As there are two income tax regimes in the country (new income tax regime and old income tax regime), taxpayers need to choose either of these two. In case the taxpayer is a salaried employee, he or she needs to inform the employer about his or her choice of income tax regime early in the financial year. Now, it is over one month into the new financial year 2023-24, what If you have not informed your employers about your choice of income tax regime?
In the Budget 2023-24, Finance Minister Nirmala Sitharaman announced the new tax regime as the default tax regime from April 1, 2023. Earlier, in the financial year 2022-23, the old tax regime was the default tax regime.
Aman Agarwal, who is practising as an independent tax practitioner, said, “You need to tell your employer about your choice of income tax regime before the start of the financial year, so that the employer can make adjustments to deduct TDS from your salary accordingly.”
However, he added that if you have not informed your decision on the tax regime yet, your employer will deduct taxes as per the new income tax regime as it is now the default tax regime now. If you do not select any tax regime, it is considered that you have opted for the new tax regime now.
He also said that in case your tax is now being deducted under the new tax regime but you now want to pay taxes as per the old tax regime as it has the benefit of deductions, you can change it at the time of filing the income tax return or ITR in the assessment year 2023-24. “The excess tax you have paid in the new income tax regime will be refunded if your tax liability in the old tax regime is lower after adjusting deductions and you have chosen it at the time of filing the income tax return.”
The Budget 2023-24 unveiled on February 1 tweaked the optional exemption-free tax regime, which is available under section 115BAC of the I-T Act to push salaried-class taxpayers to switch to the new tax regime. The revamped concessional tax regime was made the default regime for an individual taxpayer.
Under the new tax regime, as announced in the Budget, there will be no tax for those with an annual income of up to Rs 7 lakh. A standard deduction of Rs 50,000 has also been allowed and the basic exemption limit hiked to Rs 3 lakh.
Income between Rs 3-6 lakh would be taxed at 5 per cent; Rs 6-9 lakh at 10 per cent, Rs 9-12 lakh at 15 per cent, Rs 12-15 lakh at 20 per cent and income of Rs 15 lakh and above will be taxed at 30 per cent.
The old tax regime, which allows for exemptions and deductions, has a basic exemption limit of Rs 2.5 lakh. Also, those having an annual income of Rs 5 lakh do not have to pay any tax.
Under the new tax regime, as announced in the Budget, there will be no tax for those with an annual income of up to Rs 7 lakh. A standard deduction of Rs 50,000 has also been allowed and the basic exemption limit hiked to Rs 3 lakh.
Income between Rs 3-6 lakh would be taxed at 5 per cent; Rs 6-9 lakh at 10 per cent, Rs 9-12 lakh at 15 per cent, Rs 12-15 lakh at 20 per cent and income of Rs 15 lakh and above will be taxed at 30 per cent.
The old tax regime, which allows for exemptions and deductions, has a basic exemption limit of Rs 2.5 lakh. Also, those having an annual income of Rs 5 lakh do not have to pay any tax.
Last month, the Central Board of Direct Taxes (CBDT) issued a clarification about Tax Deducted at Source (TDS) deduction by employers in the current fiscal. “…a deductor, being an employer, shall seek information from each of its employees…regarding their intended tax regime and each such employee shall intimate the same to the deductor, being his employer, regarding his intended tax regime for each year and upon intimation, the deductor shall compute his total income, and deduct tax at source thereon according to the option exercised,” the CBDT said.
If intimation is not made by the employee, it shall be presumed that the employee continues to be in the default new tax regime, it added.
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