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Government issues clarification regarding Section 115BAC of Income-tax Act, 1961: All you need to know!

The Central Board of Direct Taxes recently issued a circular providing clarification with respect to option under section 115BAC of the Income-tax Act, 1961

Apr 20, 2020 16:53 IST
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Section 115BAC: The newly-inserted Section 115BAC of the Income-tax Act, 1961 provides that a person, being an individual or from an undivided family having income other than income from business or profession may opt to be taxed under the section along with his return of income to be furnished under sub-section (I) of section 139 of the Act for each year.

Section 115BAC of the Income-tax Act, 1961 provides a concessional rate, but it is subject to the condition that the total income shall be computed without specified exemption or deduction, set off of loss and additional depreciation.

However, there was a lack of clarity regarding whether the provisions of section 115BAC of the Act are to be considered at the time of deducting tax or not. Several concerns were received regarding tax to be deducted at source (TDS), which pointed out that the deductor, being an employer, would not know if the person, being an employee, would opt for taxation under section 115BAC of the Act or not, as the option is required to be exercised at the time of filing of return.

Hence, to the avoid the confusion and hardship in such cases, the Central Board of Direct Taxes, in the exercise of its powers under section 119 of the Act, issued the following clarifications:

An employee, having income other than the income under the head "profit and gains of business or profession" and intending to opt for the concessional rate under section 115BAC of the Act, may intimate the deductor of such intention for each previous year.

The deductor, being the employer, shall then compute his total income and make TDS thereon in accordance with the provisions of section 115BAC of the Act. 

In case, the employee fails to make such intimation, the employer shall make TDS without considering the provision of section 115BAC of the Act.

Further, the intimation made to the deductor by the employee shall only be for the purposes of TDS during the previous year and cannot be modified during that year. 

However, the intimation would not amount to exercising the option in terms of sub-section (5) of section 115BAC of the Act and the person shall be required to do so along with the return to be furnished under sub-section (1) of section 139 of the Act for that previous year. 

Thus, option at the time of filing of return of income under sub-section (1) of section 139 of the Act could be different from the intimation made by such employee to the employer for that previous year.

In case of a person who has income under the head "profit and gains of business or profession" also, the option for taxation under section 115BAC of the Act once exercised for a previous year at the time of filing of return of income under sub-section (1) of section 139 of the Act cannot be changed for subsequent previous years except in certain circumstances. 

Note: The above clarification by the Central Board of Direct Taxes would apply to such person with a modification that the intimation to the employer in his case for subsequent previous years must not deviate from the option under section 115BAC of the Act once exercised in a previous year.

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