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. | |||||
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| 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.
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