Salaried Employees’ Choice of Tax Regime for FY 2024-25: What You Need to Know

By: Admin |August 10, 2024 | Categories: Income Tax News|News

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Why Salaried Employees Should Have the Option to Choose Their Tax Regime for TDS in FY 2024-25

Changes in the Tax Regime

In July 2024, the Budget introduced significant updates to the income tax laws. These changes made the new tax regime more appealing compared to the old one. Key updates include revised tax slabs, an increased standard deduction of ₹75,000, and a higher 14% deduction on the employer’s contribution to the National Pension System (NPS). These changes were implemented four months into the financial year 2024-25, complicating tax planning for salaried employees.

Impact of the New Tax Regime

By April 2024, employees had already chosen their tax regime for TDS (Tax Deducted at Source) based on the previous laws. Employers needed this information early to calculate TDS accurately. With the recent changes, some employees might now prefer the new regime. If the new regime offers lower tax liability, switching could reduce their TDS.

Trends and Popularity

The 2023 Budget had already affected tax filing trends. According to an August 2024 report, 72% of taxpayers opted for the new regime, while only 28% chose the old one. Given the July 2024 changes, more taxpayers are expected to favor the new regime this year.

Default Tax Regime

Since FY 2023-24, the new tax regime is the default. Taxpayers wishing to claim deductions like those under Section 80C or exemptions like House Rent Allowance (HRA) must opt for the old regime. Without a specified choice, employers will default to the new tax regime.

Challenges for Employees

The Central Board of Direct Taxes (CBDT) issued guidance in April 2023, but it did not address switching tax regimes during the year. Experts believe employees should be able to switch if the new regime proves more beneficial, pending further notification from the income tax department.

Need for Government Action

The government should allow employees to switch tax regimes for TDS this financial year. Although only a few may switch from the old to the new regime, those who chose the new regime are likely to continue with it. A new CBDT circular could provide the necessary clarity.

Consequences of Denied Switching

Without the option to switch, employees who chose the old regime will need to submit tax-saving proofs later in the year to adjust their TDS. If they fail to do so, they might face higher TDS. Employees can still choose the new regime when filing their ITRs in July 2025, but excess TDS might require a refund.

Conclusion

The new tax regime is now significantly more attractive. The government should allow salaried employees to switch their tax regime for TDS in FY 2024-25. This flexibility will help employees optimize their tax liabilities and ensure fairness in the tax system. The CBDT’s prompt response is crucial to address these changes effectively.

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