New Vs Old Tax Regime: It is important that you choose one of the arrangements in time according to your income and the tax deduction available on it. If you don’t do this, you can be deprived of many benefits.
According to the provision made in the budget, the new tax regime will be ‘default’ for income tax returns. This means that if a taxpayer does not make a choice, then automatically the new income tax regime will be implemented and tax will be payable accordingly. That’s why it is important that you choose one of the arrangements according to your income and the tax exemption available on it in time. If you don’t do this, you can be deprived of many benefits.
Must inform employer
The Income Tax Department has recently issued guidelines for employers and employees. Accordingly, employers will have to ask employees about their preferred tax regime for the current financial year and accordingly deduct tax at source (TDS). If an employee does not inform his employer of his preferred tax regime, it will be presumed that the employee wishes to remain in the ‘default’ new tax regime. Note that certain deductions and exemptions are available under the old regime, but not under the new regime.
Options can change every year
For salaried individuals, the option to choose between the old and the new tax regime will be available every year. Even at the time of filing Income Tax Return (ITR), one can change from old to new regime or from old to new tax regime. The tax regime which will be beneficial for the income tax payer can also change at the time of ITR. Only salaried people will get the option to change the tax regime.
New system will be applicable for late ITR filing
If an employee does not file ITR within the prescribed time limit, then he will not be eligible for the old tax regime. Even if he has opted for the old regime, his tax liability will be payable under the new regime only. He will also not get the benefit of exemptions and deductions available under the old system.
No benefit of exemption on changing tax regime
If a salaried person opts for the new tax regime initially but wants to switch to the old one at the time of filing ITR, he will be exempted. However, doing so may deprive you of some of the discounts available. They will get the benefit of some deductions only.
Think of it as
1. Discount will not be available here – someone chooses new system. There is no allowance exemption, so the employer does not consider House Rent Allowance (HRA), Leave Travel Allowance (LTA) etc. included in the salary structure. Deducts tax accordingly, but later the income tax payer wants the benefit of HRA exemption in the old tax regime, then he will not be eligible because the employer did not consider HRA as a part of the salary structure while computing tax.
2. Will continue here – Exemption of deduction of up to two lakhs on housing loan interest will continue after going from new to old tax regime. Apart from this, some exemptions available under Section 80C and 80D of Income Tax will also continue.
Only marginal additional income above 7 lakhs will be taxed
In the new tax regime, if a taxpayer has an annual income of Rs 7 lakh, then he does not have to pay any tax. But if the income is Rs 7 lakh 100, then a tax of Rs 25,010 has to be paid on it. Due to this additional income of Rs 100, the burden on the taxpayers was increasing. Giving relief to them, the Finance Ministry has made an amendment that now only marginal income above Rs 7 lakh will be taxed. However, the limit of how much relief will be given if the income is more than seven lakh rupees, its limit has not been decided yet.
