Section 115BAC of the Income-tax Act, 1961 (“IT Act”) was inserted vide Finance Act, 2020 which provides an option to an Individual and Hindu Undivided Family having income other than income from business or profession to be taxed at a concessional rate of tax under the said section. This concessional rate of tax is subject to a condition that the total income under this section shall be computed without any specific deduction, exemption, set off of losses and additional depreciation.
In relation to this option, representations were received by the Central Board of Direct Taxes (“CBDT”) regarding deduction of tax at source by the employer stating that, since the option u/s 115BAC of the IT Act is to be exercised at the time of filing of income-tax return u/s 139(1) of the IT Act, the employer would not know if the employee would opt for taxation u/s 115BAC or not. Thus, there was a lack of clarity for the employers regarding whether to consider the provisions of Section 115BAC or not while deducting TDS of its employees.
- In view of the above, so as to avoid genuine hardship in such cases, it has been clarified by CBDT vide Circular C1 of 2020 dated 13.04.2020 that an employee having income other than income under the head ―profits and gains of business or profession‖ and intending to opt for taxation u/s 115BAC of the IT Act must intimate the employer of such intention for each previous year and deductor shall accordingly deduct tax at source by computing the total income of the employee as per section 115BAC of the IT Act. It is also clarified that said intimation will only be restricted for the purpose of deduction of tax at source during the previous year and it cannot be modified during the said year by the employee.
- Furthermore, it is clarified that such intimation would not tantamount to exercising of option u/s 115BAC of the IT Act as the said exercising of option is to be done by the employee at the time of furnishing his return of income u/s 139(1) of the IT Act. Hence, the final option of the employee to opt for Section 115BAC of the IT Act which may be exercised at the time of furnishing his income-tax return u/s 139(1) may be different from the intimation made by him to his employee for the purpose of deduction of tax at source.