The new income tax system proposed by the government in the Budget 2020 for taxpayers is optional. According to the Finance Bill 2020, taxpayers in the new system can choose a lower income tax rate at the time of ITR filing, for which they will have to waive tax exemption and deduction benefit.
However, there is no clarity in the finance bill regarding how the employer will calculate and deduct TDS at the time of salary payment. One question is that if the employer tells the employee to adopt the new tax system at the beginning of the financial year, will he get a chance to switch later?
Individual taxpayers do not have any business income in a financial year, then they will have the option to switch to the new-old tax system every financial year as per the convenience, but in terms of TDS, which tax rate for calculating the estimated tax liability of every employee To know how to choose, how will the employer know? If the employee elects at the beginning of the financial year, then TDS will be deducted from his salary according to his chosen taxation system. If the ITR changes its mind at the time of filing, it can claim a higher refund or make a late payment along with the interest if the advance tax is pending.
Taxpayers will find it difficult to decide at the beginning of the financial year which taxation system will be beneficial for them as the estimated income and type of taxpayer can change over time in any given financial year. Naveen Wadhwa, CA and DGM of Taxman.com by profession, says, “There is no deadline set for the selection of new tax system in the new section. Employees can do tax payment planning according to the new or old system at any time before filing returns. If the tax payment remains low while filing the return, then the taxpayer will have to pay self assessment tax.
In the new option, more than the salary of the employee can lead to tax deduction. Aarti Raute, partner, Deloitte India, says, “According to the finance bill, employees will have to choose the simplified tax system at the time of return filing. According to the salary of the employee, the employer will be responsible for deducting and depositing tax on monthly basis. If the simplified tax system is selected at the time of return filing, the employee will face more tax deduction that year and will have to wait till the return filing to get the refund. ‘
Aarti says, ‘It has been told in the memorandum that tax deduction will be at the time of salary payment according to the proposed tax rate, but no provision has been made in the finance bill about this, so clarification is necessary in respect of selection of the new system for tax deduction. Time will have to be done and what will be its process? ‘ There is also no clarity as to whether the shortage on the TDS deducted from the salary of the employee will give the interest on the short TDS.
Abhishek Soni, CEO and founder of ITR filing website Tax2win.in, says, “Employers will have to deduct while making TDS salary. There is clarity in the finance bill about how the employer will deduct TDS in case the employee chooses a new system. Let’s assume that at the beginning of the financial year, the employee decides to stay in the old system and informs the employee about it. Employer deducts TDS throughout the financial year but when depositing an investment proof, the employee changes his mind and gets into a new system. In this case, the employer may have to pay interest at the rate of 1% monthly for TDS non-deduction or short deduction. There is a lot of confusion among the employees regarding TDS, hence CBDT needs to issue clarification.
