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With the start of the financial year 2023-24, it is important for employees to choose between the old or the new tax regime this month itself, according to Abhishek Murali, former president, All India Tax Payers’ Association (AITPA) .
In her Union Budget speech for 2023-24, Finance Minister Nirmala Sitharaman announced that the Center is making the new income tax regime the default tax regime. However, he said that citizens will continue to have the option to use the benefit of the old tax regime.
Income tax calculator to help people compare savings under the new and old tax regimes
“Employees need to declare their choice of old or new regime to their employer at the beginning of the year. This means the employer will work out their salary structure and deduct TDS on the same lines,” explained Mr. Abhishek.
The old regime had various exemptions and deductions like House Rent Allowance (HRA), Leave Travel Allowance (LTA), Children Education Allowance, LIC Deduction, PF, PPF and Mediclaim. These claims are made by the employee at the beginning of the year and the salary is adjusted based on the declarations provided by the employee. “The necessary proof was obtained at the end of the year,” he said.
Mr. Abhishek said under the new regime none of these exemptions or deductions are available, however, a lower tax rate is made available to employees.
He mentioned that if the new regime is chosen salary options like HRA, LTA may not be available. “That 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 benefit from the same. Therefore, it is important to bring them back to the new regime only,” said Mr. Abhishek.
“So, it is very important that all employees consult their chartered accountant or a professional and work out which is the most beneficial method at the beginning of the year, before opting,” he said.
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Some companies provide a tax simulator to help employees find out which regime is beneficial to them and choose the appropriate option. The Income Tax Department portal has also provided a tax calculator that can help determine 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, choose the new regime, if it is better in taxes for them.
