Things to Remember While Choosing NTR or OTR for Salaried

The same time of the year would be when a salaried employee would be needed to provide the investment declaration to their employer. This investment declaration is used to reduce the amount of tax deducted at source (TDS) on salary. Employees must select between the old and new tax regimes for TDS on salary this year, as in past years. However, revisions outlined in the Budget 2023 (effective April 1, 2023) have made the task more difficult this year.

The new tax regime will be the default tax regime beginning in the fiscal year 2023-24. This implies that if a person does not choose a tax regime for TDS on salary, the deduction will be made based on the income tax slabs under the new tax system. The old tax regime was the default until the fiscal year 2022-23.

Though the new tax regime has become the norm, people can still pick a regime that is more convenient for them when submitting income tax returns. As a result, any tax regime chosen today for the purpose of TDS on salary will have no influence on the tax regime chosen when submitting the tax return.

Tax expert mentioned that "If a taxpayer opts for the new tax regime for TDS on salary now but opts for the old tax regime at the time of filing next year, then he/she is likely to face some hassles at the time of filing the tax return."

Therefore, the question of what problems a person can have if the tax regime for TDS on salary is different from the regime selected at the time of ITR filing arises.

The distinction between the old and new tax regimes should be noted. Individuals were able to claim tax deductions and exemptions under the old tax regime, but not as many are available under the current one. A person may claim a basic deduction of Rs 50,000 as well as a deduction under Section 80CCD (2) of the Income-tax Act, 1961, beneath the new tax regime, starting with the current fiscal year (2023–24).

The problems one can have if the tax regime changes at the time of submitting the ITR, according to several tax professionals.

"A taxpayer will switch from new to old tax regime or vice versa only if the tax outgo is lower," as per the tax expert. Here is a look at the challenges that individuals may encounter as a result of a change in the tax regime, as well as what they can do about it.

Can a Person Claim for the Tax Exemption on HRA, LTA, etc During ITR Filing?

Tax experts mentioned that "An individual can claim tax exemption on HRA, LTA, etc if the old tax regime is chosen at the time of filing the ITR. TDS on salary is on the basis of the new tax regime due to which the Form 16 received by an employee will have details of the gross salary. While claiming tax exemptions in the ITR form, an individual needs to be careful as these needs to be manually calculated."

There would be no transparency for tax exemption claims on leave travel allowance (LTA) during ITR filing.

"In our view, the tax exemption on LTA can be claimed only if valid travel bills are submitted to the employer. The Income-tax Act is silent on whether LTA tax exemption can be claimed if bills are not submitted to the employer." a tax expert stated.

During ITR filing can a Person Claim for the Deduction U/Ss 80C to 80U?

The person is enable to claim for the deductions in which they would be qualified for sections 80C to 80U during filing the ITR. Tax expert stated that "Deductions under Section 80C to 80U can be claimed while filing ITR even if individuals opt for the old tax regime for TDS on salary but forgets to submit investment proofs."

Tax Exemption on Food Coupons Would Get Claimed During ITR?

Tax expert stated, "Tax exemption on food coupons is not available under the new tax regime. If a salaried individual switches from the new to old tax regime while filing ITR, in our view, tax exemption on food coupons cannot be claimed."

Tax experts would not come to a consensus on the same concern. The tax expert mentioned that "An individual can claim all the eligible tax exemptions and deductions if the old tax regime is chosen while filing ITR."

Please keep in mind that permitted tax exemptions and deductions are those that an individual obtains from their employer based on their Cost to Company (CTC). As a result, a person may claim tax exemption on HRA, LTA, meal coupons, and other allowances if they are paid to you by your employer.

Additional things to note

A person switches the tax regime, particularly from the new to old during ITR filing a person should maintain the documents concerned to the investments proofs and tax exemptions easier. It is due to the reason that there may be a mismatch in the ITR furnished through the person and the TDS return furnished via the employer.

Tax expert stated that "The income tax department can send you a notice asking salaried individuals to show proof of deductions and investments declared in the ITR. If an individual is unable to provide proof, the individual will have to pay an additional tax along with penalties."