Income Tax Alert! Best Chance to Save Money with New Tax Regime

Employees need to declare their investment to save tax at the beginning of every financial year (April Month) to allow the employer to deduct tax at source (TDS). But Lockdowns due to Covid-19 this year is unsettling everything and it also caused a delay in investment declaration submission this year. Meanwhile, Finance Minister Nirmala Sithraman introduced a new Income tax Regime on 1st Feb 2020 and allowed people to choose one of them as their default tax regime. The New tax regime features more tax slabs and lower tax rates below an income of 10 Lakh which seems more beneficial compared to the Old tax regime.

The inclusion of a new option makes the declaration more important because if employees will not declare their choice then the employers will be not able to deduct the TDS as per the last year’s tax-saving investment declarations. The Government also made it mandatory to choose the Income-tax regime at the beginning of a financial year. It needs to be mentioned here that the March deadline have been already missed and there are chances that the employer may disable the option to denote choice after the May payroll. And as you know if someone denoted their choice once, it can’t be changed during the year. It can be only changed at the time of the Income Tax Return filing.

The Process to Choose a Tax Regime

Now the main question will arise here that How to denote your choice? and here is the process:

• First, calculate the total income without deduction and calculate deductions considering all the applicable benefits such as tax-free parts of HRA, home loan interest, standard deduction, along with 80C benefits, health insurances premium u/s 80D, voluntary contribution to Tier 1 account of NPS u/s 80CCD (1B), deduction u/s 80TTA/80TTB, donation u/s 80G, etc
• Now open the e-filing portal and find the ‘Income Tax Calculator FY 2020-21’ section
• Then get the comparative tax liabilities under both the Income Tax Regimes, you can do that by selecting the age category and providing details of Estimated Annual Income along with Exemptions / Deductions according to the Old Regime
• Compare the tax liabilities under the Old and New tax regime. And select the profitable tax regime which shows lesser TDS deduction

Read Also: Section-Based Income Tax-Saving Tips For Salaried Person

Now if you failed to denote your choice then the tax will be deducted as per the old tax regime even if it attracts more TDS deduction from your salary. And the worse news is that you can’t change it during the ongoing year. So it is important to select the Income-tax Regime with lower tax liability before due date otherwise you will end up paying extra tax because the tax rate at the old regime is higher than the new one.