CBDT Circular no. 4 dated 5th April 2023

Dear Learned Professional Colleague,

I am seeking your view/opinion on the circular no. 4 on New Tax Regime dated 5th April 2023. The earlier circular dated 13th April 2020 did mention that once an employee chooses a particular Tax Regime and communicates to his/her employee, he/she can not change the same during the same Financial Year. However, the employee can change the Regime at the time of filing the Personal Income Tax return.

Kindly note that this particular line is missing in the current circular issued in April 2023. Does this mean that the employee can modify the Tax Regime during the Financial year once opted? If yes, please do provide appropriate reference. I am attaching a copy of this Circular.

Regards

Bimal Jani

Attached File : 3817540 20230511180010 cbdt circular no 4 2023.pdf downloaded: 13 times

Hi Bimal,

Great question! The change in wording between the CBDT Circular No. 4 dated 5th April 2023 and the earlier Circular dated 13th April 2020 regarding the Tax Regime choice by employees has indeed caused some confusion.

Earlier Circular (April 2020):

Clearly stated that once an employee opts for either the Old Tax Regime or the New Tax Regime and communicates it to the employer, he/she cannot change the regime within the same financial year.
The employee could only change the regime at the time of filing the Income Tax Return (ITR).

Current Circular (April 2023):

The line restricting change during the financial year has been omitted.
This omission has led to questions on whether employees can now change the tax regime during the same financial year.

What does this imply?

The CBDT Circulars are clarifications and instructions, not law themselves.
The Income Tax Act or Rules have not changed with respect to this provision (as of now).
The omission does not necessarily mean the employee can change the tax regime mid-year.

Current legal position (as per Finance Act 2020 & Income Tax Rules):

An employee can opt for the New Tax Regime or Old Tax Regime once in a financial year and communicate that choice to the employer (usually via Form 12BB or declaration).
The employer deducts TDS accordingly.
The employee can switch the tax regime only at the time of filing ITR, not mid-year, unless there is an update in law or rules.

Why might the line be missing?

It could be an oversight or intentional to avoid redundancy as the circular is mostly procedural.
The option to switch regimes while filing ITR still exists under Income Tax law.
The CBDT has not issued any notification allowing switching tax regimes mid-year.

Reference for confirmation:

Section 115BAC of the Income Tax Act, read with Income Tax Rules, governs the option.
The Finance Act 2020 introduced the New Tax Regime, allowing employee option once per FY.
CBDT FAQs and clarifications still confirm regime choice is communicated once per FY.

Conclusion:

As per current law and practical application, employees cannot change the tax regime mid-financial year after communicating the option to the employer. They can only change it at the time of filing ITR.