It’s the start of a new fiscal year and employers have started introducing the employee tax return form. Every year, employees have the opportunity to choose between old and new taxation. At the time of filing the Income Tax Return (ITR), they can also switch from the old to the new system or vice versa, whichever is more convenient.
It’s the start of a new fiscal year and employers have started introducing the employee tax return form. Every year, employees have the opportunity to choose between old and new taxation. At the time of filing the Income Tax Return (ITR), they can also switch from the old to the new system or vice versa, whichever is more convenient.
Note that certain deductions and exemptions are available under the old regime but not under the new one. From April 1st, unless you specifically opt for the old regime, the new regime will be the default option and TDS (tax withheld at source) will be calculated accordingly by the employer. Assuming you don’t specifically opt in for the old regime, but instead opt-in at the time you submit the ITR, you can still claim certain deductions at that time, such as: even if they were not reported to the employer. However, there are some exceptions that you may not be able to claim if they are not part of your pay structure.
Note that certain deductions and exemptions are available under the old regime but not under the new one. From April 1st, unless you specifically opt for the old regime, the new regime will be the default option and TDS (tax withheld at source) will be calculated accordingly by the employer. Assuming you don’t specifically opt in for the old regime, but instead opt-in at the time you submit the ITR, you can still claim certain deductions at that time, such as: even if they were not reported to the employer. However, there are some exceptions that you may not be able to claim if they are not part of your pay structure.
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Sneha, for example, does not expressly opt for the old regime and explains this to her employer. So the employer calculates his tax according to the new standard system. Since there are no allowances in the new regulation, the employer does not take into account housing rent (HRA), holiday travel allowance (LTA), etc. in his salary structure. Accordingly, your employer deducts the withholding tax. Now Sneha realizes that she wants to apply for the HRA exemption. An employee is entitled to this exemption based on the following conditions: a) the HRA issued by the employer; b) it accounts for 50% of the salary if the worker lives in one of the metropolitan areas (Delhi, Mumbai, Kolkata, Chennai), or 40% of the salary for cities outside the metropolitan area; and c) it includes the rent actually paid less 10% of the salary.
Because Sneha’s employer did not include the HRA as part of the pay structure when calculating her tax, she is not eligible for this exemption. If Sneha had expressly opted for the old arrangement, she could have claimed the allowance. This also applies to other exceptions such as LTA.
It is noteworthy that employees are not entitled to the old regime option if the ITR is not submitted within the given deadline. For example, Riya chooses the old regime and her TDS is ₹140,400. However, Riya doesn’t submit her ITR on time. Since the deadline for deciding on the old regime has expired, Riya’s tax liability is mandatorily determined on the basis of the new regime. She is not entitled to any exemptions/deductions under the old rules. So her taxable income will increase significantly and there will be a tax liability of ₹1.95 lakh on top of the TDS deducted which she will have to pay along with interest and penalties.
It is therefore important that you explain your option for the old or the new scheme to your employer. It is also important that you file your tax return on time.
Nitesh Buddhadev is a Chartered Accountant and Founder of Nimit Consultancy.
