Notifications CBDT
TDS on Salary — Employer's Obligation to Ask Employee for Regime Choice (Old vs New)
CBDT Circular No. 4/2023
- Issued
- 2023-04-05
- Effective from
- 2023-04-05
- Act
- Income Tax Act 1961 s.192
What it says
Employee must declare regime choice to employer
At the start of each financial year (or at the time of joining), the employer must inform the employee of both tax regimes. The employee must declare their choice. If no declaration is made, the employer defaults to the new regime (s.115BAC) for TDS computation from FY 2023-24 onwards.
New regime as default (from FY 2023-24)
Finance Act 2023 made the new tax regime the default. Employer uses new regime rates for TDS computation unless the employee opts out in writing for the old regime.
Employee can change choice at year-end
At the time of filing ITR, the employee can independently choose the regime regardless of what was declared to the employer for TDS purposes. TDS under wrong regime creates a refund or additional tax due at ITR filing.
Employer's Form 16 — Part B
Employer must issue Form 16 showing the computation under the regime used for TDS. If employee declared old regime but employer used new, Form 16 should reflect the employer's computation.
Supersession chain
Supersedes: cbdt-circular-24-2022
Affected forms and returns
- Form 16 Part B
- ITR-1/2 (salary)
- Form 12BB (employee declaration)
Whether an employer can be penalised for using the wrong regime for TDS computation if the employee did not submit Form 12BB — generally, if the employee does not declare, the employer's use of the default new regime is correct. Confirm the s.201 consequences if an employer uses old-regime rates at employee's oral request without written declaration.
Primary source
CBDT Circular No. 4/2023 — issued by CBDT under Income Tax Act 1961 s.192
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