Sunday, April 16, 2023

Employer's TDS obligation on Salaries for Financial Year 2023-24


Tax deduction on Salaries FY 2023-24.

The CBDT has issued circular No 04/2023 dated 5th April, 2023 clarifying employer’s TDS obligation for Financial Year 2023-24. This Circular is applicable for TDS during FY 2023-24 and subsequent years.

The CBDT has clarified that an employer need to seek information from each of its employees regarding their intended tax regime whether new regime i.e a low tax rates with no deduction of various allowances and investments etc. or old regime which permits deductions and allowances.

Each employee is required to intimate its option to his employer for each year at the beginning of each year and upon such intimation by the employee to the employer, the employer has to compute the employee's total income and deduct tax at source according to the option exercised by each of the employees.

In the absence of any intimation by the employee, the employer shall presume that the employee continues to be in new regime and the employer shall deduct tax at source.

Such an employee’s intimation to its employer is only for the purpose of TDS obligation and the employee shall still have the option to choose old or new regime at the time of filing its tax return.

The salaried taxpayers will have option to switch from every year but those with business or profession income, after opting for regular tax regime will have option to move out or change regime only once.

In view of the above clarification, it is suggested that in order to avoid any dispute, this process is fully documented by each of the employer.

-          Each employer should immediately send a letter/email to each of its employees seeking option.

-          In case no reply is received from any of the employees, then an email may be sent to such employees informing that no intimation about choosing option of old or new regime has been received and accordingly default regime i.e. new regime will be applicable in his case.

-          Tax deduction be made for the month of April,2023 and onwards as per that intimation.

-          A suggestion to each of the employee to make a comparative computation of income and tax liability under old regime and new regime may be made available to employees and opt for the regime which is more beneficial.