Old vs new tax regime: Which option should salaried employees choose while submitting investment proof?

Old tax regime vs new tax regime

• Employees must choose between old and new tax regimes for TDS calculation
• Old regime suits high deductions; new regime offers lower rates, less paperwork
• Regime choice can be revised annually while filing Income Tax Return

Did our AI summary help?

As companies begin collecting investment proofs for the financial year, salaried employees face a decision that has a direct bearing on their take-home pay and year-end tax liability.

Whether to opt for the old tax regime or shift to the new one. The choice is no longer procedural. It determines how salary tax is calculated during the year and whether common tax-saving investments will be factored in while deducting tax at source (TDS).

Why does the regime selection matter at this stage

When an employee opts for the old tax regime, employers compute TDS after accounting for eligible exemptions and deductions. Under the old tax regime taxpayer gets various deductions/exemptions (e.g. home loan interest up to Rs 2 lakh for self-occupied house, HRA, LTA, Investment-linked deduction under section 80C, mediclaim insurance under section 80D, etc.), whereas these deductions are not available under the new regime.

“Under the new tax regime taxpayer gets a standard deduction of Rs 75,000 and lower tax rates without documentation. To explain break-even point of various deductions under the old tax regime would be Rs 8 lakh for a salaried person having a total income of Rs 25 lakh in FY 2025-26," said Gopal Bohra, Partner -Tax N.A.Shah Associates.

Therefore, if the taxpayer’s various deductions are less than Rs 8 lakh, the new tax regime would be an option, and if eligible deductions are more than Rs 8 lakh old tax regime would be an option to the taxpayer,” said Bohra.

Old Tax Regime Slabs

New Tax regime

Under the new tax regime, income up to Rs 12 lakh does not attract any tax. The regime allows limited relief in the form of a standard deduction of Rs 75,000, along with tax benefits on the employer’s contribution to provident fund and National Pension System accounts. However, once the taxable salary exceeds Rs 12 lakh, income is taxed according to the applicable slabs and rates.

New Tax Regime Slabs

Who benefits more from the old tax regime?

The old regime continues to suit employees with structured financial commitments. Those paying rent, repaying a housing loan, or regularly investing in tax-saving instruments often accumulate deductions significant enough to offset the higher slab rates.

Why the new tax regime is gaining traction

The new tax regime appeals to employees with fewer deductions to claim. “The New Regime will benefit employees who do not plan to avail the benefit of deductions and exemptions. The lower tax slabs under new regime compared to old regime will help to save substantial taxes while keeping tax returns and compliances simple and hassle-free,"said Mrinal Mehta, CA & Joint Secretary, Bombay Chartered Accountants' Society.

No major document proofs are required to be submitted to the employers under new tax regime making it attractive for the new age GenZ professionals who like to play plain and simple, added Mehta.

Documents typically required to be submitted to HR

For employees opting for the old tax regime, employers generally ask for documentary proof to validate claims. Commonly required documents include:

• House Rent Allowance (HRA)

o Rent receipts

o Rental agreement

o Landlord’s PAN (mandatory if annual rent exceeds Rs 1 lakh)

• Section 80C investments (up to Rs 1.5 lakh)

o Provident Fund (PF) contribution statement

o Life insurance premium receipts

o ELSS mutual fund investment proof

o Public Provident Fund (PPF) deposit receipt

o Tuition fee receipts for children

• Health insurance (Section 80D)

o Health insurance premium payment receipts for self and family

• Home loan benefits

o Interest certificate from lender

o Principal repayment certificate (if claimed under Section 80C)

• Leave Travel Allowance (LTA)

o Travel tickets or boarding passes

o Proof of travel expenses (as per company policy)

• Other deductions

o Education loan interest certificate

o Donations eligible under Section 80G (if applicable)

Employees opting for the new tax regime are generally not required to submit these proofs, as deductions and exemptions are not considered while computing TDS.

Only few deductions such as employer's contribution upto 14 percent under section 80CCD (2) and interest on a home loan for a let-out property can be availaed as deductions under a new tax regime.

Can the regime selection decision be revised later?

Salaried individuals have the flexibility to choose their preferred regime annually and even change it while filing their Income Tax Return (ITR), regardless of the option chosen for TDS purposes. However, declaring your final choice to your employer at the required time helps avoid last-minute, large TDS adjustments.

What employees should do before finalising the option?

Before submitting investment proofs, salaried individuals should calculate tax liability under both regimes using actual income and deduction figures. Tools and guidance issued by the Income Tax Department can help in making an informed comparison.

With the tax framework offering flexibility, the better choice ultimately depends on income structure rather than tax rates alone. A routine HR submission, if handled without calculation, can end up influencing personal finances for the entire year.