employers, Says CBDT

New Delhi: The Central Board of Direct Taxes (CBDT) on Monday issued a circular directing that all employers need to obtain a declaration from their employees if they wish to opt for the new tax regime. Also Read – Amid Coronavirus Outbreak, Deadlines For Filing GST Returns Extended: CBDT

The employees, however, will continue to have the right between the two choices at the time of filing their returns, during April-July 2021. Also Read – Union Budget 2020: Mutual Fund Required to Deduct TDS at 10% Only on Dividend Payment, Says CBDT

In its circular, CBDT said, “The declaration obtained will be valid for the year. However, employees will still continue to have the right whether to exercise such option or not at the time of filing the return.” Also Read – Fail to Furnish Aadhaar/PAN Details to Employer, Lose 20% Salary as Income Tax: CBDT Circular

The clarification came after some employers expressed dilemma in this regard. The employers, on a month-to-month basis, have to deduct have to deduct tax at source under Section 192. For April 2020, the employers have to process the salaries as per the rule of deducting tax at the average rate computed on the basis of ‘rates in force.’

It was this ‘rates in force’ that the employers were seeking clarity from the government on. Now, with the clarification out, employers have the option to deduct an employee’s tax at source by computing their tax on the basis of the option they choose.

Under the new tax regime, as announced by Union Finance Minister Nirmala Sitharaman in the Union Budget earlier this year, taxpayers will pay 10%, 15%, 20% and 25% for incomes between Rs 5-7.5 lakh, Rs 7.5-10 lakh, Rs 10-12.5 lakh and Rs 12.5-15 lakh, respectively.

However, in order to avail of the reduced tax slabs under the new regime, taxpayers have to do away with some of the exemptions.