TDS on Salary: Choosing Old Tax Regime helps in quicker ITR processing and IT Refund Claims?

Salaried individuals must choose a tax regime for TDS (tax deducted at source) on salary when the financial year begins on April 1. They must notify their employers of their decision between the old and new tax regimes, as the employer will deduct tax from salary income depending on the income tax slabs of the chosen regime.

If an individual chooses the old tax regime for TDS on salary and claims one or more of the numerous deductions allowed under the regime, the amount claimed will be shown in Form 16 if the appropriate documents are presented to the employer on time. However, if an individual chooses the new tax regime, only the standard deduction and Section 80CCD (2) deductions (if claimed and eligible) will appear in Form 16.

However, it is possible that an individual chooses the new tax regime for TDS from salary at the start of the financial year but later decides to file ITR under the old tax regime because it appears to be more favourable at the time. Individuals will have to calculate their own deductions in order to claim them and reduce their tax liability. Furthermore, while processing the ITR, the income tax department is more likely to raise questions and request proof and documents for the deductions claimed than when the deductions are claimed through the employer and shown in Form 16.

This issue does not exist when transitioning from the old tax regime (selected at the start of the financial year for TDS from salary) to the new tax regime while submitting the ITR. This is because the two principal deductions (described above) that are available under the new tax regime are also allowed under the old tax regime. As a result, these two deductions would appear in Form 16, which was prepared by the employer under the old tax regime.

What should Taxpayers do?

Taxpayers could choose to play it safe and use the old tax regime for TDS on salary, claim all relevant exemptions and deductions, and then convert to the new tax regime upon ITR filing if it is more advantageous.

This is because the employee must give proof to the employer under the old tax regime, but those proofs may not be used while filing an ITR under the new tax regime.

Of course, it would be easier or better if the tax regime chosen at the beginning of the financial year for TDS from salary was the same as the regime under which the ITR is likely to be submitted.

The income tax return processing will go more smoothly if the income tax return and Form 16 match in terms of income and exemptions claimed.

There is no harm in switching from the new to the old tax regime while filing the tax return as long as the deductions are genuine and computed accurately, responding to a mismatch notice is just a procedure, according to experts.

Remember that the new tax regime is the default tax regime, which means that if employees do not inform their employers of their tax regime preference, the tax will be deducted from their salary income based on the new tax regime. Additionally, most employers do not allow employees to change their tax regime during the financial year, so if a salaried employee prefers the old tax regime, they must inform their employer.