CBDT vide Circular No.  C1/2020 dated 13.04.2020 has clarified that an employee, having income other than business income can intimate their employer to deduct TDS as per rates u/s 115BAC (Deduction of TDS under New Regime). However once such intimation is given, same cannot be modified later. Circular also provides that option at the time of filing return of income u/s 139(1) could be different from the intimation made to the employer.

In case an employer has been intimated to deduct TDS under New Regime then employer shall be liable to deduct TDS as per rates provided u/s 115BAC. If no such intimation has been received, then employer shall deduct TDS under Old Regime only.

In this Article, the author will discuss whether it is a favourable decision for an employee to give such declaration or not.

Those who opt for lower rates prescribed u/s 115BAC will have to lose upon the following benefits:-

  • HRA Exemption;
  • LFA / LTA Exemption;
  • Allowances u/s 10(14) except transport allowance for divyang employee, conveyance allowance for official purpose, DA, etc;
  • Allowance for income of Minor u/s 10(32);
  • Standard Deduction u/s 16;
  • Interest deduction for self-occupied house;
  • Any deduction u/s Chapter VI-A including 80C, 80CCD(1B), 80D, 80G, etc;
  • Loss from House Property cannot be set off;

Let’s understand the above with some given set of scenarios in the below illustration.

Illustration:-

Mr. X is a salaried assessee having below incomes and savings:-

Particulars Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5 Scenario 6
Basic Salary 6,00,000 6,00,000 6,00,000 18,00,000 18,00,000 18,00,000
HRA 1,00,000 1,00,000 1,00,000 3,00,000 3,00,000 3,00,000
HRA Deduction 20,000 50,000 80,000 1,00,000 1,00,000 1,00,000
Other Sources Income 20,000 20,000 20,000 50,000 50,000 50,000
Deductions u/s 80C / 80D etc 20,000 50,000 1,50,000 90,000 1,10,000 2,00,000

Analysis:- Below is the analysis of TDS that will be deducted by Employer under both the regimes:-

Particulars Scenario 1 Scenario 2 Scenario 3
Old Regime New Regime Old Regime New Regime Old Regime New Regime
Basic Salary 6,00,000 6,00,000 6,00,000 6,00,000 6,00,000 6,00,000
HRA 1,00,000 1,00,000 1,00,000 1,00,000 1,00,000 1,00,000
HRA Deduction 20,000 0 50,000 0 80,000 0
Standard Deduction 50,000 0 50,000 0 50,000 0
Taxable Salary Income 6,30,000 7,00,000 6,00,000 7,00,000 5,70,000 7,00,000
Other Sources Income 20,000 20,000 20,000 20,000 20,000 20,000
Gross Total Income 6,50,000 7,20,000 6,20,000 7,20,000 5,90,000 7,20,000
Deductions u/s 80C / 80D etc 20,000 0 50,000 0 1,50,000 0
Net Taxable Income 6,30,000 7,20,000 5,70,000 7,20,000 4,40,000 7,20,000
Tax 38500 34500 26500 34500 0 34500
Author’s Comment Savings of ₹4,000 in new regime Excess TDS of ₹8,000 will get deducted Excess TDS of ₹34,500 will get deducted
Remarks Break Even Deduction / Exemption foregone for those having taxable income of ₹6,30,000 under Old Regime is ₹1,26,670 thus only in Scenario 1 it is beneficial.

Particulars Scenario 4 Scenario 5 Scenario 6
Old Regime New Regime Old Regime New Regime Old Regime New Regime
Basic Salary 18,00,000 18,00,000 18,00,000 18,00,000 18,00,000 18,00,000
HRA 3,00,000 3,00,000 3,00,000 3,00,000 3,00,000 3,00,000
HRA Deduction 1,00,000 0 1,00,000 0 1,00,000 0
Standard Deduction 50,000 0 50,000 0 50,000 0
Taxable Salary Income 19,50,000 21,00,000 19,50,000 21,00,000 19,50,000 21,00,000
Other Sources Income 50,000 50,000 50,000 50,000 50,000 50,000
Gross Total Income 20,00,000 21,50,000 20,00,000 21,50,000 20,00,000 21,50,000
Deductions u/s 80C / 80D etc. 90,000 0 1,10,000 0 2,00,000 0
Net Taxable Income 19,10,000 21,50,000 18,90,000 21,50,000 18,00,000 21,50,000
Tax 385500 382500 379500 382500 352500 382500
Author’s Comment Savings of ₹3,000 in new regime Excess TDS of ₹3,000 will get deducted Excess TDS of ₹30,000 will get deducted
Remarks Break Even Deduction / Exemption foregone for those having taxable income of more than ₹12,50,000 under Old Regime is ₹2,50,000 thus only in Scenario 4 it is beneficial.

Conclusion:- As per above analysis, it is clearly evident that benefit of TDS under new tax regime is not very much lucrative considering the fact it might give minimal benefit but in certain circumstances, it can result in higher TDS being deducted. Therefore, it is recommended for an employee to prepare a robust estimation of his income and tax in advance before submitting any such kind of declaration of TDS as per rates prescribed u/s 115BAC.

Author’s Comment:- If you are not able to have clear sight of your whole year’s estimates then don’t provide a declaration to your employer to deduct TDS under New Regime. You can still opt for New Regime at later stage while filing ITR and claim refund of TDS if any.

Author Bio

Qualification: CA in Job / Business
Company: Fortune 500 Company
Location: Mumbai, Maharashtra, IN
Member Since: 06 Oct 2017 | Total Posts: 18
Author is a CA Final Rank holder (AIR 34 – Nov’15) and Diploma Holder in International Taxation (ICAI) currently working in a Fortune 500 company and can be reached at his facebook page – Jatin’s Tax Arena ( https://www.facebook.com/TheTaxArena/?ref=aymt_homepage_panel ) or his Linkedin acco View Full Profile

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