Employers need not provide New Tax Regime option to Employees

With the announcement of the New Tax Regime by The Hon’ble Finance Minister, Smt.Nirmala Sitharaman on 01 Feb 2020, Employers & payroll processing service providers are perplexed as to how this is going to work out.

What the Industry, including Relativity, thought or had questions about :

• We need to provide an option to the employee to choose which tax regime he/she wants to be in (Old/New)
• This required changes to the systems / Softwares used for payroll processing
• How many times can the employee change from one regime to another?
• How to undertake reporting of the choice made by the employee?

Well, to collaborate and discuss these items, Relativity organized a webinar on 17-03-2020. While preparations for the webinar we made an important discovery, which we shared with everyone during the webinar. We went against the general belief. We went against everyone’s thoughts. My team asked, “Boss, do you really want to tell everyone something that they won’t believe at first sight?”. It was a tough call, yet, we were glad that we shared our interpretation to the industry participants/employers and our competitor friends.

Here’s what we discovered :

• Employer IS NOT required to provide the option of New Tax Regime
• In fact, if the employer does so, he will be in contravention of Section 192 of the Income Tax Act
• Employer is required to deduct TDS only at the normal tax rates as mentioned in Part-A of the First Schedule of the Proposed Finance Act, 2020
•  The new tax regime is proposed to be only as a new section in the Finance Act, 2020 – Section 115BAC

We have explained in detail, along with the necessary extracts & interpretation of the Act, how we have come to this conclusion.

New challenges have presented themselves after this discovery :

• Just like you and me, even the employees currently think they have the choice of new tax regime with the employer & we aren’t going to give this to them
• Significant efforts on Employee awareness of this fact has to be undertaken
• Employee queries will rise significantly, at least for Q1 of FY 20-21

You can also access our webinar recording below. You will have first-hand information about thoughts not only from me but other industry participants too. The recording also has our replies to generous queries participants had, especially on the newly introduced perquisite of retiral contributions exceeding Rs.7,50,000 P.A

Should you have any questions/queries, please start a discussion below. Glad to help!

Best,

Akash Mahagaonkar V

To Access the Webinar Presentation & Video – for FREE: