New Tax Regime Vs Old Tax Regime selection: Salaried taxpayers now have to declare their choice of tax regime to employers so that the latter can deduct applicable taxes on salaries.
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If you are a salaried employee, you may have received a mail from the payroll department asking you to choose/elect a tax regime for FY 2023-24. If not, you may receive such mail soon. Salaried taxpayers now have to declare their choice of tax regime to employers so that the latter can deduct applicable taxes on salaries. This process will be completed by the end of April 2023. That said, the following are five reasons why you should hurry up and intimate your choice of the tax regime to the employer.
1. It is mandatory for employees to choose a tax regime option between the old and new regimes. As New Tax Regime has become the default option from FY 2023-24, not declaring your choice now will make the employer deduct TDS as per the new regime rate. In such a case, the employer will not consider deductions available under Old Regime while calculating your withholding taxes for FY 2023-24, which means your monthly income may be reduced.
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2. While an employee can change the tax regime at the time of filing the Income Tax Return (ITR), not intimating the employer about his/her choice in April can have some complications. For instance, if you haven’t opted for the old tax regime at the start of the year, then at the time of filing ITR you will not be able to claim deductions such as HRA or LTA even if you chose the old regime. As in this case, the employer may not include these deductions in your salary structure.
3. The Income Tax Department recently issued a circular asking employers to seek information regarding the choice of tax regime from employees. If the employee fails to intimate his/her choice, then it will be assumed that the employee is in the New Tax Regime and TDS under Section 192 will be deducted according to the new regime rates.
4. As per the Income Tax Department, an employee can choose his/her tax regime option with the employer only once in any particular financial year. The employee will not be able to get it changed thereafter.
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5. Employees having salary income up to Rs 7.5 lakh will not be impacted if they do not elect a tax regime. For them, the default New Tax Regime will apply. Moreover, income up to Rs 7 lakh is tax-free under the New Regime. This along with a standard deduction of Rs 50,000 makes income up to Rs 7.5 lakh tax-free under the New Regime. However, other employees having higher salaries need to declare their choice to benefit from various other deductions available under the Old Tax Regime.
An employee can opt out of any tax regime every year. But the choice needs to be made now so that the employer doesn’t deduct higher witholding taxes from your monthly salary for FY 2023-24.
