With the New Tax Regime now being default from FY 2023-24, many salaried employees are confused:
Can I still choose the old regime?
How do I switch to New Tax Regime while filing ITR?
Will it impact my Form 16?
Let’s clear the air.
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1. You Can Still Choose Either Regime While Filing ITR
Even if your employer deducted TDS under the New Regime, you can switch to Old Regime while filing your return. This means that you can take advantage of the deductions and exemptions available under the Old Regime that may be beneficial depending on your financial situation. For instance, if you have significant investments in specified savings schemes, the Old Regime might result in lower taxes for you. Remember, ITR > Employer TDS.
2. How to Switch to New Tax Regime While Filing ITR:
Login to incometax.gov.in and navigate to the e-filing section.
Start your ITR (ITR-1 or ITR-2 for salaried).
You’ll get a pop-up or section asking for regime selection. Take your time to analyze your taxable income and the deductions available to you.
Choose Old or New based on your tax calculation. It’s helpful to have a calculator handy to perform a quick comparison.
Proceed accordingly — the return auto-adjusts based on your selection, ensuring that you are compliant with the latest tax laws.
3. Form 10-IEA: Compulsory for Business/Professionals
If you have business income (ITR-3/4), you need to submit Form 10-IEA. This form helps you declare your intention to opt for the New Regime, which is mandatory for those with business incomes.
It must be filed before ITR submission. Failing to file this form can have implications on your ability to switch regimes.
Once you opt out of the New Regime, you can’t opt back in (for business taxpayers) — so choose carefully, considering both your current financial situation and future plans.
4. Salaried? You Can Switch Every Year
You can freely switch between Old and New regimes each year if you’re salaried. This flexibility is a significant advantage, allowing you to choose the regime that maximizes your tax savings based on your income and financial scenarios each financial year.
So use the one that gives maximum savings — no lock-in.
5. Understanding the Differences Between the Regimes
It’s crucial to understand the key differences between the Old and New Tax Regimes. The New Regime offers lower tax rates but eliminates many popular deductions, such as those on home loans, insurance premiums, and more. A detailed analysis of your financial profile will help you make the best choice.
For instance, if you have substantial deductions from investments under Section 80C, it might be more beneficial to stick with the Old Regime. Conversely, if your deductions are minimal, the New Regime could save you a significant amount on taxes.
Quick Calculator Tip:
Use the official tax regime calculator on incometax.gov.in or refer to our excel DIY comparison here – You can input your income details and see how much taxes you would owe under both regimes. This will provide you with a comprehensive view of which regime may be more advantageous for you.
6. Common Mistakes to Avoid When Switching Tax Regimes
When switching between tax regimes, taxpayers often make common mistakes that can lead to unnecessary tax liabilities. One frequent error is not calculating the impact of deductions accurately in both regimes. Ensure you have a clear record of all deductions available to you and how they apply to each regime.
Additionally, many forget to update their tax status with their employer, which can result in discrepancies during tax filing. Always communicate your chosen tax regime to your employer to avoid confusion during TDS deductions.
7. Consultation with a Tax Professional
If you find the process of switching tax regimes overwhelming, consider consulting a tax professional. They can provide personalized advice based on your financial situation and help you make the most informed decision, ensuring you comply with all regulations while maximizing your tax savings.
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