Old versus New Tax Regimes for TDS on salary: An Interim Budget was presented by the government in February due to the upcoming Lok Sabha elections scheduled between April and June. In the budget speech, Finance Minister Nirmala Sitharaman stated that there would be no changes in tax rates for direct and indirect taxes, including import duties. Consequently, the income tax regimes and slabs for FY 2024-25 remain unchanged from the ones in FY 2023-24 for now.
According to ET, however, since no changes were made in tax laws in the interim budget, there is anticipation that the government may announce alterations in income tax laws when it presents the full budget, likely in June or July 2024, for the current FY 2024-25. Some or all of these tax proposals may apply retrospectively from April 1, 2024.
However, in April 2024, salaried individuals must select their income tax regime for employers to deduct taxes from their salary. Typically, the chosen tax regime for TDS on salary remains consistent throughout the financial year.
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Shalini Jain, Tax Partner at EY India’s People Advisory Services, notes that the financial year 2024-25 stands out because it has two budgets. Until further clarification from tax authorities, employees may need to choose their tax regime at the start of the year (April 2024). This decision should be based on assessing which regime, old or new, offers them more benefits considering their total income, exemptions, and deductions. Additionally, it’s observed that the government aims to enhance the attractiveness of the new tax regime with each budget. Hence, individuals should consider this aspect while making their decision, she said.
As per a Central Board of Direct Taxes (CBDT) circular issued in April 2023, employees must choose between the old and new tax regimes and inform their employer of their decision at the beginning of the financial year. If there is no communication, the employer will deduct taxes from salary income based on the income tax slabs of the new tax regime. This is because the new tax regime serves as the default option from April 1, 2023.
The CBDT circular does not address whether an individual can switch tax regimes during the financial year for TDS on salary. However, income tax laws permit individuals to select any tax regime when filing their income tax return, regardless of what was communicated to the employer for calculating TDS on salary.
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Aarti Raote, Partner at Deloitte India, said that many employers do not allow changes to the income tax regime chosen by employees in April. Since the final budget will be announced after April this year, employees are left with no choice but to base their decision on the current provisions and select an income tax regime that best fits their needs.
However, in the unlikely scenario where the finance minister introduces significant changes in income tax, employees always have the option to adjust their choice when filing their tax return and opt for the regime that suits them best at that time.
According to ET, however, since no changes were made in tax laws in the interim budget, there is anticipation that the government may announce alterations in income tax laws when it presents the full budget, likely in June or July 2024, for the current FY 2024-25. Some or all of these tax proposals may apply retrospectively from April 1, 2024.
However, in April 2024, salaried individuals must select their income tax regime for employers to deduct taxes from their salary. Typically, the chosen tax regime for TDS on salary remains consistent throughout the financial year.
ALSO READ | TDS on salary: Don’t pay higher tax! How to choose between new and old income tax regime
Shalini Jain, Tax Partner at EY India’s People Advisory Services, notes that the financial year 2024-25 stands out because it has two budgets. Until further clarification from tax authorities, employees may need to choose their tax regime at the start of the year (April 2024). This decision should be based on assessing which regime, old or new, offers them more benefits considering their total income, exemptions, and deductions. Additionally, it’s observed that the government aims to enhance the attractiveness of the new tax regime with each budget. Hence, individuals should consider this aspect while making their decision, she said.
As per a Central Board of Direct Taxes (CBDT) circular issued in April 2023, employees must choose between the old and new tax regimes and inform their employer of their decision at the beginning of the financial year. If there is no communication, the employer will deduct taxes from salary income based on the income tax slabs of the new tax regime. This is because the new tax regime serves as the default option from April 1, 2023.
The CBDT circular does not address whether an individual can switch tax regimes during the financial year for TDS on salary. However, income tax laws permit individuals to select any tax regime when filing their income tax return, regardless of what was communicated to the employer for calculating TDS on salary.
ALSO READ | What is Section 80DDB? Know tax benefits for specific medical expenses: 5 top points
Aarti Raote, Partner at Deloitte India, said that many employers do not allow changes to the income tax regime chosen by employees in April. Since the final budget will be announced after April this year, employees are left with no choice but to base their decision on the current provisions and select an income tax regime that best fits their needs.
However, in the unlikely scenario where the finance minister introduces significant changes in income tax, employees always have the option to adjust their choice when filing their tax return and opt for the regime that suits them best at that time.
