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Inform your employer to choose New Income Tax regime..

Inform employer of your choice of tax regime else old rates apply for TDS from salary.

If you wish to opt for the new income tax regime, you will have to inform your employer through the declaration form. The employer will start deducting tax at source (TDS) accordingly for each month of financial year.

Employers will soon start rolling out investment declaration forms, asking employees to indicate their choice of tax regime. The government had introduced a revised tax system in this year's Budget, wherein taxpayers would be given the option to shift to a new tax regime with lower tax rates, but without the usual tax exemptions and deductions. The Central Board of Direct Taxes issued a circular on April 13, 2020, directing all employers to obtain a declaration from employees if they wish to choose new tax regime.


If you wish to opt for the new income tax regime, you will have to inform your employer through the declaration form. The employer will start deducting tax at source (TDS) accordingly for each month. In other words, TDS on salary will be deducted as per the estimated total tax calculated under the new lower tax rate regime instead of as per the estimated tax calculated under old tax regime.

This declaration will be applicable for the entire financial year 2020-21. Those who do not give any indication to the employer will continue to be taxed under old regime. The annual exercise of claiming relevant exemptions and deductions will continue as earlier for these employees. Once you make your choice, then you cannot switch to the other during the rest of the financial year as far as TDS from salary is concerned. However, the employee will have the right to choose whether to exercise such option or not at the time of filing the return. Employees will have to do this on their own, by claiming or forgoing relevant tax exemptions and deductions at the time of filing return. Keep in mind, however, that certain exemptions can only be claimed through the employer so these may not be available at the time of filing return. If the tax liability at time of filing return comes out lower then the employee will have to claim a refund in the return.

The new income tax regime comprises multiple tax slabs with lower tax rates than the current regime. However, to avail this optional new regime you will have to let go of multiple exemptions and deductions available under the existing regime. If you already claim several of these, the earlier tax regime may remain favorable. Anyone claiming tax exemptions and deductions of more than Rs 2.5 lakh in a year (including the Rs 50,000 standard deduction) will not gain from the new structure. Those claiming  HRA relief or deduction on housing loan interest, apart from regular Section 80C deductions may be better off sticking to the older tax regime. This is because HRA and housing loan interest can add up to a sizable amount. Both these exemptions cannot be claimed under new income tax regime. Each employee will have to evaluate which regime is favorable to him/her depending on the amount of deductions/exemptions that he/she plans to claim.

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