Since the full-year Union Budget was presented in July 2024—after the general elections—most employees had already submitted their proposed investment declarations. As a result, most declarations did not factor in the enhanced benefits announced under the new tax regime.
In April – at the beginning of the financial year – employers typically ask their employees to indicate the deductions and exemptions they intend to claim during the year. The purpose is to estimate the income tax to be deducted from their salaries in the financial year.
Compute tax-savings under both regimes
With Finance Minister Nirmala Sitharaman sweetening the deal under the new regime in FY 2024-25 by widening tax slabs and hiking standard deduction, it is likely that many would switch to the new regime at the time of filing their income tax returns. You will then be entitled to refund of any excess tax deducted by your employer during the year. Salaried taxpayers can switch between old and new regimes every year.
Without HRA, old regime benefits might fall short
Since the revisions in tax slabs and rates, only those claiming substantial tax benefits - such as the Rs 2 lakh home loan interest deduction under Section 24(b) or a sizeable house rent allowance (HRA) - may find the old regime more advantageous. In fact, only HRA could tip the scales in most cases, as all other deductions put together may not justify the paperwork and record-keeping needed to claim deductions under the old regime.
Lower tax outgo under old regime? Make the switch
However, some taxpayers could still find that the old regime is more beneficial after computing tax payable as per both the regimes. According to the income tax rules, salaried individuals and pensioners without any business income can switch between the two regimes every year.
Individuals and Hindu Undivided Families (HUF) who use ITR-1 or ITR-2 do not need any form to opt in or out of the new tax regime. You can simply tick the ‘Opting out of new regime’ option in your ITR forms. Only those taxpayers who file ITR-3, ITR-4 or ITR-5 have to submit Form 10-IEA if they have business income.
Also read: Filing ITR? Four key points salaried taxpayers should keep in mind
Picking the old regime? File returns on time
Also, if you wish to stick to the old regime, you must ensure that you file your returns on time – the extended due date is September 15 this year — else you will lose the opportunity. While the window to file belated returns after shelling out a late-filing fee of up to Rs 5,000 is available till December 31, 2025, you will not be able to select the old regime and harvest the benefit of tax-saver investments made during the year.
As per the income tax (I-T) department, the choice of old tax regime can be made only before the due date of filing the return - that is, July 31 - under section 139(1) of I-T Act. This rule is applicable from financial year 2023-24, when the new, minimal exemptions framework was designated as the default regime. “The consequences of delay in filing returns include late filing fees, losses not getting carried forward, deductions and exemptions not being available,” the I-T manual says.
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