If you are a salaried person, your employer might have asked you to make the investment declaration for the financial year 2021-22. Employers are required to deduct TDS (tax deducted at source) on the basis of the declarations made.
This year, apart from the normal investment declarations, employees are being asked to declare the tax regime they are going to opt for.
Here are some of the points you should keep in mind while making the investment declaration.
Changing the tax regime later may not be a good idea: Tax regulations allow individual taxpayers to choose between the two tax regimes on a yearly basis. The taxpayer can even change the tax regime at the time of filing of income tax return (ITR).
The new tax regime offers lower tax slab rates. Therefore, if you opt for the new tax regime, your tax liability may be lower and hence the employer may deduct lower TDS, but remember that it will only be beneficial if you are not claiming any deductions and exemption available under the old regime.
“Those who want to take advantage of lower tax slabs and having income below ₹15 lakh will get lower TDS thus higher take home. However, she or he must note that most of the deduction and exemption are not available under the new regime. In case they are already committed for a few expenses like rent (deduction can be claimed under house rent allowance), medical insurance, tuition fee, home loan repayment and interest etc than compare the net tax payable in both tax regimes before deciding. To be sure, take tax experts advice – save for sure than sorry,” said Sudhir Kaushik, CEO Taxspanner.com.
It may result in additional liability and changing the tax regime may increase the chances of error.
“It is generally advisable to follow the same regime, both for paying advance tax/ TDS as well as at time of filing the ITR. This is for a simple reason that following a different regime may result in an unnecessary tax payable/ refundable situation in ITR. If it is a tax payable situation, it would attract additional interest liability to be paid by taxpayers. If it’s a tax refundable situation, the taxpayer’s money is unnecessarily locked until refund is granted by income tax authorities,” said Shailesh Kumar, Partner, Nangia & Co LLP.
It is always better to decide in advance: It is always better to do the maths now and decide the tax regime as this may help you plan your investments properly. If you plan to switch to the old regime from new regime you may have to make tax-savings investment at the end which may increase burden in the last few months.
“I feel that taxpayers now have more options. If a taxpayer doesn’t want to spend cash on tax saving investments , then one can go for a new tax regime. If somebody wants to do full scale tax planning along with wealth creation, one has the option to go for the old tax regime,” said Sujit Bangar, Founder Taxbuddy.com