Old vs New Income Tax regime: Which one to choose for TDS on salary in FY 2023-24?

At a time when changes introduced in the Income Tax Act 1961 have already come into effect from 1 April 2023, salaried taxpayers might have confusion over selecting between the old and new tax regimes, especially for those who are in the higher income brackets. A number of changes have been applied to the new tax regime clearly, thus making it important for employees to choose between either one of them and further notify the employer of the same. Else, tax on their salaries will be deducted on the basis of the new tax regime. Speaking of which, the Central Board of Direct Taxes (CBDT) earlier this month issued a circular stating that employers can deduct TDS (tax deducted at source) on salary payments for the current financial year, while employees will continue to have the option of choosing between the older and new tax regimes. While the chosen income tax regime for the purpose of TDS for salary will have no impact while filing an Income Tax Return (ITR), the employee thus at the time of filing an ITR can choose any tax regime, irrespective of what he or she has opted for at the time of calculating TDS on salary. Thereafter, if you are also among the ones, who are confused between the two income tax regimes in the financial year 2023-24, go through the following information and compare both regimes. Things to consider while choosing between old and new tax regimes: 1. Employees need to keep in mind that if they do not inform their respective companies of their preferences, the TDS on salary will be deducted on the basis of the new tax regime. 2. While the old tax regime will allow employees to claim a number of exemptions and deductions including those of travel allowances and food vouchers, the new tax regime will not allow individuals to claim many tax exemptions and deductions, except for the standard deduction of Rs 50,000 from salary income and deduction under Section 80CCD 2 for the employer’s contribution to the NPS account. 3. If the tax on income salary is deducted on the basis of the new tax regime, Form 16 will not reflect all the tax exemptions and deductions that an employee is eligible for. Thereafter, one must make manual calculations at the time of filing an ITR. 4. It is noteworthy that the old tax regime for TDS on salary allows the employee to check the breakup of tax exemptions and deductions in Form 16 which is not the case in the new tax regime. Those who want to have an easy way of calculating taxable income can opt for new tax regimes as it will help employees in lowering the tax outgo.