Selection of Tax Regime

Rates for simplified tax regime (FY 2023-24)

The Government of India introduced Section 115BAC in the Income Tax Act  in tax year 2020-21, which allows you to opt for lower tax rates at which your salary can be taxed. The lower tax rates are specified under what is referred to as the “Simplified Tax Regime”. The below table presents the tax rates in effect for FY 2023-24 for your information.

You can choose either the “Simplified Regime” or the “Old Regime” for FY 2023-24. If you opt for lower tax rates (Simplified Regime) you will have to forego pretty much all the exemptions/losses/deductions available otherwise. For example, under the Simplified Regime, no benefits are available under Section 80C (Life insurance, etc.), Section 80D (Mediclaim), Section 80E (Interest on education loan), House Rent Allowance, Leave Travel Allowance, other allowances, Standard Deduction, losses on house property on account of home loan interest, etc. This means that you would lose almost all the tax benefits which are available by way of exemptions/deductions if you opt for lower tax rates (Simplified Regime).

In case, you wish to claim deductions/exemptions, the existing tax rates and slabs (Old Regime in the above table) will continue to apply.

How should you make the choice between the Simplified Regime and the Old Regime?

To state the obvious, you should choose that regime which minimizes your annual tax liability. That in turn depends on your gross salary and your investment declaration. Once you enter your investment declaration online, HRWorks calculates tax under both regimes and displays the same. You can then select the regime which is most beneficial (the least tax option) to you. In the screenshot below, you can see that HRWorks has calculated tax under both regimes. In the below example, you should select the "Old Regime" which is the lower tax option.

In case you choose “Simplified Regime” (higher tax) by mistake (in the above screenshot), HRWorks will end up deducting a higher tax than otherwise.

As you make changes to your declaration, you can see the income tax figures changing in the “Annual Income Tax” table (in the screenshot above).

What happens if you do not enter a declaration?

HRWorks will calculate tax on the basis of the "Simplified Regime".

The tax regime, once chosen, cannot be modified during the year

As per a circular issued by the Income Tax Department, an employee cannot change the tax regime for the year once they make a choice and inform the employer of the same. Hence, you cannot change the tax regime in subsequent declarations once you make the choice the first time. Hence, please choose the tax regime carefully. For example, in the above screenshot, if the employee, by mistake, chooses "Simplified Regime" (higher tax option) the first time, HRWorks will continue to calculate tax as per the "Simplified Regime" until the end of the year.

You need to specify the tax regime while filing your tax return with the Income Tax Department after the year ends. In your tax return, you can specify a tax regime which is different from what you have opted for in HRWorks. However, as far your declaration on HRWorks is concerned, you cannot change the tax regime during a year once you specify it for the first time in HRWorks. You can change the tax regime only in the next year.  

Please note that if you have income assessable under "Profits and Gains of Business or Profession" in addition to salary income, you cannot change the tax regime even in the subsequent years unless you cease to have income assessable under Profits and Gains of Business or Profession.