Finance Act, 2020 has introduced optional based filing for individual and HUF whereby these type of assesses have to choose option amongst new and old tax slab rates at the time of filing of ITR. This type of filing is unique in case of Indian Taxation System till date.

This type of filing has created doubt in the mind of both employees and tax deductors (employers). Employees are confused regarding- which method would be beneficial to them? Employers are worried about compliance. In this article we shall try to solve the problem of both employees as assesses and employer as tax deductors.

New Vs Old Tax Slab Rate

Before making any conclusion we should know and compare New and old tax slab rate applicable for non-senior individual as under:-

NEW TAX SLAB RATE (NON-SENIOR CITIZENS)

Income Range Tax Rate
Upto Rs. 2,50,000.00 NIL
Rs. 2,50,001 to Rs. 5,00,000.00 5% (Tax rebate of Rs. 12,500.00 U/s. 87A is allowed)
Rs. 5,00,001.00 to Rs.7,50,000.00 10%
Rs.7,50,0001.00 to  Rs.10,00,000.00 15%
Rs. 10,00,001.00 to Rs. 12,50,000.00 20%
Rs. 12,50,000.00 to Rs. 15,00,000.00 25%
Rs. 15,00,000.00 and above 30%

OLD TAX SLAB RATE (NON-SENIOR CITIZENS)

Income Range Tax Rate
UptoRs. 2,50,000.00 NIL
Rs.2,50,001 to Rs. 5,00,000.00 5% (Tax rebate of Rs. 12,500.00 U/s. 87A is allowed)
Rs. 5,00,001.00 to Rs. 10,00,000.00 20%
Rs.10,00,000.00 and above 30%

Note: Add Health and education cess @4% on tax amount. Surcharge as applicable.

Exemptions and deductions not allowed under new tax slab rate

a. Leave Travel Allowance (LTA)

b. House Rent Allowance (HRA)

c. Conveyance Allowance

d. Daily expenses allowance in employment

e. Relocation allowance

f. Children education allowance

g. Helper Allowance

h. Other Allowance

i. Standard Deduction

j. Profession Tax

k. Housing Loan EMI- Interest part

l. Chapter VIA deductions such as LIC, PPF, Mediclaim etc.

Steps for computation of TDS by Employers

Following steps are to be followed by employer (Tax deductor) or Tax department of employer or Accounts department of employer or Tax Consultants for employer:-

a. Receive a simple application from employees liable for TDS as a confirmation about new or old tax slab rate. (Application format is given as Anneuxre-A). If any employee provides application and choose old tax rate, ask him to provide form no. 12BB (Declaration for investment) along with application.

It is to be noted that if no application is received from an employee regarding old or new tax slab rate then employer should deduct TDS as per old tax slab rate.

It is to be further noted that if TDS is deducted as per old tax slab rate and employee wants to file ITR as per new tax slab rate or vice versa, there is no problem at all. Difference if any should be adjusted. It means if there is less TDS then employees should deposit the difference tax and if there is excess TDS, claim as refund. No interest is payable if ITR is filed within statutory or extended due date.

b. Compute estimated total income and tax thereon for full Financial Year or during the tenor of employment as per available information, on the basis of options of new or old tax rate as applied by the employees.

c. Divide the amount of tax as arrived in step (b) above by 12 months to get monthly TDS amount. Deduct this monthly TDS amount upto February-2021.

d. In the month of March-2021, re-compute actual total income and tax thereon as per option exercised by the employees (i.e. new or old tax rate slab).

e. Compare actual tax deductible as arrived in step (d) with estimated tax deducted as arrived in step (b).

f. If there is short TDS, deduct the balance amount of TDS from the salary for the month of March-2021. If there is excess TDS then deduct very nominal amount say Rs.100.00, it will be helpful at the time of filing of TDS return (24Q) for the Quarter ending on 31-03-2021.

ANNEXURE-1

FORMAT OF SIMPLE APPLICATION BY EMPLOYEE TO EMPLOYER REGARDING INTIMATION FOR OPTING OLD/NEW TAX SLAB RATE:-

The HRA/Accounts Manager/Taxation Manager,
ABC Private Limited,
38C, A T Mukherjee Road,
Kolkata-700 025

Ref: PAN-AIKPD4878F

Sub: Intimation for deduction of TDS as per New/Old tax rate slab for FY: 2020-21.

Dear Sir/Madam,

With reference to the captioned subject matter I would like to request you to deduct TDS as per New/Old tax slab rate for the FY: 2020-21 and oblige.

Thanking You

Yours Faithfully

Author Bio

Qualification: CS
Company: N/A
Location: KOLKATA, West Bengal, IN
Member Since: 23 Sep 2019 | Total Posts: 7
CS Shambhu Nath Dhuria is a Company Secretary in Practice. He is dealing in GST, Income Tax and TDS matters. View Full Profile

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2 Comments

  1. Rohit Rawat says:

    Hi, I am working in an IT company, and while declaring my 2020 investments, I had select a new regime. Now my company is deducting tax every month and once deducted tax on variable pay as non-recurring tax.
    My CTC is 5.6lpa, and in a new regime, I am not getting any benefit of declaring life insurance, PPF, and health insurance instead that I am facing loss with tax deduction every month due to a new regime.

    Kindly suggest how can I avoid this and is there any way to claim this unnecessary deduction or moving to the old regime.

    1. Rohit Rawat, says:

      Dear Mr. Rohit Rawat,

      You need to do the following:-

      1. Re-Inform your company about you new choice i.e. Old tax slab, if possible. or

      2. Let the TDS deduction by your company in the same line. At the time of filing of ITR you should choose old tax rate slab. Excess TDS shall be refunded to you by Income Tax Department.

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