Clarification on New Option under Section 115AC of Income Tax Act, 1961 issued by CBDT

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a) The Central Board of Direct Taxes (CBDT) issued a circular on Monday to clarify options under Section 115AC of the Income Tax Act, 1961.

b) Recently, Section 115BAC of the Income-tax Act, 1961 was inserted by the Finance Act, 2020 which provided that a person, being an individual or a Hindu undivided family (HUF) having income other than income from business or profession, may exercise the option in respect of a previous year to be taxed under the Section 115BAC along with his return of income to be furnished under Section 139(1) of the Act for each year.

c) The concessional rate provided under section 115BAC of the Act is subject to the condition that the total income shall be computed without specified exemption or deduction, set off of loss and additional depreciation.

d) The Central Board of Direct Taxes (CBDT), while clarifying the issues on the provisions of Section 115AC of the Income Tax Act, 1961., clarified that “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 115 BAC of the Act, may intimate the deductor, being his employer, of such intention for each previous year and upon such intimation, the deductor shall compute his total income, and make TDS thereon in accordance with the provisions of Section 115 BAC of the Act.

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e) If such intimation is not made by the employee, the employer shall make TDS without considering the provisions under Section 115 BAC of the Act.”

“The intimation so made to the deductor 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 an 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,” the circular further clarified.

f) The circular also clarified that “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 115 BAC of the Act once exercised for the 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.

g) Accordingly, the above clarification would apply to such persons 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 excised in the previous year.”

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