New versus Old regime: Does opting for the old income tax regime for TDS on salary make ITR processing, refunds easier? – Times of India

New versus old tax regime: At the beginning of each financial year, salaried individuals must select an income tax regime for TDS (tax deducted at source) on their salary. They need to tell their employers whether they prefer the old or new tax regime, as their employer will deduct taxes from their salary according to the chosen regime’s income tax brackets.But does opting for the old tax regime lead to smoother processing of ITR (Income Tax Return) and income tax refund claims?
As per an ET report, if someone chooses the old tax regime for TDS on their salary and claims any allowed deductions, these deductions will appear on Form 16 if they provide the necessary proofs to their employer on time. However, if they choose the new tax regime, only standard deductions and Section 80CCD (2) deductions (if claimed and eligible) will be shown on Form 16.
However, some individuals may initially choose the new tax regime for TDS on salary but later decide to file their ITR under the old tax regime, as it may seem more advantageous at the time. In such cases, they’ll need to calculate their deductions themselves to reduce their tax burden. Moreover, the income tax department is more likely to ask for proof and documents for deductions claimed when they’re not reflected in Form 16 from the employer.
This issue doesn’t occur if someone switches from the old tax regime (selected at the start of the financial year for TDS on salary) to the new tax regime when filing their ITR. This is because the two main deductions allowed under the new tax regime are also permitted under the old tax regime. Hence, these deductions would still appear in Form 16 prepared by the employer under the old tax regime.
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Aarti Raote, Partner at Deloitte India, explains that if the income tax department notices any disparities between the income details, exemptions, and deductions on Form 16 compared to those declared in the income tax return, they are likely to raise questions. Additional deductions and exemptions must be supported with evidence. In many cases, during the initial processing of the ITR by the CPC (Centralised Processing Centre) of the income tax department, such claims are denied. As a result, the employee may need to file a rectification application to substantiate these additional deductions.
Shalini Jain, Tax Partner-People Advisory Services, EY India, was quoted as saying, “In case of a mismatch, the individual is prone to receiving an electronic intimation from the tax authorities, which needs to be responded to with necessary information to reconcile the tax return and the Form 16.”

Choosing tax regimes for TDS on salary: What should taxpayers do?

Raote recommends that taxpayers play it safe by selecting the old tax regime for TDS on salary, claim all eligible exemptions and deductions, and switch to the new tax regime during ITR filing if it proves more advantageous. “This will result in fewer questions from the tax department. However, this will double the administrative work for the employee in terms of submitting proofs to the employer.”
That’s because under the old tax regime, the employee needs to submit proofs to the employer, but those documents might not be necessary when filing ITR under the new tax regime.
Certainly, the ideal scenario would be if the tax regime chosen for TDS from salary at the beginning of the financial year aligns with the regime under which the ITR is expected to be filed.
Jain notes that the processing of the income tax return tends to be smoother when the information on the income tax return aligns with Form 16 in terms of income and exemptions claimed. “As long as the deductions are bonafide and calculated correctly, there is no harm in switching from new to the old tax regime while filing the tax return; responding to a mismatch intimation is only procedural,” she explains.
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Although there’s no strict rule, it’s advisable to select your income tax regime thoughtfully for TDS from salary to ensure consistency when filing your ITR. Avoiding later switches between regimes is likely to facilitate smoother ITR processing.
It’s important to remember that the new tax regime is the default option. If employees don’t inform their employers of their tax regime preference, taxes on their salary will be deducted according to the new tax regime. Additionally, most employers don’t allow changes in tax regime during the financial year. Therefore, if a salaried individual prefers the old tax regime, they must inform their employer accordingly.
Many commonly claimed deductions such as Section 80C, Section 80D, Section 80CCD (1B), as well as tax exemptions on House Rent Allowance and Leave Travel Allowance, are not available under the new tax regime. Instead, individuals can claim a standard deduction of Rs 50,000 from their salary and pension income, along with Section 80CCD (2) deduction for an employer’s contribution to the National Pension Scheme (NPS) account. In contrast, the old tax regime allows for these deductions and several others.