As directed by the Finance Ministry, the employer is liable to deduct the TDS from the salaries of their employees according to the new lower tax regime if opted by the employee. A new tax regime with lower rates was rolled out by the government on a voluntary basis to facilitate the taxpayers. Though the new system was kept voluntary, the decision lies with the taxpayer whether he is willing to opt for the old or new tax system.
Talking about the TDS, if an employee opts for a new regime then the employer is liable to deduct TDS based on the rates mentioned under the new regime. The decision has to be taken by the employee at the beginning of the Financial Year. There is no way to change the regime anytime during the financial year. The taxpayer has to wait until the beginning of the next FY to switch from the existing system or at the time of filing the Income Tax Return 
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CBDT clarified the provision via the circular released on Monday. The circular stated the issue related to TDS deduction from the employee’s salary if he chose the new regime for FY 2020-21.
As directed by the circular, the employee with income other than business income has to inform the employer about his/her choice related to the tax regime (FY 2020-21) and the employer must go on with the relevant TDS deduction accordingly.
An employee having income from salaries other than the income under profit or gains of business or profession’ and is willing to opt for lower rates (u/s 115BAC of the Act) shall inform about the same to the employer, TDS thereon will be deducted from employees’ salary account abiding by the laws u/s 115BAC.
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So the salary of an employee who has opted for the new tax regime will be eligible for TDS deduction as per the TDS norms framed u/s 115BAC and also their tax liability will be calculated as per the new lower tax regime instead of the old tax regime. The employee-cum-taxpayer is now able to make a choice between the two tax regimes depending on which scheme they are benefited the most.
The information given by the employee to the employer is only for the purpose of TDS deduction 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.
Therefore the choice made by the employee at the time of filing the ITR (u/s 139(1) of the Act) may differ from the intimation he gave to the employee related to the previous year’s choice, the circular stated.
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The clarification given by CBDT through the circular is the result of the queries raised by all the tax professionals, CAs and taxpayers regarding the applicability of the norms on TDS from salaried income under both the regimes.
