Income tax change: Here's your chance to increase your take-home salary as employers give this mid-year option Read on to know what employer is offering and how it can help you to increase your salary after tax
Some employers have started sending emails to their employees giving them an option again, this time in the middle of the year, to switch tax regimes for the purpose of TDS from salary. However, the option is being given only to switch from the old to the new tax regime. This means that only those employees who had opted for the old tax regime at the start of the current financial year, i.e., in April 2024, would now have another chance to switch to the new tax regime.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} State Election Results
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This is important because many changes in the Income-tax Act 1961 were announced in the July 2024 Budget. The changes announced increased the attractiveness of the new tax regime versus the old tax regime for saving income tax. Due to these changes, opting for the new tax regime would mean lower tax deduction from salary vis-a-vis the old tax regime.
Earlier, employees were informed that the option to choose between the new and old tax regimes for the purpose of TDS from salary would be given only once –at the start of the relevant financial year. Consequently, employees had chosen their preferred regimes at the start of FY2024-2025. Therefore, this second chance to choose between the two tax regimes is important for those employees who have opted for the old tax regime in April 2024 but want to switch to the new tax regime post-July Budget 2024.
Remember, the new tax regime is the default tax regime from April 2023. If the salaried employee does not inform the employer of his/her choice of tax regime by the time limit given to do so, then the employer will deduct the tax on the salary based on the new tax regime.
According to income tax laws, salaried individuals must inform their employer about their preferred tax regime in April so that TDS (Tax deducted at source) can be deducted from their salary accordingly. A salaried employee can choose either the new tax regime or the old tax regime depending on the tax deductions and exemptions they want to claim.
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What the income tax department says about TDS from salary
The Central Board of Direct Taxes (CBDT) issued a circular in April 2023 on how employers have to deduct tax from an employee’s salary following the changes made in the Income-tax Act in the February 2023 budget. Some of the changes made were: new tax regime became default tax regime, the introduction of the standard deduction to new tax regime change in income tax slabs, hike in basic exemption limit, etc. However, the circular was silent on whether an employee can switch the tax regime during the financial year in which the year salary is paid and tax is deducted.
According to chartered accountants and tax experts, it is at the employer’s discretion to allow or not to allow the employee to change his/her tax regime during the financial year. However, not many employers allow employees to change the tax regime during the financial year. Allowing employees to change their tax regimes during the year would mean more work for the employers’ finance departments to ensure that the correct tax is deducted from the employees’ salary to avoid penalty.
ET Wealth online reported earlier that changes were announced in the new tax regime in July 2024. It may also be mentioned that those who have opted for the new tax regime are likely to see an increase in their take-home pay due to changes made in the new tax regime. This would happen in case of those employees who had chosen the new tax regime and some TDS was being deducted from their salaries for FY2024-25. Employees whose salaries were below the taxable limit would remain unaffected.
Also Read: TDS of these employers will decrease after Budget 2024
It is important to note that the CBDT is yet to issue a new circular on how employers should deduct tax from an employee’s salary after the changes made in the new tax regime by the July 2024 budget.
Benefits available under the new tax regime post July 2024 Budget
Currently, a taxpayer can get the following benefits under the new tax regime that help reduce income tax payable:1. Change in the income tax slabs: The July 2024 budget revised the income tax slabs under the new tax regime. The latest income tax slabs under the new tax regime for FY 2024-25 are as follows:Income tax slabs (Rs)
Income tax rate (%)
0-3,00,000
0
3,00,001-7,00,000
5
7,00,001-10,00,000
10
10,00,001-12,00,000
15
12,00,001-15,00,000
20
15,00,001 and above
30
2. Higher standard deduction: The new tax regime now allows salaried employees to claim a standard deduction of Rs 75,000 whereas the old tax regime only allows a standard deduction of Rs 50,000.
Standard deduction is available to taxpayers with salary or pension income. Even those with family pension as a source of income can claim standard deduction. However, they can claim standard deduction of Rs 25,000 under the new tax regime and Rs 15,000 under the old tax regime.
3. Higher deduction on employer’s NPS contribution: An employee can claim a deduction on the employer’s contribution to the National Pension System (NPS) account. The latest income tax rules allow an employee to claim a deduction of 14% on the employer’s contribution to the Tier-I NPS account under the new tax regime.
However, an employee can claim a deduction of only up to 10% on the employer’s NPS contribution under the old tax regime.
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This story originally appeared on: India Times - Author:Faqs of Insurances
