People opting for the lower income tax regime, without any exemption, will have ease in compliance. The apex income tax policy-making body, the Central Board of Direct Taxes (CBDT), has come out with a detailed clarification in that regard.
The Union Budget for 2020-21 prescribed a new personal income tax regime wherein income tax rates will be significantly reduced for individual taxpayers who forgo certain deductions and exemptions. Some of such deductions/exemptions include HRA (house rent allowance), interest on home loan, and deposits in Public Provident Fund, National Saving Certificates etc.
The new tax regime is optional for the taxpayers. An individual who is currently availing deductions and exemptions under the Income Tax Act may choose to avail them and continue to pay tax as per the old regime. It was said that the assessee will have to make option for new scheme at the time of filing income tax return (ITR).
TDS-ITR mismatch
Earlier, it was said that individual can opt for new regime (no exemption, lower tax) or old regime (with exemption, higher tax) at the time of filing ITR. However, employers were required to deduct TDS (tax deducted at sources) only under the old regime, which could have resulted in mismatch between TDS and ITR.
Now, there will no such problem, as the clarification says that “an employee, having income other than the income under the head profit and gains of businesses and profession and intending to opt for the concessional rate under section 115BAC of the Income Tax Act, may intimate the deductor, being his employer, of such intention for each previous year and upon such intimation, the deductor shall compute his total income and make TDS thereon in accordance with the provision of Act.” Further, if there is no intimation from the employee, then the employer will deduct according to the old regime.
By this clarification, the government has allowed employers to deduct TDS under the new regime, if they obtain a declaration from employees in this regard. This will mitigate the mismatch between the TDS and the ITR.
Shailesh Kumar, Director at Nangia Andersen Consulting said this clarification will remove the confusion amongst employers and will also enable employees to opt for new scheme even at the time of TDS. “This will also ensure there are minimum mismatch in the TDS and ITR of employees, if they adopt a consistent position while making declaration to the employer as well as in their ITR, regarding the option (new or old) chosen by them,” he said.