Income Tax Regime Selection: Why You Must Act Now to Preserve Deductions and Exemptions

Income Tax Regime Selection

As the new financial year begins, it is important to be aware of the income tax regime you are selecting as an employee. The old regime provides various exemptions and deductions while the new regime offers a low tax rate without any exemptions and deductions.

All employees who want to opt for the old regime need to inform their employer by the end of the month to avoid higher TDS deductions on their first pay slip in the new financial year. If any employee fails to inform the employer, the new regime will be considered by default, and higher TDS deductions will be made, even if they had investments in 80C instruments.

If any employee fails to file their returns before the due date of 31st July, they will be directed to the new regime by default, and shall not be eligible for any deductions even if they had invested in a consistent way.

However, the employee can also select a regime while filing their returns, but they will have to claim back any accessories TDS deducted. It is important to not that some exemptions and deductions like HRA and LTA will not be available under the new regime.

To help you decide between the two regimes, we will share with you a new chart for the new vs old tax regime that was previously published by mint.

In conclusion, it’s crucial for employees to be aware of the new tax regimes they are selecting and take reasonable actions any penalties or mixed deductions.