What is Section 115BAC of Income Tax Act, 1961?

Section 115 BAC of the income tax act was inserted by the Finance Act that was launched in 2020. Under Section 115 BAC of the income tax act, an individual is given a chance to choose between the actual rates of tax or the new tax rates that are concessional without taking into consideration the exemptions or deductions. It is true that before the introduction of Section 115 BAC of the income tax act, there has been a lack of clarity that an employer can review the new tax regime while withholding taxes from his income. In order to clarify all such queries, CBDT(Central Board of Direct Taxes) issued a clarification for employees.  According to this, the employee will have to calculate his TDS under Section 115 BAC of the income tax act on the basis of the intimation that they receive.

As per the new section Section 115 BAC of the income tax act, any individual or HUF who has an income in addition to their income from profession are allowed to choose the option regarding the last year under Section 115 BAC of the income tax act to be liable for taxation and his income to be provided under Section 139(1) for every single year.

The rate of concession that is provided under Section 115 BAC of the income tax act varies with the condition that the total income will have to be calculated without any deductions or exemptions, some extra depreciation and set off of a loss.

Main points of CBDT Clarifications

The main points of the clarifications on Section 115 BAC of the income tax act that were issued by the CBDT(Central Board of Direct Taxes) are listed below:

• In case the taxpayer is an employee and has additional sources of income along with the income that he receives from the company and he wishes to get some concession under Section 115 BAC of the income tax act, then he should inform the detector every previous year.
• If the employee is unable to inform the detector, then he should make TDS without taking into consideration the provisions mentioned under Section 115 BAC of the income tax act.

The new tax regime

According to the Finance Act launched in 2020, a new tax regime was introduced for individuals and HUFs(Hindu Undivided Families). This new tax regime has reformed tax slabs and rates. Once the required conditions have been satisfied, an individual or n HUF is given a chance to choose if they want to calculate the tax in respect of their total income without taking into consideration any specified deductions or exemptions at the time of filing his/ her income tax return according to the new slab rates instead of the old ones.

Intimation To opt for the New Tax Regime

Under Section 115 BAC of the income tax act, it has been clarified by the CBDT that any taxpayer having an income will have to intimate or inform his/her employer if he/she intends to opt for the new tax regime at rates of concession without taking into consideration any of the deductions or exemptions that have been prescribed. Once such an intimation has been made by an employee, then it can not be modified during that particular financial year. Therefore, the employer will calculate the total income and will deduct the TDS according to the new tax regime.

• If the employee is unable to intimate the employer, then the employer will have to calculate the total income and deduct the TDS according to the old tax regime.
• The intimation that the employer gets will not amount to choosing the option under Section 115 BAC of the income tax act. Therefore, the option to file an ITR during that time period may or may not be different from the intimation that is made to an employer by his employee for that concerned financial year.

Section 115 BAC of the Income Tax Act for Taxpayers having Business Income

Also, if the taxpayer has a business income, once the option has been used, it will be applied for all the successive financial years and these taxpayers will have to intimate the employer as applied. Once the intimations have been made, , then it can not be changed for the successive financial years except under specified conditions.

Conclusion

The clarifications issued by the CBDT(Central Board of Direct Taxes) clarify the confusions about the role of employers regarding the application for the new tax regime while calculating the TDS on Salary under Section 115 BAC of the income tax act.