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With the beginning of the financial year 2023-24, it is important for employees to choose between the old- or new tax regime by this month itself, according to Abhishek Murali, former president, All India Tax Payers’ Association (AITPA) said.
In her Union Budget speech for 2023-24, Finance Minister Nirmala Sitharaman announced that the Centre is making the new income tax regime as the default tax regime. However, she said citizens will continue to have the option to avail the benefit of the old tax regime.
Income tax calculator to help people compare savings under new and old tax regimes
“Employees are needed to declare their choice of old or new regime to their employer at the start of the year. This would mean the employer will accordingly structure their salary structure and deduct TDS on the same lines,” Mr. Abhishek explained.
The old regime had various exemptions and deductions such as House Rent Allowance (HRA), Leave Travel Allowance (LTA), Children Education Allowance, LIC Deduction, PF, PPF and Mediclaim. These claims were made by the employee at the start of the year and the salary was structured based on the declarations given by the employee. “The necessary proof was obtained at the end of the year,” he noted.
Mr. Abhishek said under the new regime none of these exemptions or deductions are available, however a lower tax rate has been made available to employees.
He noted that if the new regime is chosen then the salary options such as HRA, LTA may not be available. “This means at the end of the year, even if the old regime is more beneficial, the salary components will not be part of the salary for the employee to avail the same. Therefore essentially leading them back to the new regime only,” Mr. Abhishek said.
“Hence, it is of utmost importance that all employees consult with their chartered accountant or a professional and work out which is the most beneficial scheme at the start of the year, before opting,” he noted.
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Some companies are providing a tax simulator to help employees know which regime is beneficial to them and choose the appropriate option. The Income Tax Department portal has also provided a tax calculator which can help in determining which regime is beneficial.
Mr. Abhishek suggested that employees can err on the side of caution by choosing the old regime for the employer and at the time of filing the return of income, opt for the new regime, if it is more tax efficient for them.
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