Income Tax on Salary: Union Budget 2020 announced new tax regime in addition to existing tax regime. That means new tax regime is optional. Now assesses can opt for any scheme whether new or old depending what best suits from the point of view of their tax planning.
The income tax department has come up with clarifications for those who want to opt for new tax slabs. The lower income tax rates, as announced in Budget 2020, came into effect from April 1, 2020. The old tax slabs will also continue to remain in effect, giving choice to individuals to opt between the two.
Tax experts say whether an individual should choose the new tax regime or the old one depends on a case-to-case basis. As under this new lower tax rates, the individual will have to give up on a lot of deductions that could help to reduce taxable income.
New Income Tax Rates for Individual less than 60 years
| Income tax slab | Tax rate under existing scheme | Tax rate under new scheme |
| Up to 2.5 lakh | Nil | Nil |
| 2.5-5 lakh | 5% | 5% |
| 5-7.5 lakh | 20% | 10% |
| 7.5-10 lakh | 20% | 15% |
| 10-12.5 lakh | 30% | 20% |
| 12.5-15 lakh | 30% | 25% |
| Above 15 lakh | 30% | 30% |
However, in case of salaried employees their income from salary is already tax deducted. That means when a person receives salary, the amount of salary is after tax. But still a person has to file an ITR and have to pay the adjusted tax. In case of salaried employees, employers himself deduct the tax on the amount of salary i.e., TDS on salary and later on at the time of filing an income tax return an employee get the benefits of TDS. In regards to this, CBDT has issued a circular F.No.370142/13/2020-TPL dated April 13, 2020 which clarifies the following-
How the income of salaried employees will be taxed under new regime?
Those salaried employees who doesn’t have any other income like income from Business and Profession or house property except salary, will inform their employer about their preference regarding tax structure for the purpose of deduction of tax at source or TDS on salary.
Important points to decide between New Income Tax Rate and Old Tax Rate regime
How will be the income taxed if employee doesn’t opt for new scheme?
If a person who have income under the head salary and doesn’t want to opt the new tax regime then that person will inform their employer about their intentions and can still opt for the old tax regime as per Income Tax Act, 1961.
Does tax structure can be change through out year if one had been chosen?
Once the employee intimate the employer about the intention to opt for tax scheme then the employee or employer can’t change the tax scheme throughout the year because of Tax Deducted at Source (TDS). TDS has to be deducted at the same rate which is opted earlier.
New Income Tax Rates & existing Income Tax Rates : Quick comparison
Does the employee has an option to change the tax structure after the one had been chosen?
Although the scheme can’t be change during the year but employees still have a option to change the scheme at the time of filing of income tax return. If a employee do so then the amount which has been deducted as TDS will be adjusted as per the new scheme.
“The deductor shall compute his total income and make TDS (tax deducted at source) thereon in accordance with the provision of Section 115 BAC of the (Income Tax) Act. If such intimation is not made by the employee, the employer shall make TDS without considering the provision of Section 115 BAC of the Act,” the income tax department said.
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The author of the above article is Shruti Jain.
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