Companies have set deadlines for their employees to register their choice of the tax regime. Read on to learn about the options and the benefits.
As the financial year 2023-24 has begun, employers have requested that employees submit their preferred tax regime. Most companies have set the deadline around mid-April or before their respective finance departments start processing their staff salaries for the coming month.
Every year, the taxation procedure begins with an income tax declaration and concludes with filing an I-T return. An income tax declaration is the employee’s information provided to the employer concerning his investments in instruments such as public provident fund (PPF), life insurance policy, annuities, etc. This is done to reduce tax deducted at source (TDS) from an employee’s pay. Many employees are already receiving I-T declaration slips from employers.
Employer Must Be Notified By April End
You must inform the employer about your chosen tax regime, and accordingly, your employer will deduct taxes if your annual income is taxable. However, you can also claim a refund if you opt for a different tax regime than what you informed your employer of while filing returns.
The tax deducted at source (TDS) is refundable after a year if used for productive investments. Salaried people can select a tax regime, old or new, every year. They can also switch from the old to the new regime, and vice versa, if it is beneficial when filing the income tax return (ITR).
Says Sriram Jayaraman, a Sebi-registered investment adviser and income tax planner, “It is possible to switch between regimes at ITR filing. Companies don’t have to take any additional hassle in changing their documents if you have claimed additional deductions under the old tax regime but want to shift to the new regime. You will remain under the old tax regime in their books, but you can file ITR before July 31, 2024, under the new tax regime.”
There is also another reason why you should inform your employer now. “Though you can still choose between regimes at the time of filing ITR, the payroll processing needs input on the tax regime. Therefore, you need to inform the company of your choice. In the absence of information from you, payroll will use the new tax regime,” Jayaraman said.
From April 1, 2023, unless you specifically request to use the old regime, the new regime will be considered the default option, and accordingly, TDS will be computed by the employer. Do note that certain deductions and exemptions are available under the old regime but not under the new one. However, you can switch back to the old regime later.
“For 75 per cent of salary earners, the new tax regime is likely to be beneficial. Salaried individuals can compute projected taxes using the old and the new regimes. Otherwise, you may continue to use the new tax regime for payroll monthly tax computation. When filing your tax return, you can calculate your tax liability under both the old and new tax regimes and use the more favourable one,” Jayaraman added.
An online tax calculator has been launched by the Income Tax Department. Fill in the relevant information, such as gross income, deductions and exemptions, and the calculator will determine which option is most suitable for you.