Tax deduction on salaries: CBDT says tax will be calculated at New Tax Regime rates if employees don’t opt out
Finance Minister Nirmala Sitharaman in her this year’s Budget speech said that the new tax regime will be treated as the default tax regime if the employer doesn’t register his or her choice with the employee.
- Apr 6, 2023,
- Updated Apr 6, 2023 5:53 PM IST
TDS under New Tax Regime: The Central Board of Direct Taxes (CBDT) has said that employees should inform their choice of the tax regime to employers or else the employers may deduct TDS on salary under Section 192 as per the New Tax Regime rates. It is noted that the Centre has made the New Tax Regime as the default tax regime from FY 2023-24. Finance Minister Nirmala Sitharaman in her this year’s Budget speech said that the new tax regime will be treated as the default tax regime if the employer doesn’t register his or her choice with the employee.
In a recent circular, issued on April 5, the CBDT said that if an employee doesn’t intimate about his/her choice of tax regime then the employer can deduct TDS from salary as per the rates prescribed for the default regime, i.e. New Tax Regime.
“If intimation is not made by the employee, it shall be presumed that the employee continues to be in the default tax regime and has not exercised the option to opt out of the new tax regime. Accordingly, in such a case, the employer shall deduct tax at source, on income under section 192 of the Act, in accordance with the rates provided under sub-section (lA) of section 115BAC of the Act,” CBDT said in the circular.
The CBDT has clarified that an employer needs to seek information from each of its employees regarding their intended tax regime whether the new regime, which offers low tax rates with no deduction of various allowances and investments, etc.) or the old regime, which permits deductions and allowances under certain sections of the Income Tax Act.
“In order to avoid the genuine hardship in such cases, the Board, in the exercise of powers conferred under section 119 of the Act, hereby directs that a deductor, being an employer, shall seek information from each of its employees having income under section 192 of the Act regarding their intended tax regime and each such employee shall intimate the same to the deductor regarding his intended tax regime for each year and upon intimation, the deductor shall compute his total income, and deduct tax at source thereon according to the option exercised,” CBDT said.
The CBDT said that salaried employees, if he or she wishes, can opt out of the New Tax Regime every year to enjoy the benefit of various deductions available under the Old Tax Regime. As per experts, if an employee chooses to opt out from the New Tax Regime, he or she can then avail of deductions and tax exemptions under Section 80C like before.
New Tax Regime vs Old Tax Regime
The new tax regime, which was introduced in the 2020 Budget, is known as the 'Simplified Tax regime,' and offers reduced tax rates if the taxpayer is ready to forego some deductions and exemptions during income tax calculations.
Under the new tax regime, people earning up to Rs 7 lakhs per annum don’t have to pay taxes. Besides, there us a standard deduction of Rs 50,000 available in the new regime.
Sitharaman proposed to reduce the number of tax slabs under the New Tax Regime from six to five in a bid to simplify the calculations.
The new tax slabs effective from April 1, 2023
0- Rs 3 lakh: Nil
Rs 3-6 lakh: 5%
Rs 6-9 lakh: 10%
Rs 9-12 lakh: 15%
Rs 12-15 lakh: 20%
Above Rs 15 lakh: 30%
Old tax regime
Under the old tax regime, the tax rates are higher than the new tax regime. But the old regime offers a number of deductions or tax exemptions such as house rent allowance (HRA), leave travel allowance (LTA) tax exemptions, Section 80C, 80 D deductions, etc.
The biggest section for deduction for tax-paying individuals is Section 80C, by which one can reduce the taxable income by Rs 1.5 lakh in one go.
Besides, the old regime also offers breathers as tax deductions on your loans, like home and education, to premiums you pay for health insurance.
| Exemptions | Deductions |
| House Rent Allowance | Public Provident Fund |
| Leave Travel Allowance | ELSS (Equity Linked Saving Scheme) |
| Mobile and Internet Reimbursement | Employee Provident Fund |
| Food Coupons or Vouchers | Life Insurance Premium |
| Company Leased Car | Principal and Interest component of Home Loan |
| Standard Deduction | Children Tuition Fees |
| Uniform Allowance | Health Insurance Premiums |
| Leave Encashment | Investment in National Pension Scheme |
| Tuition fee for Children | |
| Saving Account Interest |
TDS under New Tax Regime: The Central Board of Direct Taxes (CBDT) has said that employees should inform their choice of the tax regime to employers or else the employers may deduct TDS on salary under Section 192 as per the New Tax Regime rates. It is noted that the Centre has made the New Tax Regime as the default tax regime from FY 2023-24. Finance Minister Nirmala Sitharaman in her this year’s Budget speech said that the new tax regime will be treated as the default tax regime if the employer doesn’t register his or her choice with the employee.
In a recent circular, issued on April 5, the CBDT said that if an employee doesn’t intimate about his/her choice of tax regime then the employer can deduct TDS from salary as per the rates prescribed for the default regime, i.e. New Tax Regime.
“If intimation is not made by the employee, it shall be presumed that the employee continues to be in the default tax regime and has not exercised the option to opt out of the new tax regime. Accordingly, in such a case, the employer shall deduct tax at source, on income under section 192 of the Act, in accordance with the rates provided under sub-section (lA) of section 115BAC of the Act,” CBDT said in the circular.
The CBDT has clarified that an employer needs to seek information from each of its employees regarding their intended tax regime whether the new regime, which offers low tax rates with no deduction of various allowances and investments, etc.) or the old regime, which permits deductions and allowances under certain sections of the Income Tax Act.
“In order to avoid the genuine hardship in such cases, the Board, in the exercise of powers conferred under section 119 of the Act, hereby directs that a deductor, being an employer, shall seek information from each of its employees having income under section 192 of the Act regarding their intended tax regime and each such employee shall intimate the same to the deductor regarding his intended tax regime for each year and upon intimation, the deductor shall compute his total income, and deduct tax at source thereon according to the option exercised,” CBDT said.
The CBDT said that salaried employees, if he or she wishes, can opt out of the New Tax Regime every year to enjoy the benefit of various deductions available under the Old Tax Regime. As per experts, if an employee chooses to opt out from the New Tax Regime, he or she can then avail of deductions and tax exemptions under Section 80C like before.
New Tax Regime vs Old Tax Regime
The new tax regime, which was introduced in the 2020 Budget, is known as the 'Simplified Tax regime,' and offers reduced tax rates if the taxpayer is ready to forego some deductions and exemptions during income tax calculations.
Under the new tax regime, people earning up to Rs 7 lakhs per annum don’t have to pay taxes. Besides, there us a standard deduction of Rs 50,000 available in the new regime.
Sitharaman proposed to reduce the number of tax slabs under the New Tax Regime from six to five in a bid to simplify the calculations.
The new tax slabs effective from April 1, 2023
0- Rs 3 lakh: Nil
Rs 3-6 lakh: 5%
Rs 6-9 lakh: 10%
Rs 9-12 lakh: 15%
Rs 12-15 lakh: 20%
Above Rs 15 lakh: 30%
Old tax regime
Under the old tax regime, the tax rates are higher than the new tax regime. But the old regime offers a number of deductions or tax exemptions such as house rent allowance (HRA), leave travel allowance (LTA) tax exemptions, Section 80C, 80 D deductions, etc.
The biggest section for deduction for tax-paying individuals is Section 80C, by which one can reduce the taxable income by Rs 1.5 lakh in one go.
Besides, the old regime also offers breathers as tax deductions on your loans, like home and education, to premiums you pay for health insurance.
| Exemptions | Deductions |
| House Rent Allowance | Public Provident Fund |
| Leave Travel Allowance | ELSS (Equity Linked Saving Scheme) |
| Mobile and Internet Reimbursement | Employee Provident Fund |
| Food Coupons or Vouchers | Life Insurance Premium |
| Company Leased Car | Principal and Interest component of Home Loan |
| Standard Deduction | Children Tuition Fees |
| Uniform Allowance | Health Insurance Premiums |
| Leave Encashment | Investment in National Pension Scheme |
| Tuition fee for Children | |
| Saving Account Interest |