The Central Board of Direct Taxes has released the income tax return (ITR) forms and utilities, and many employers have already issued Form 16 to their employees.
Now, it is your responsibility to file your income tax returns. However, before you proceed, it is advisable to reassess your tax liability under both tax regimes and determine which is more advantageous for you. This is indeed the final chance to evaluate and choose the preferable tax regime, regardless of what you may have initially declared to your employer at the beginning of the year.
The mandatory declaration
At the beginning of each financial year, it is mandatory for every employee to declare their planned investments and expenses that can be claimed as deductions and exemptions to their employer.
Additionally, with the implementation of the new tax regime, employees are also required to declare their preference for the tax regime they wish to opt for. “A salaried individual is required to inform his/her employer about the tax regime they want to opt for in the beginning of the financial year, which will help the employer in calculation the tax deduction at source (TDS) on their salaries appropriately,” said Yeeshu Sehgal, head of tax market, AKM Global, a tax and consulting firm.
However, it is important to note that these declarations regarding investments, expenses and the chosen tax regime are not binding. Employees have the flexibility to make changes according to their preference. You are free to make investments and expenses different from what you have declared and still claim the deductions.
Similarly, “a salaried individual has the option of choosing the regime which he/she wishes to opt for every year. The option has to be finally availed while filing the ITR,” said Vivek Jalan, partner, Tax Connect Advisory, a multi-disciplinary tax consultancy firm.
Jalan explained that the choice made at the time of declaration to the employer is only for the purpose of enabling the employer to deduct the right quantum of TDS. The same can be reversed without any legal implications at the time of filing the ITR if the employee can save some tax on doing so. The excess TDS deducted would be refunded by the Income Tax Department automatically on processing the ITR in such cases, he added.
Therefore, if you are planning to file your ITR now, you have the final opportunity to reassess the benefits under both tax regimes and make a decision based on the advantages they offer.
Selection between the old and the new tax regime
The government introduced the new income-tax regime for taxpayers a couple of years ago. Under the old tax regime, individuals were allowed to claim various deductions and lower their tax liability.
On the other hand, the new tax regime had a better (lower) tax rate but denied as many as 70 exemptions and deductions available under the income tax laws (including leave travel concession, house rent allowance, standard deduction, deduction under chapter VI A, etc).
Before making a decision, it is advisable to calculate your tax liability under both regimes and evaluate the potential benefits. Keep in mind that the required paperwork and calculations may differ depending on the regime you select.
The default tax regime
It's important to note that as per the Finance Act, 2023, starting from the financial year 2023-24, the new tax regime will be considered as the default option if no other choice is made. Consequently, the TDS will be calculated based on the new tax regime.
However, as a taxpayer, you have the flexibility to select a different tax regime while filing your income tax return for FY24, even if your employer has deducted TDS according to the default regime.
Calculator to compare
If you find it difficult to compare and decide between the two tax regimes, you can take help of the new calculator that has been made available on the income tax department’s website. It simplifies the process of tax calculation and helps taxpayers understand the difference between the taxable income and tax liability under the two tax systems. However, this calculator provides comparison for assessment year 2024-25 onwards.
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