It is the beginning of a new financial year and employers have started providing tax declaration forms for the employees. Salaried individuals have the option to choose between the old and the new tax regime every year. They can also switch from old to new regime or vice-versa, whichever is more beneficial, while filing Income Tax Return (ITR).
Note that certain deductions and exemptions are available under the old regime, but not under the new regime. With effect from April 1, unless you specifically opt for the old regime, the new regime will be considered as the default option and accordingly, TDS (Tax Deducted at Source) will be calculated by the employer. Suppose, you do not specifically opt for the old regime, but decide to opt for it at the time of filing ITR, then you can claim certain deductions available under section 80C and 80D, housing loan interest etc. Are. Even if these are not declared to the employer. However, there are certain exemptions that you cannot claim if they are not part of your pay structure.
For example, Sneha specifically does not choose the old regime and announces it to her employer. Therefore, the employer calculates his tax as per the default new regime. Since there is no allowance exemption in the new regime, the employer does not consider House Rent Allowance (HRA), Leave Travel Allowance (LTA) etc. in their salary structure. Accordingly, his employer deducts tax at source. Now Sneha learns that she wants to claim HRA exemption. An employee is eligible for this exemption subject to the following conditions: a) HRA contributed by the employer; b) It becomes 50% of the salary in case the employee resides in a metro city (Delhi, Mumbai, Calcutta, Chennai) or 40% of the salary in non-metro cities; and c) It includes actual rent paid less 10% of salary.
Since Sneha’s employer did not consider HRA as a part of salary structure while computing her tax, she would not be eligible for this exemption. Had Sneha specifically chosen the old regime, she would have been able to claim the allowance. This also applies to other exemptions like LTA.
It is noteworthy that if the employees do not file ITR within the given time limit then they are not eligible for the old regime option. For example, Riya has opted for the old regime and her TDS is 140,400. However, Riya does not file her ITR on time. Since the time to opt for the old regime is over, Riya’s tax liability will compulsorily be determined based on the new regime. He will not be eligible for exemption/deduction available under the old regime. So, his taxable income will increase substantially and his tax liability will be 1.95 lakh, in addition to the TDS deducted, which he will have to pay along with interest and penalty.
It is therefore important that you tell your employer your choice of the old or the new regime. It is also important to file your tax return on time.
Nitesh Buddhadev is a Chartered Accountant and Founder of Nimit Consultancy.
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