Budget 2020- Section 115BAC and Tax Deduction at Source Under Section 192 of Income Tax Act, 1961

Finance Bill 2020-21 introduced a New Section 115BAC, as per this Section, an assessee has an option to tax his Total Income as per the rates prescribed under Section 115 BAC subject to his forgoing of tax concessions otherwise available under the existing Income tax act.

This section is applicable for Individual / HUF, the option can be exercised at the time of filing of Return of Income, the option once exercised can not be withdrawn in subsequent assessment year in respect of assessee with Business Income.

Tax Deduction at Source

Assessees’ who is earing Income other than Business Income can opt on yearly basis. At this juncture we need to discuss about the TDS liability of the Employer in respect of assessee who is going to opt Section 115BAC at the time of filing of return of Income.

As per the reading of this section, the option is available for assessee only.

We will examine a situation where the assessee being an Employee who is willing to opt Section 115BAC

If an Employee who has intention to avail the benefit of Section 115BAC, whether he can express his option to his Employer before deduction of tax at source.

In such case whether the Employer is bound to accept his option and apply the rates as per Section 115BAC for the purpose of deduction of tax at source.

We will analyse the Provisions applicable for deduction of tax at source on Salaries.

Section 192(1)

Any person responsible in paying any income chargeable under the head “ Salaries” shall, at the time of payment, deduct income tax on the amount payable at the average rate of income tax computed on the basis of the rates in force for the financial year in which the payment is made, on the estimated income of the assessee under this head for that financial year.        

As per Section 192(1), it is the responsibility of the Employer to deduct tax on the basis of rates in force on the estimated income, of the asssessee.

  1. Rates in force
  2. Estimated income

Rates in force – Section 2(37A)

“ rate or rates in force or rates in force in relation to an assessment year or financial year means ……… rate or rates of income tax specified in this behalf in the finance act of the relevant year wherever is applicable”.

Estimated Income

We can interpret, Estimated Income means estimated Total Income computed in accordance with the provisions of the Income tax act after including other income of the Employee and allowing eligible deductions under Chapter VI A of the Income tax act.( we can also refer Circular issued by CBDT on yearly basis for Tax deduction at source on Salaries)

Concern areas:

On critical analysis of the provisions of The Income tax act, it is the responsibility of the Employer to deduct tax according to the rates in force as explained in Section 192(1) read with circular issued on deduction of tax at source on salaries.

Any shortfall / excess in deduction of tax by Employer on the basis of Total Income  computed as per Section 192(1) in the situations, where the employee who is willing to opt Section 115BAC

If the employee who is willing to opt Section 115BAC, can the Total Income computed as per the provisions of Section 115BAC be considered for Tax deduction purpose, which needs clarification.

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  1. Hema says:

    Yes. Section 115BAC is a provision to be applied by the person filing the returns and not to be provided to the employer. The default of short remittance is going to be as per the provisions of section 192 only and will not be based on section 115BAC.

  2. Nageswara Dutt V V R says:

    Section 115 BAC is very clear which needs to be exercised at the time of filing return and therefore at other places like TDS provisions, it cannot be operative. If taking the shelter of section 115 BAC for deduction of tax is made to be operative, it results into mutiple problems of DDO and resultantly less deduction of TDS if the assessee changes his mind later. Therefore, the DDO should strictly go as per section 192 and no other section expressly putting an embargo on the application of TDS provisions.

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